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  • Service: Tax, Global Indirect Tax
  • Type: Regulatory update
  • Date: 6/1/2013

Cyprus: VAT essentials 

Essential information regarding VAT as it applies in Cyprus.


Scope and Rates

What supplies are liable to VAT?


Value-added tax (VAT) is due on any supply of goods or services made in Cyprus, where it is a taxable supply made by a taxable person in the course or furtherance of a business carried on by the said person. Supply includes all forms of supplies. It is not restricted to the provision of goods and services by way of sale but can equally apply to other forms of transactions.


Supply does not include anything done otherwise than for a consideration. However, certain actions carried out for no consideration are deemed to be supplies; for example the VAT Act provides that specific supplies are considered to be taxable even if made for no consideration, such as the following:


  • when goods or fixed assets owned by a taxable person are disposed of, given to a third party for the personal use of the owner, employees, or their relatives, with or without any consideration, this is considered to be a taxable supply of services
  • when a taxable person terminates its activities, VAT is accounted for on the cost price of its trading stock and fixed assets which are still under its possession at the time of de-registration from the Cyprus VAT Register (unless the value of VAT is less than EUR 342)
  • when own goods produced by the taxable person are used for personal use instead for business purpose, VAT is accounted for on the production cost.
  • gifts, of cost greater than EUR 17.09 each and forming part of a series or succession of gifts made to the same person
  • Identical samples given to the same person.

What is the standard rate of VAT?


The standard rate of VAT is 18 percent as from 14 January 2013 (previously 17 percent). It is also noted that the standard VAT rate will be further increased to 19 percent as from 13 January 2014.


Are there any reduced rates, zero rates, or exemptions?


The reduced VAT rate of 8 percent will be increased to 9 percent as from 13 January 2014.


The reduced rate of 5 percent includes certain goods and services, such as the following:


  • supply of printed books, brochures, leaflets and similar printed matter, newspapers, etc.
  • supply of foodstuff, also including beverages, for human consumption except alcoholic beverages, beer, wine and soft drinks
  • supply of liquid gas
  • supply of medicines
  • supply of contraceptives
  • children’s car seats
  • supplies of residential housing under certain conditions.

The reduced VAT rate of 8 percent includes certain goods and services, such as the following:


  • the transport of passengers and their accompanying luggage with interstate and rural taxis.
  • the transport of passengers and their accompanying luggage with tourist, excursion and interstate buses
  • hotel accommodation services
  • restaurant and catering services.

There is an extensive list of zero-rate supplies, including:


  • services related to imports and exports
  • exports
  • supplies relating to qualifying vessels and aircrafts
  • international transport.

The list of exemptions includes:


  • postal services
  • education
  • health and welfare
  • cultural services by public bodies or non-profit organizations
  • financial transactions
  • lotteries
  • importation of gold by the Central Bank
  • since 7 March 2007, fixed annual subscriptions for road services are also treated as exempt supplies (classified as insurance services) .

Note: it is not possible to recover VAT incurred in making exempt supplies, except in the case where financial, insurance and reinsurance services are provided to non-European Union (EU) persons.


What are the other local indirect taxes beside VAT?


Customs and excise duties

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Registration

Who is required to register for Cypriot VAT?


Cypriot Entities


Every person established in Cyprus who is in business and makes taxable supplies over the local VAT registration threshold of EUR 15,600 is obliged to register with the Cyprus VAT Register.


A company will be required to register for VAT:


  • at the end of any month, if taxable supplies which are made in the period of one year ending at that point have exceeded the Cyprus VAT registration threshold (EUR 15,600). (If however the person trades below the VAT registration threshold, VAT registration can still be requested on a voluntarily basis).
  • at any time, if there are reasonable grounds for believing that the value of taxable supplies in the next 30 days will exceed the VAT registration threshold of EUR 15,600.

Non – Resident Entities


The above registration rules are also applicable to non-resident entities, when making taxable supplies in Cyprus. In such cases, the non-resident entities can:


  1. appoint a representative or
  2. appoint a VAT representative or
  3. apply for local VAT registration.

In case of appointment of a representative, the Cyprus VAT authorities have nevertheless the right to also demand the appointment of a VAT representative with joint and several liabilities towards them, especially in cases of entities established outside the EU.


