Value Added Tax

Value Added Tax (VAT) is an indirect tax levied on the provision of goods and services in Cyprus, on the acquisition of goods from the European Union and the importation of goods into Cyprus and also on goods imported into the Cyprus from a place outside the member states (from a third country – VAT is paid on the importation of the goods).
A taxable person may be an incorporated business (a company), or an unincorporated business (sole trader or partnership).
A taxable person is required to charge VAT on his taxable supplies (VAT output) and deduct any tax allowable paid on taxable supplies (VAT input) of goods or services received and accounts for the balances to the VAT services.If VAT output in a VAT period exceeds total VAT input a payment has to be made to the VAT authorities. If VAT input exceeds VAT output the excess VAT input is carried forward as a credit and set off against future VAT output. Refund of excess VAT input be obtained in the following cases:
  • a period of three years has elapsed from the date the VAT became refundable
  • VAT input  which cannot be set off against VAT output until the last VAT period of the year which follows the year in which the VAT period in which the credit was created falls
  • the VAT input relates to zero rated transactions
  • the VAT input relates to the purchase of capital assets of the company
  • the VAT input relates to transactions which are outside the scope of VAT but would have been subject to VAT had they been carried out within Cyprus
  • the  VAT input relates to exempt financial and insurance services provided to non EU resident clients (services for which the right to recover the related VAT input  is granted).
For intra-Community acquisition of goods (except goods subject to excise duty) the trader does not pay VAT on receipt of the goods in Cyprus but instead he accounts for VAT using the acquisition accounting method (reverse charge method).
This involves a simple accounting entry in the books of the business whereby he self-charges VAT and at the same time claims it back if it relates to taxable supplies thereby creating no cost to the business.
In cases where the acquisition relates to an exempt transaction, the trader must pay the VAT that corresponds to the acquisition.
As from 1 January 2010 significant changes come into effect in the EU and Cyprus VAT legislation in the following areas:
  • Changes in the country of taxation of services provided between businesses established in two different EU Member States (B2B)
  • Changes in the country of taxation of services, supplied to consumers (B2C)
  • Changes in the time of supply of services for which VAT is due by the recipient
  • Procedure for refund of VAT paid in another Member State (MS).
As a result of the above changes, additional compliance obligations arise as from 1 January 2010 for Cyprus resident businesses supplying services to businesses established in another EU MS for which the recipient is liable to account for VAT under the reverse charge provisions.
Such businesses will be required to complete and submit a VIES declaration for services which are taxed by the recipient under the reverse charge provisions. The new declaration will need to be submitted on a monthly basis. In addition as from 1 January 2010 the VIES declaration for intra-Community supplies of goods must also be submitted on a monthly basis [instead of a quarterly basis]. Submission of the VIES return will only be possible electronically.
1) Compulsory registration
A trader is required to register if his taxable turnover (including zero rated) when:
a)     at the end of any month the value of taxable supplies (including supplies that are zero rates, reduced rates and/or standard rated for the 12 months then ended) exceeds €15.600 or
b)    at any time there are reasonable grounds to believe that the value of taxable supplies in the next 30 days from that point in time will exceed €15.600.
c)     An obligation for registration also arises for businesses which make acquisition of goods from other EU Member States in excess of €10.251,61 during any calendar year. In addition as from 1 January 2010 an obligation for VAT registration arises for businesses engaged in the supply of intra-community services for which the recipient must account for VAT under the reverse charge provisions. Furthermore an obligation for VAT registration arises for businesses carrying out economic activities from the receipt of services from abroad for which an obligation to account for Cyprus VAT under the reverse charge provision exists subject to the registration threshold of €15.600 per any consecutive 12 month period. No registration threshold exists for the provision of intra-community supplies of services.
d)    Making distance sales from a person established in another member state in excess of €35.000 (thirty five thousand euros)
Exempted products and services, and disposals of items of capital nature are not taken into account for determining annual turnover for registration purposes. Registration is effected by completing the appropriate application form.
Under the Compulsory registration a person who is liable to registration must notify the VAT Commissioner-
a)     In the case of “a” above within 30days after the end of the month in which the taxable turnover in the previous 12 months exceeds the statutory limit €15.600,
b)    In the case “b” above by the end of the 30 day period for which it is believed the statutory limit will be exceeded the statutory limit €15.600.
2) Voluntary registration
A person not liable to be registered is entitled to be registered voluntary in the following cases:
a)     Actual traders. A trader that have taxable supplies but not exceeding the provisions €15.600.
b)    Intending traders. A trader who carries on a business with intention to make taxable supplies in the future.
c)     Businesses making transactions outside Cyprus can also register voluntarily. This is allowed provided the supplies (or intended supplies) would have been taxable if carried out in Cyprus. This business must however have a business establishment in Cyprus, or its usual place of residence is in Cyprus. For Companies means management and control.
Benefits of registration
a) The ability to recover VAT input ,
b) gives credibility to outsiders, as a registration suggests that the business has taxable turnover in excess of threshold €15.600 and
c) the business is disciplined in keeping proper books and records (which is anyway needed as per Company and Tax law)
However if the Company will be register Voluntary will have as main disadvantage  the additional cost for the business in having to submit VAT returns, more paperwork and more bureaucracy.
