VAT is imposed on the supply of goods and services in Cyprus, as well as on the acquisition of goods from the European Union (EU) and the importation of goods into Cyprus.
Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services which they receive (input tax).
If output tax in a VAT period exceeds total input tax, a payment has to be made to the state. If input tax exceeds output tax the excess input tax is carried forward as a credit and set off against future output VAT. Refund of excess input VAT can be obtained in the following cases:
- a period of three years has elapsed from the date the VAT became refundable (reduced to two years as from 1/1/2014, one year as from 1/1/2015 and eight months as from 1/1/2016)
- input VAT which cannot be set off against output VAT 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 input VAT relates to zero rated transactions
- the input VAT relates to the purchase of capital assets of the company
- the input VAT 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 input VAT relates to exempt financial and insurance services provided to non EU resident clients (services for which the right to recover the related input VAT is granted).
For intra-Community acquisition of goods (with the exception of goods subject to excise duty) the trader does not pay VAT on receipt of the goods in Cyprus but instead accounts for VAT using the acquisition accounting method. This involves a simple accounting entry in the books of the business whereby it self-charges VAT and at the same time claims it back privided it relates to supplies for which the right to recover input VAT is granted thereby creating no cost to the business.
In cases the acquisition relates to a transaction for which the right to recover input VAT is not granted, the trader must pay the VAT that corresponds to the acquisition.
As from 1 January 2010 significant changes came 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)
- Additional compliance obligation for electronic submission of the monthly VIES return for services subject to VAT in another EU MS through the reverse charge provisions.
In addition to the above, as from 1 January 2011 changes came into effect in the EU and Cypriot VAT legislation with regards to the country of taxation of cultural, artistic, sporting, scientific, educational, entertainment and similar services including services of organisers of such activities, supplied between businesses (B2B).
The above services, up to 31 December 2010 were subject to VAT in the country where those activities were physically carried out.
As from 1 January 2011, only admission to such activities is subject to VAT in the country where the activities are physically carried out. Services, other than the admission to such events, are subject to VAT in the country where the recipient of the services has established his business.
As from 1 January 2013 the long term hiring of means of transport to non taxable persons (i.e. to individuals or legal persons who are not engaged in business activities) is subject to VAT at the place where the customer is established or has his permanent address or usually resides.
However, in case the hiring refers to the hiring of a pleasure boat, the place of taxation for VAT purposes is the place where the pleasure boat is actually put at the disposal of the customer, so long as the service is provided by the suppler from his place of business or from his fixed establishement situated at the place where the pleasure boat is actually put at the disposal of the customer.
Up to 31 December 2012 the above services were subject to VAT at the place where the service provider has established his business.
The legislation provides for the following four tax rates:
- Zero rate (0%)
- Reduced rate of five per cent (5%)
- Reduced rate of eight per cent (8% up to 12 January 2014 and 9% as from 13 January 2014)
- Standard rate (15% up to 29 February 2012, 17% from 1 March 2012 up to 13 January 2013, 18% from 14 January 2013 to 12 January 2014 and 19% as from 13 January 2014)
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.
Irrecoverable input VAT
As an exception to the general rule, input VAT 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.
Registration is compulsory for businesses with (a) turnover subject to VAT in excess of €15.600 during the 12 preceding months or (b) an expected turnover subject to VAT in excess of €15.600 within the next 30 days.
Businesses with turnover of less than €15.600 or with supplies that are outside the scope of VAT but for which the right to claim the amount of the related input VAT is granted, have the option to register on a voluntary basis.
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.
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.
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 tax 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, input tax is higher than output tax, the difference is refunded or is transferred to the next VAT quarters.
Thresholds and penalties
Registration threshold (taxable supplies in Cyprus)
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)
Registration threshold for acquisition of goods in Cyprus from suppliers resident in another EU Member State
Registration threshold for intra – Community supply of services
Registration threshold for receipt of services from abroad for which the recipient must account for VAT under the reverse charge provisions
Penalty for late submission of VAT return
51 for each return
Penalty for omission to keep books and records for a period of 6 years
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 constitutes a criminal offence with a maximum penalty of
Penalty for late registration with the VAT authorities
85 per month of delay