Distance selling


If a business is not registered for VAT in Cyprus but supplies and delivers goods from other EU Member States to non VAT registered customers in Cyprus (distance sales), and the value of those sales over a period of 12 months exceeds the statutory threshold of EUR 35,000, it is required to register and account for output VAT in Cyprus.


Are there penalties for not registering or late registration?


Yes. The relevant penalty amounts to EUR 85 for every month of the duration of the failure.


Is voluntary VAT registration possible for an overseas company?


Yes. A company can submit an application for voluntary VAT registration if it chooses Cyprus as the place for the supply of the goods. It may register with the VAT Office at any time, even before the value of the distance sales exceeds the relevant threshold of EUR 35,000.


If the application does not relate to distant selling, the overseas company can only apply to register if it makes taxable supplies in Cyprus.


If a company chooses to register before the value of the distance sales exceeds the threshold of EUR 35,000, it must follow the following steps:


  • notify the VAT authorities (of own country) of the choice to register for VAT purposes in Cyprus.
  • submit written evidence in relation to step one above
  • notify for the registration at least 30 days before commencing the first distance sale.
  • register with the Cyprus VAT office from the date of the first distance sale
  • account for VAT for every distance sale made in Cyprus
  • comply with the Cyprus VAT legislation.

Are there any simplifications that could avoid the need for an overseas company to register for VAT?


If a business supplies goods or services in Cyprus in excess of the VAT registration threshold, then it is required to register and account for Cyprus VAT. However, it is possible to avoid registering and accounting for Cyprus VAT when making certain supplies.


In the following examples the obligation to account for the VAT due can be shifted to the customers provided that they are registered for VAT in Cyprus.


Triangulation


If a business is an intermediate supplier to a Cyprus buyer of goods which are purchased from a business in another EU Member State and are delivered from there to Cyprus, VAT due can be accounted for by the Cyprus customer (see section Invoices).


Call-Off Stock


If call-off stocks are kept for a number of clients, registration is necessary. If the call-off stocks are kept by a particular client on his/her premises to be used only by him/her, then the client may account for the VAT and no registration is required.


Capital Items


The sale of capital items is not included in the calculation of turnover for Cyprus VAT registration.


Supply and Install


If the supply and installation is provided to a VAT registered person in Cyprus, then the recipient can account for Cyprus VAT under the reverse charge mechanism.


Reverse Charge Services


These services are covered in more detail in the International Supply of Goods and Services section.


Bear in mind that these provisions are subject to particular requirements.


Does an overseas company need to appoint a fiscal representative?


A fiscal representative is only required for non-EU persons which carry on business in Cyprus. Otherwise, the company may:


  • appoint a representative (not jointly and severally liable for any VAT debts of the principal)
  • appoint a VAT representative (jointly and severally liable for any VAT debts of the principal) or
  • Fulfill its VAT obligations itself.

Appointment of a VAT representative


The VAT representative will be jointly and severally liable for any VAT debts of the company.


Where a person is appointed as a VAT representative on behalf of the principal, the VAT representative must – within 30 days from the date on which his/her appointment became effective – notify the VAT Office of his/her appointment on a prescribed form and the notification will contain all the particulars (including the declaration) set out in that form.


The notification referred to in the previous paragraph must be accompanied by evidence of the VAT representative’s appointment.


Where a person is appointed as a VAT representative, the VAT Office will register the name of that VAT representative against the name of his/her principal in the VAT register. A VAT representative who is registered – must within 30 days of any change to the name, constitution or ownership of his/her business or of his/her ceasing to be the VAT representative of the principal or of any other event occurring which may necessitate the variation of the VAT register – notify the VAT Office in writing of such change, cessation, or event and furnish him/her with full particulars thereof.


KPMG in Cyprus cannot act as a VAT/fiscal representative. However, the VAT team of KPMG in Cyprus can assist with the VAT registration and the completion of VAT returns. Please contact the Cyprus indirect tax knowledge manager for further details.

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VAT grouping

Is VAT grouping possible?


Yes, provided certain criteria are satisfied. The following conditions must be met:


  • each of the members of the group must be established or maintain a fixed establishment in Cyprus
  • the members of the group are closely connected with financial, economic and organizational bonds:
    • Financial bonds exist where:
      • a legal person controls each one of the other legal persons
      • a legal or physical person controls all of the other legal persons
      • two or more physical persons trading as a partnership, control all of the legal persons
    • Economic bonds exist where:
      • the main economic activity of the group members is of the same nature or
      • the economic activities of the group members supplement one another or are inter-dependent or
      • one of the members of the group performs economic activities which either all or an essential part is for the benefit of the rest of the members of the group.
    • Organizational bonds exist where a common managerial structure exists, even to some extent.

