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 is obtained in the following cases:
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:
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 Member State 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 form for services which are taxed by the recipient under the reverse charge provisions. The new declaration form will need to be submitted on a monthly basis. In addition as from 1 January 2010 the VIES declaration form 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.
Also, as from 1 January 2011 changes came into effect in the EU and the Cyprus VAT legislation with regards to the country of taxation of cultural, artistic, sporting, scientific, educational, entertainment and similar services including services of organizers 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 January 2011 only the 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.
Changes to the VAT rate applicable for foodstuff, pharmaceutical products and vaccines and supplies in the course of catering as from 10 January 2011.
Due to termination of the derogation enjoyed up to 31 December 2010 by the Republic of Cyprus as from 10 January 2011 the following VAT rates apply:
Imposition of reduced VAT rate 5% for supplies of foodstuffs including beverages, for human consumption with the exemption of alcoholic beverages, beer, wine and soft drinks. Most of these supplies were up to 9 January 2011 subject to the zero VAT rate.
Imposition of reduced VAT rate of 5% for supplies of prepared or unprepared foodstuffs and/or beverages not accompanied with support services regardless of whether the goods are delivered to the customer.
Imposition of reduced VAT rate of 5% to supplies of medicaments used for health care, prevention of illnesses and as treatment for medical or veterinary purposes as well as vaccines used for medical or veterinary purposes. These supplies were up to 9 January 2011 subject to the zero VAT rate.
Imposition of reduced VAT rate of 9% to supplies of alcoholic beverages, beer, wine which are provided at the establishment of the provider or in the course of catering and for which the provision of support services is predominant. These supplies were up to 9 January 2011 subject to VAT at the standard VAT rate of 15%.
As from the 13th of January 2014 the VAT rate of 18% increases to 19%. The other VAT rates remain the same.
Registration
1) Compulsory registration
A trader is required to register if his taxable turnover (including zero rated):
a) At the end of any month the value of taxable supplies (including supplies that are zero rated, 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 addition as from 1 January 2011 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. No registration threshold exists for either intra-Community supply of services or from receipt of services from abroad or
d) Making distance sales from a person established in another Member State in excess of €35.000.
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 the Company and Tax Laws)
However if the Company will register Voluntary, its main disadvantage is the additional cost in having to submit VAT returns, more paperwork and more bureaucracy.
VAT rates
There are different 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 rated
Zero rated includes exports etc.
Reduced rate 5%
The reduced rate of 5% applies to:
Reduced rate 9%
The reduced rate of 9% applies to:
Standard rate 19%
The standard rate applies to any provision of goods and services in Cyprus not subject to the zero and the reduced rates.
Exemptions
Certain goods or services are exempt from VAT. They include:
Difference between zero rate and exempt supplies
The difference between zero rated 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 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.
Irrecoverable input VAT
As an exception to the general rule, VAT input cannot be recovered in a number of cases which include the following:
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 |
€15.600 |
|
Maximum limit for no compulsory registration |
€13.668,81 |
|
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 |
|
Limit for acquisitions of goods in Cyprus from other member states |
€10.251,61 |
|
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 5% interest |
|
Penalty for late submission of VIES return |
€50 for each return |
|
Penalty for late submission of corrective VIES return |
€15 for each return |
|
Continuing omission to submit the VIES return constitutes a criminal offence with a maximum penalty up to |
€850 |
|
Penalty for late submission of INTRASTAT |
€8 for each delayed working day up to 30 working days. |
|
Penalty for omission to keep books and records for a period of 7 years |
€341 |
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