Value Added Tax (VAT) Guidelines: Cyprus

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. The VAT Act provides that certain actions carried out for no consi­deration are deemed to be supplies, for example, gifts of greater than EUR 17.09 each and forming part of a series of gifts made to the same person. 

 

On case of manufacturing control/supervision services: The services relating to the manufacturing process will also be taxable at the place where the construction side is (Cyprus) and the reverse charge mechanism will be applied.

 

The standard VAT rate is 19 percent, the reduced VAT rates are 5 percent and 9 percent. There is also a zero VAT rate.   

 

The VAT exemptions are inter alia the postal services, education and cultural services under certain conditions or health and welfare services. 

 

It is not possible to recover VAT incurred in making exempt supplies. 

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:

 

Where any person, established but not registered for VAT in Cyprus, makes intra-Community supplies of ser­vices, to another person that is VAT registered in a different Member State, then that person is obligated to register for VAT in Cyprus, regardless of the value of the supply.

 

Exempted products and services and disposals of items of a capital nature are not considered in determining annual turnover for registration purposes.

 

The above registration rules are also applicable to non-resident entities when making taxable supplies in Cyprus. However, a taxable person, with no establishment in Cyprus, undertakes taxable supplies for which the place of supply is Cyprus, and the recipient is not obliged to undertake the reverse charge, then the foreign business should register in Cyprus.

 

In such cases, the non-resident entities are able to:

 

As from 1 July 2021, the Cyprus VAT threshold of EUR 35,000 on distance sales (supplies and delivers goods from other EU Member States to non-VAT registered customers in Cyprus) is abolished, following the imple­men­tation of the EU VAT e-commerce package. Subject to certain conditions of the harmonised threshold of EUR 10,000, distance sales from one EU member state to another triggers the obligation for VAT registration in the country the goods are delivered.  

 

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

 

An entrepreneur may submit an application for voluntary VAT registration in Cyprus before an obligation arises. The overseas entrepreneur can only apply to register if they are carrying out taxable supplies which grant the right to deduct input VAT.

Most VAT registered persons are required to submit VAT returns on a quarterly basis until the 10th day after the end of the month following the end of the tax period. However, if the entrepreneur is in a repayment position because the input tax exceeds the output tax, it may opt to submit monthly VAT returns which could improve the cash flow.

 

Since 2 May 2017 VAT returns are only submitted electronically through the TaxisNet system.

 

If an entrepreneur 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). Recapitulative statements are completed on a monthly basis and submitted not later than the 15th day of the month following the month of the sale. VIES statements are submitted electronically through the TaxisNet system.

 

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.

 

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

  

​The thresholds as o 1 January 2022	​Arrivals (in EUR)	​Dispatches (in EUR)
​Simulation threshold	​230,000	​75,000
​Specific threshold	​2,700,000	​5,800,000

  

 

The Tax Department is allowed, as per the VAT Law, to suspend the examination of any request for a VAT refund, where the taxable person has not submitted all declarations that are required for direct tax legislation. Any examination will recommence where such obligations have been met. 

 

An entrepreneur established in another EU Member State can recover VAT even if it is not registered. A non-EU entrepreneur can recover input VAT only if it is registered in Israel or Switzerland.

 

Under the EU VAT Directive there are strict time limits for making claims.

 

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.

 

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.

An entrepreneur is required to issue VAT invoices, if taxable supplies are made to other taxable persons. Where taxable supplies are made to non-taxable persons, entrepreneurs are required to issue legal receipts.

 

Entrepreneurs can issue electronic invoices as long as the authenticity of origin, integrity of content and readability are guaranteed. A client is allowed to refuse to accept an electronic invoice.

 

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