Can an overseas company be included in a VAT group?


Unless an overseas company maintains an establishment in Cyprus or its management and control are exercised from Cyprus, it cannot be included in a Cyprus VAT group.

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Returns

How frequently are VAT returns submitted?


Most VAT registered persons are required to submit VAT returns on a quarterly basis.


However, if the business is in a repayment position because the input tax exceeds the output tax, it may opt to submit monthly VAT returns which will could improve the cash flow.


VAT returns can be submitted electronically through the TaxisNet system.


Are there any other returns that need to be submitted?


VIES (Recapitulative Statements)


If a business supplies goods and/or services which are shipped and/or supplied from Cyprus to VAT registered business in other EU Member States, or is involved in triangular transactions and wishes to zero -rate the supply (see section International Supplies of Goods and Services), it is required to complete Recapitulative Statements (VIES). Since 1 January 2010 recapitulative statements are completed on a monthly basis. (Prior to that date Recapitulative Statements were submitted on a quarterly basis).


The penalty for failing to timely submit VIES statements is EUR 50 per month with maximum period of three months and thereafter legal action may be undertaken. The court may impose a penalty of up to EUR 850.


In case corrective VIES statements are not timely submitted, the relevant penalty is EUR 15 per statement. (The correction VIES statements must be submitted during the month following the month to which the VIES statement relates).


Access the VIES reporting and corrective documents below:



VIES statements can be submitted electronically through the TaxisNet system.


Intrastat Supplementary Declarations


VAT registered businesses with a value of dispatches or arrivals to or from other EU Member States, which exceed the thresholds set out by the Cyprus VAT Office (see below) must complete Intrastat Supplementary Declarations on a monthly basis.


Intrastat returns must be submitted by the 10th day of the month following the reference period, which is the calendar month. Intrastat forms can be submitted electronically through the TaxisNet system.


The thresholds as of 1 January 2012 are shown in the table below: Thresholds Arrivals
(EUR)
Dispatches
(EUR)
Simulation threshold 100,000 55,000
Specific threshold 1,850,000 5,200,000

If a business receives a purchase invoice in foreign currency, which exchange rate should be used for VAT reporting purposes? (e.g. central bank’s exchange rate applicable on the date of the invoice)


The business should use the exchange rates published by the Cyprus Customs and Excise Department.

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VAT recovery

Can a business recover VAT if it is not registered?


Yes. A trader established in another EU Member State can make a claim under the EU Refund Directive (Directive 2008/9/EEC).


A non-EU business can recover input VAT under the 13th EC Directive only if it is registered in Israel or Switzerland.


Under the Directive 2008/9/EEC there are strict time limits for making claims.


Does your country apply reciprocity rules for reclaims submitted by non-established businesses?


Reciprocity rules apply only for Switzerland and Israel. The procedure and conditions applicable for the recovery of VAT paid in Cyprus by traders belonging in these two countries is the one described under the 13th EC Directive.


Are there any items that businesses cannot recover VAT on?


Yes. There are certain items that businesses cannot recover VAT on. For example:


  • exempt supplies: where VAT relates to both taxable and exempt supplies, an apportionment is needed
  • non-business (including private) activities: where VAT relates to both business and non-business activities, an apportionment is required
  • motor cars (excluding commercial vehicles): with certain exceptions (taxis and cars for hire) businesses cannot recover VAT on the purchase of a saloon car; similarly businesses cannot recover VAT on any car rentals
  • business entertainment: VAT is not generally recoverable on business entertainment costs but can be recovered on staff entertainment and subsistence costs
  • purchases falling within the Tour Operators' Margin Scheme: the VAT on goods and services, which fall under this scheme, cannot be reclaimed
  • goods sold under one of the margin schemes for second hand goods: there is a number of schemes which provide for VAT to be accounted for on profit margin, but do not allow VAT recovery on the purchase of those goods.

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International Supplies of Goods and Services

How are exports of goods and services treated?


