The Value Added Tax (VAT) is a tax added on the supply of goods and provision of services in Cyprus, as well as on the acquisition of goods from the European Union (EU) and the importation of goods into Cyprus.

All supplies within the scope of Cyprus VAT are either TAXABLE or EXEMPT.

TAXABLE SUPPLIES

The standard rate used to be 15% up to 29/02/2012, 17% from 01/03/2012 up to 13/01/2013, 18% from 14/01/2013 to 12/01/2014

The reduced rate used to be 8% up to 12/01/2014

 A zero-rated supply is a taxable supply but charged at a VAT rate of 0%.

Whilst input tax incurred in the making of zero-rated supplies can be claimed, input tax used to make exempt supplies cannot be claimed as a deduction. 

Input tax incurred in making the above taxable supplies can be claimed.

EXEMPT SUPPLIES

An exempt supply is a supply which is not subject to VAT.

Input tax incurred in making the above exempt supplies cannot be claimed.

Business to Business (B2B) Transactions

VAT registered persons charge VAT when they supply goods or provide services (output tax) and are being charged VAT on goods and services they receive (input tax).

Given the fact that all business must add a profit margin on their sales, the total output tax in most cases exceeds the total input tax and as a result a payment has to be made to the state.

Business to Consumer (B2C) Transactions

At the end of the day VAT is absorbed by the Consumers (the more they spent, the more tax they pay). The VAT revenues are being used towards the Government’s policy of ensuring sound public finances and the well being of society.

Registration is compulsory for businesses with (a) turnover subject to VAT in excess of €15.600 during the 12 preceding months or (b) 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 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.

As from 19 February 2013 taxpayers who make a claim for VAT refund will be entitled to repayment of the principal amounts together with interest (currently set at 4,75% p.a.), in the event that the repayment is delayed for a period exceeding four months from the date of the submission of the claim.

The grace period for the VAT Authorities to repay the refundable amounts is extended by four months (i.e. eight months in total) in the event that the Commissioner is carrying out an investigation in relation to the submitted claim.

VAT Registered persons have the benefit of claiming the VAT they have paid in case where the input vat is higher than the output vat.

The VAT refund is usually given in the following cases:

  • A period of 3 years has elapsed from the date the VAT became refundable
  • VAT input cannot be offset against the 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 Capital Expenditure (Acquisition of Fixed Assets)

Certain goods or services are exempt from VAT such as:

  • 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

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, provided 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 the 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
  • Additional compliance obligation for electronic submission of the monthly VIES return for services subject to VAT in another EU Member State 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).

Up to 31 December 2010 the above services, 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 boats, 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 supplier from his place of business or from his fixed establishment 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 reduced rate of 5% applies to contracts that have been concluded from 1 October 2011 onwards provided they relate to the acquisition and/or construction of residences to be used as the primary and permanent place of residence for the next 10 years.

For contracts concluded up to 30 September 2011 for the acquisition and/or construction of residences for use as the primary and permanent place of residence, the eligible person must apply for a grant.

The reduced rate of 5% applies for the first 200 square meters of residences of total covered area of up to 275 square meters. In the case of families with more than 3 children the allowable total covered area increases by 15 square meters per additional child beyond the three children.

The reduced rate is imposed only after obtaining a certified confirmation from the VAT Commissioner.

The eligible person must submit an application on a special form, issued by the VAT Commissioner, which will state that the house will be used as the primary and permanent place of residence. The applicant must attach a number of documents supporting the ownership rights on the property and evidencing the fact that the property will be used as the primary and permanent place of residence. The application must be filed prior to the actual delivery of the residence to the eligible person.

As from 8 June 2012 eligible persons include residents of non EU Member States, provided that the residence will be used as their primary and permanent place of residence in the Republic.

The documents supporting the ownership of the property must be submitted together with the application. The documents supporting the fact that the residence will be used as the primary and permanent place residence (copy of telephone, water supply or electricity bill or of municipal taxes) must be submitted within six months from the date on which the eligible person acquires possession of the residence.

A person who ceases to use the residence as his primary and permanent place of residence before the lapse of the 10 year period must notify the VAT Commissioner, within thirty days of ceasing to use the residence, and pay the difference resulting from the application of the reduced and the standard rate of VAT attributable to the remaining period of 10 years for which the property will not be used as the main and primary place of residence.

Persons who make a false statement to benefit from the reduced rate are required by law to pay the difference of the additional VAT due. Furthermore, the legislation provides that such persons are guilty of a criminal offence and, upon conviction, are liable to a fine, not exceeding twice the amount of the VAT due, or imprisonment up to 3 years or may be subject to both sentences.

The grant applies for contracts concluded up to 30 September 2011.

The grant is given to eligible persons for the construction, or purchase or transfer of a new residence 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 residences 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 residences whose total covered area does not exceed
250 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.

Registration threshold (taxable supplies in Cyprus)€15,600
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)€35,000
Registration threshold for acquisition of goods in Cyprus from suppliers resident in another EU Member States€10,252
Registration threshold for intra-community supply of servicesno threshold
Registration threshold for receipt of services from abroad for which the recipient must account for VAT under the reverse charge provisions€15,600
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€341
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€850
Penalty for late registration with the VAT authorities€85 per month of delay