VAT rates
There are four tax rates as per the VAT legislation:
  • Zero rate (0%)
  • Reduced rate of five per cent (5%)
  • Reduced rate of nine per cent (9%)
  • Standard rate of nineteen per cent (19%)
Zero rate
Zero rated supplies include the provision of food supplies, medicines, exports etc.
Reduced rate 5%
The reduced rate of 5% applies to:
  • Imposition of the reduced rate of 5% on the acquisition and/or construction of residences for use as the primary and permanent place of residence. The 5% rate applies if certain criteria are met.
  • he supply of fertilizers
  • The supply of insecticides
  • The supply of raticides
  • The supply of fungicides
  • The supply of foodstuff for animal
  • The supply of seeds
  • The supply of live animals used for the preparation of food
  • The supply of non-bottled water
  • Books, newspapers and magazines
  • Sundry goods used by disabled persons
  • Gas irrespective of packaging
  • Ice-creams, ice-yoghourts, water-ice and similar products
  • Salted or spicy products made with cereal or potatoes
  • Salted or roasted or spicy nuts
  • Funeral services
  • Transportation of passengers and their accompanying luggage with urban and rural buses
  • The letting of camping sites and caravan parks
  • Bottled water, ready-made drinks, juices (excluding soft drinks, alcoholic drinks, beer and wine)
  • The supply of vaccines for medical and veterinary (with certain exemptions)
  • Entry fees to theaters, circus, festivals, luna parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and related places
  • Entry fees at sports events and fees for using athletic centers
  • Hairdressing services
  • Repair and maintenance of private households after three years of first residence
  • Supplies in the course of catering by school canteens
Reduced rate 9%
The reduced rate of 9% applies to:
  • All restaurant services and any similar catering services (excluding the supply of alcoholic drinks, beer and wine).
  • Accommodation in hotels, tourist lodgments and any other similar lodgments including the provision of holiday lodgments.
  • Transportation of passengers and their accompanying luggage within the Republic using urban, intercity and rural taxis and by tourist and intercity buses.
  • Movement of passengers in inland waters and their accompanying luggage.
Standard rate
The standard rate applies to any provision of goods and services in Cyprus not subject to the zero and the reduced rates.
Certain goods or services are exempt from VAT. They include:
  • the letting of immovable property (the letting of immovable property with the right of purchase is not exempt)
  • most banking and financial services and insurance services
  • most hospital, medical and dental care services
  • certain cultural educational and sports activities;
  • supplies of real estate (except supply of new buildings before their first use) including supplies of land and of second-hand buildings
  • postal services provided by the national postal authority
  • lottery tickets and betting coupons for football and horse racing
  • management services provided to mutual funds
Difference between zero rate and exempt supplies
The difference between zero rate and exempt supplies is that businesses that make exempt supplies are not entitled to recover the VAT charged on their purchases, expenses or imports, whereas zero rated businesses can.
Grant for acquisition of first residence
The grant is given to entitled persons for the construction, or purchase or transfer of a new house which is used as the main and primary place of residence.
The application for the grant is submitted to the Ministry of Finance, in relation to houses for which an application has been submitted for the issue of a planning permission after the 1 May 2004. Persons entitled to this grant are individuals who are citizens of the Republic of Cyprus or of any other EU Member State, who reside permanently in the Republic of Cyprus and who have reached the age of 18 at the time of application. The grant is given for houses whose total covered area does not exceed250 m².
The level of the grant is limited to 130 m² (extended for families with four and more children) and depends on the type of the property and on whether the house was constructed or purchased. The relevant legislation provides that the level of the grant will be adjusted annually for the increase in the Retail Price Index.
Irrecoverable input VAT
As an exception to the general rule, VAT input cannot be recovered in a number of cases which include the following:
  • acquisitions used for making exempt supplies;
  • purchase, import or hire of saloon cars;
  • entertainment and hospitality expenses (except those relating to employees and directors);
  • housing expenses of directors.
VAT declaration - Payment/return of VAT
VAT returns must be submitted quarterly and the payment of the VAT must be made by the 10th day of the second month that follows the month in which the VAT period ends.
VAT registered persons have the right to request for a different filing period. Approval of the VAT authorities is required. The VAT Commissioner also has the right to request from a taxable person to file his VAT returns for a different period.
Where in a quarter VAT input tax higher than VAT output, the difference is refunded or is transferred to the next Vat quarters.
Limits, penalties and other charges
Limit for registration
Maximum limit for no compulsory registration
Registration threshold for distance sales (sale of goods to persons not subject to VAT registration in Cyprus, by suppliers resident in another EU Member State)
Limit for acquisitions of goods in Cyprus from other member states
Registration threshold for intra-community supply of services
No threshold
Registration threshold for receipt of services from abroad for which the recipient must account for VAT under the reverse charge provisions
Penalty for late registration with the VAT authorities
For every month of non registration €85
Penalty for late de-registration with the VAT authorities
An one-off penalty of €85
Penalty for late submission of a VAT return
An one-off penalty of €51 for each return
Delayed payment of VAT due
10% penalty on amount due, plus 8% interest
Penalty for late submission of VIES return
€50 for each return
Penalty for late submission of corrective VIES return
€15 for each return
Omission to submit the VIES return for a period of over 3 months constitutes a criminal offence with a maximum penalty of
Omission to submit the VIES return constitutes a criminal offence with a maximum penalty of
Penalty for late submission of INTRASTAT
€8 for each delayed working day up to 30 working gays.
Penalty for omission to keep books and records for a period of 6 years