Goods


If a company sells goods to a customer who is registered for VAT purposes in another EU Member State and the sale involves the removal of those goods from Cyprus to that Member State, then it does not need to charge VAT and may zero rate the supply as an intra-EU dispatch. It must obtain the customer's VAT number and quote it on the invoice. It should also obtain evidence of the goods' removal from Cyprus.


If a company sells goods to a customer who is not registered for VAT purposes in another EU Member State, it will have to charge Cyprus VAT. If the sales exceed a certain threshold set by the customer's Member State it may have to register in that Member State (Distance Selling).


If a company export goods to a customer (business or private) outside of the EU, then it does not need to charge VAT but, as for intra-Community sales, itshould make sure that in all cases to keep proof of dispatch/delivery to support the zero rating.


Services


To business customers: under the basic rule the place of supply of B2B services is where the customer is established.


With reference to supplies of services to taxable persons established within the EU, a valid VAT registration number must be provided in advance for the zero VAT rate to apply.


To non business customers: under the basic rule the place of supply is where the supplier is established.


However the place of supply to non EU recipients is where the recipient belongs for the following services:


  • transfers and assignments of copyrights, patents, licenses, trademarks, and similar rights
  • advertising services
  • services of consultants, engineers, consultancy bureaus, lawyers, accountants, and other similar services, as well as data processing and the supplying of information
  • obligations to refrain from pursuing or exercising, in whole or in part, a business activity or a right referred to above
  • banking, financial and insurance transactions including reinsurance
  • the supply of staff
  • the hiring out of movable tangible property with the exception of all forms of transport
  • the provision of access to, and of transport or transmission through, natural gas and electricity distribution systems and the provision of other directly linked services
  • telecommunications
  • radio and television broadcasting services
  • electronically supplied services.

Exceptions to the above rules include:


  • services relating to immovable property – where the property is located
  • services relating to passenger transport – where the transport takes place
  • short-term hire of means of transport – where put at the disposal of the customer
  • admission and services ancillary to admission in relation to cultural, artistic, sporting, scientific, educational, entertainment, or similar services- where the services are physically carried out
  • restaurant and catering services – where physically carried out
  • restaurant and catering services on board ships, aircraft and trains – point of departure if on intra-Community passenger transport.

For supplies to non business customers only, the exceptions are:


  • ancillary transport activities such as loading, handling, and similar activities - POS where carried out
  • valuations of and work on movable tangible property - taxable where carried out
  • supply of non intra-Community transport of goods - taxable proportionate to distance covered
  • supply of intra-Community supply of goods – taxable place of departure
  • supplies of electronic services by non EU suppliers – taxable where customer established.

Use and Enjoyment


Cyprus applies use and enjoyment to a number of services including freight transport services.


How are goods dealt with on importation?


When goods are imported in Cyprus from outside the EU, import VAT and customs duties may be due. VAT and duties must be paid or secured before the goods are released from customs' control. Import VAT paid upon importation can be deducted as input VAT subject to the normal recovery rules.


How are services which are brought in from abroad treated for VAT purposes?


If a company receives certain services from outside Cyprus, it will be required to apply the reverse charge mechanism. This is intended to take away any VAT advantage of buying those services from outside Cyprus.


Under the reverse charge mechanism, the company is required to account for a notional amount of VAT as output tax on its VAT return covering the period in which the services were performed or it made the payment and it may recover this VAT as input tax on the same return provided that it makes taxable supplies of goods and/or services.


If the company is able to recover all of its VAT, the reverse charge mechanism has no cost effect, being a VAT compliance matter only. However, if it is partly exempt there is likely to be a VAT cost depending on the level of recovery allowed under the partial exemption rules.


The reverse charge mechanism applies to all services received from non-resident service providers that fall under the basic rule regarding the place of supply of services.


There are certain exceptions to the above rule, which were mentioned previously. Cyprus also applies an extension to the reverse charge mechanism for services which are taxable in Cyprus under some of the exception rules where the services are supplied by non established supplier to a local VAT registered person.

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Invoices

Is a business required to issue tax invoices?


Yes, if taxable supplies are made to other taxable persons. Where taxable supplies are made to non-taxable persons, businesses are required to issue legal receipts.


What do businesses have to show on a tax invoice?


