About (Value Added Tax) VAT in Cyprus
Only businesses that are registered for VAT can charge VAT, when registered VAT is added on all taxable sales (output tax) supplied in Cyprus and to non-VAT registered parties within the EU.
- VAT applied to sales invoices is referred to as “output tax”.
- VAT applied to purchase invoices is referred to as “input tax”.
- VAT must be reported every 3 months
|Thresholds and Penalties||Amount|
|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 purchase of goods in Cyprus from suppliers resident in another EU country||€10.251,61|
|Penalty for late submission of VAT return||€51|
|Penalty for failure to keep accounting records||€341|
|Penalty for late registration with the VAT authorities||€85 per month of delay|
Cyprus VAT Information Exchange System (VIES)
VIES is the system used by EU authoriteis to monitor inter community trade of services and goods.
Under the system intra-Community supplies of goods are exempt from VAT in the Member State of despatch when they are made to a taxable person in another Member State who will account for the VAT on arrival.
Therefore any taxable person making such supplies must be able to check quickly and easily that their customers in another Member State are taxable persons and do hold a valid VAT identification number.
For that purpose, inter alia, each tax administration maintains an electronic database containing the VAT registration data of its traders. Such information includes the VAT identification number, the date of issue, the trader’s name, the trader’s address and, where applicable, the date of cessation of validity of a VAT number.
In Cyprus registration for VIES is required whenever tarde is conducted with client within the community. Reporting is required by the 15th of every month, for the previous month.
When output tax in a VAT period is greater than the 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 or can be refunded in the following cases:
- 3 three years has elapsed from when the VAT became refundable
- When the refundable amount cannot be set off against output VAT until the 4th VAT period of the year following a year in which the VAT period in which the credit was created falls
- The input VAT relates to sales outside Cyprus but would have been subject to VAT had they been carried out within Cyprus
- 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 exempt services provided to non EU resident
For goods purchased from within the EU but outside Cyprus, the business does not pay VAT on receipt of the goods but will account for VAT using the purchase accounting 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 purchase relates to an exempt transaction, the business must pay the VAT that corresponds to the purchase.
VAT Rates in Cyprus:
- Standard rate: 19%
- Reduced rates: 9%; 5%; 0%
- Export of goods to non EU countries and Intra-community supplies of goods
- Foodstuffs (except those taxed at 5% or 19%)
- Supplies of medicine falling within codes CN30.03 and CN30.04 and CN30.02
- Hotel accommodation
- Funeral services
- Road sweeping, refuse collection and recycling
- Services provided by; writers; artists and composers
- Supply of fertilizers; animal feeding stuffs; seeds
- Supply of live animals for human consumption
- Books, magazines and newspapers
- Non-bottled water;
- Transport of passengers and luggage by bus
- Camping caravan parks
- Various goods for the use of handicapped persons
- Medicines and vaccines; Contraceptives; Women’s sanitary products; medical equipment when intended for the exclusive personal use of disabled persons
- Medical services (medical examinations or surgeries of cosmetic nature are not included);
- Ice-cream, yogurt ice-cream and similar products as well as certain salted or spicy products made from cereal, salted or spicy products made from potato and dry roasted or spicy nuts which are used for human consumption;
- Supply of food in the form of catering services from school canteens
- Services related to the renovation of property (when lived in for more than 3 years) which is primary residence; construction; plumbers, electricians, carpenters and oil painters. When the cost of materials exceeds 50% of the total value, VAT shall be charged at 19% on the value of the materials and the reduced rate of 5% on the value of service
- Hair salon services
- Confectionery items; bottled water; manufactured beverages; juice drinks (except those taxed at the standard VAT rate)
- Food ingredients which are used in the preparation of foodstuffs and food supplements and foodstuffs substitutes
- Admission to cultural sporting and certain entertainment events and facilities
Reduced rate of 9%
- Transportation of passengers and luggage by taxi or sea
- Restaurant services and the supply of food (not the supply of alcoholic drinks)
- Hotel accommodation
Exemptions (The following goods or services are exempt from VAT)
- Letting of property (the letting of immovable property with the right of purchase is not exempt)
- Banking and financial services and insurance services (with some exceptions)
- Hospital, medical and dental care services (with some exceptions)
- Postal services provided by the national postal authority
- Management services provided to mutual funds
The difference between Zero rated and exempt rated supplies is that businesses that make exempt supplies are not able to recover the input tax.
Additionally; as an exception to the general rule, input VAT cannot be recovered in a number of cases which include; Purchase or hire of private cars and; Entertainment expenses other than those for employees and directors.