A tax invoice should contain the following data:


  • an identifying number
  • the time of supply
  • the date of issue of the invoice
  • the name, address and VAT registration number of the supplier
  • the name and address of the customer
  • description sufficient to identify the goods or services supplied
  • for each description, the quantity of goods or the extent of services as well as the VAT rate and the amount payable, excluding VAT
  • the total gross amount payable, excluding VAT
  • the percentage of any cash discount offered
  • the total amount of VAT chargeable, expressed in Euros
  • the name, address and VAT registration number of the VAT representative (where applicable).

If an invoice is issued to a customer established outside Cyprus but within the EU the following additional data must be included:


  • the letters CY as a prefix to the VAT registration number of the supplier
  • the VAT registration number of the customer together with country prefix
  • the gross amount payable, excluding VAT
  • if the supply is in relation to a new means of transport, sufficient description to identify the new means of transport
  • for each description, the quantity of goods or the extent of services and where a VAT rate is applicable, the VAT rate together with the amount payable, excluding VAT, as well as the VAT rate and the amount payable, excluding VAT.

Can businesses issue invoices electronically?


Yes, under certain conditions.


It is noted that at the time of issue of this update for 2013, Cyprus has not yet implement the new invoicing directive.


Is it possible to operate self-billing?


Yes, under certain conditions.


Can a business issue VAT invoices denominated in a foreign currency?


Yes, provided the amount of any Cyprus VAT due is shown in Euros.

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Transfers of Business

Is there a relief from VAT for the sale of a business as a going concern?


Yes. If a business is sold as a going concern, no output VAT is accounted for provided certain conditions are satisfied.

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Options to Tax

Are there any options to tax transactions?


No.

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Head Office and Branch transactions

How are transactions between head office and branch treated?


Transactions between head office and branch are not subject to VAT if they operate under the same VAT number and within the same VAT territory.


Furthermore, if the head office and the branch operate in different jurisdiction the reverse charge mechanism does not apply in cases where an overseas head office charges its Cyprus branch or vice versa.

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Bad Debt

Are businesses able to claim relief for bad debts?


Yes. If more than 12 months have passed from the due date of payment or the date the invoice was issued, then businesses may apply to reclaim VAT on the unpaid element through their VAT return.


If the supplier subsequently receives payment for the outstanding amount, it will have to pay back the VAT element to the VAT authorities.

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Anti-Avoidance

Is there a general anti-avoidance provision under VAT law?


There are specific anti-avoidance provisions applicable between connected parties. These include:


  • ability of the VAT Commissioner to issue a directive where a business is artificially split into smaller separate units thereby avoiding VAT registration because one or more units fall below the VAT registration limits and
  • where the parties are closely bound to one another by financial, economic, and organizational links, the ability to apply an open market value on taxable transactions where the recipient is a related party unable to recover all or part of the VAT as input tax.

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Penalty Regime

What is the penalty and interest regime like?


Where the VAT authorities identify a mistake, a flat monetary penalty equal to 10 percent of the VAT amount due is imposed.


Furthermore, annual interest equal to 5 percent is also imposed and is calculated on the total amount of the VAT due plus the 10 percent flat penalty mentioned above. Annual interest is being calculated from the first day of the month following the month during which the relevant obligation for settlement of the VAT due arose.

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Tax authorities

Tax audits


How often do tax audits take place?


It depends, however in general VAT audits are always undertaken by the Cyprus VAT authorities where claims for cash refund of VAT are made.


Are there audits done electronically in your country (e-audit)? If so, what system is in use?


Electronic VAT audits are not yet a common practice in Cyprus.


Advance rulings and decisions from the tax authority


Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?


Yes, businesses can obtain formal rulings from the Cyprus VAT authorities.


Are rulings and decisions issued by the tax authorities publicly available in your country?


No, rulings requested from individual taxpayers are not publically available in Cyprus. The VAT authorities issue circulars on certain topics which are publically available.

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Miscellaneous

In your country, are there unique specific indirect tax rules (regimes) that differ from standard indirect tax rules in other jurisdictions?


Recently Cyprus adopted a special scheme covering lease of pleasure boats/yachts as well as reverse charge in relation to importation of aircrafts in Cyprus (subject to conditions). Also, recently Cyprus introduced local reverse charge in relation to supply of services and services with goods in the construction industry.


Are there indirect tax incentives available in your country (e.g. reduced rates, tax holidays)?


There is a special scheme covering lease of pleasure boats/yachts; reverse charge on importation of aircrafts into Cyprus (subject to conditions); 5 percent VAT on the purchase of residential properties used as a main place of residency (subject to conditions).

 

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