Basis of taxation
VAT is imposed on the provision of goods and services in Cyprus, as well as on the acquisition of goods from the EU and the importation of goods into Cyprus.
Taxable persons charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services which they receive (input tax).
For intra community acquisitions of goods (except goods subject to excise duty or new means of transport) 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 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.
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 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.
- Changes in the country of taxation of services, supplied to consumers.
- 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.
As a result of the above changes, additional compliance obligations have arisen as from 1 January 2010 for Cyprus resident businesses supplying services to businesses established in other EU Member States for which the recipient is liable to account for VAT under the reverse charge provisions. Such businesses are required to complete and submit electronic VIES declarations on a monthly basis, for services which are taxed by the recipient under the reverse charge provisions. In addition as from 1 January 2010 the VIES declaration for intra-Community supplies of goods must also be submitted on a monthly basis (instead of a quarterly basis).
The legislation provides for the following tax rates:
- Zero rate
- Reduced rate - 5 %
- Reduced rate – 9 %
- Standard rate -19 %
- Exports to non EU countries.
- Supply, modification, repair, maintenance, chartering and hiring of sea going vessels which are used for navigation on the open sea and which are carrying passengers for reward or used for the purpose of commercial, industrial and other activities.
- Supply, modification, repair, maintenance, chartering and hiring of aircrafts used by airlines operating for reward mainly or international routes.
- Supply of services to meet the direct needs of sea going vessels and aircrafts.
- Transportation of passengers from Cyprus to a place outside Cyprus and vice versa using a sea going vessel or aircraft.
- Supplies of Gold to the Central Bank of Cyprus.
- Commissions received from abroad for import and export of goods.
- Hotel accommodation (9 %).
- Restaurants and catering services (9 %).
- Transportation of passengers and their accompanying luggage within Cyprus using urban, intercity and rural taxis and tourist and Intercity buses (9 %).
- Movement of passengers in inland waters and their accompanying luggage (9 %).
- Supply of fertilisers, animal feeding products and seeds (5 %).
- Supply of live animals for human consumption (5 %).
- Books, magazines and newspapers (5 %).
- Non-bottles water (5 %).
- Liquid gas (5 %).
- Supply of Foodstuffs (5 %).
- The supply of pharmaceutical products and vaccines that are used for healthcare purposes (5 %).
- Various goods for the use of handicapped persons (5 %).
- Ice cream and similar products (5 %).
- Funeral service and supply of coffins (5%).
- Road sweeping, garbage collection and recycling (5 %).
- Services of authors, composers and artists (5 %).
The following services are exempt from VAT:
- Rental of buildings used for residential purposes.
- Hospital and most medical services.
- Most insurance, banking and financial services.
- Educational services.
- Management services provided to mutual funds.
- Supplies of real estate, excluding new buildings before their first use but 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.
Registration is compulsory for businesses with turnover in excess of €15.600 in a year or with an expected turnover in excess of
€15.600 in a period of thirty days following. Businesses with less than this turnover have the option to register only if they so elect.
An obligation for registration also arises for businesses which make acquisitions of goods from other EU member states in excess of €10.252 during any calendar year and for businesses that offer distant sales in excess of €35.000.
Exempt goods and services and transactions of capital nature are not taken into consideration when determining the annual turnover for registration purposes.
Also 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 rules (NIL registration threshold).
In addition, an obligation for VAT registration arises for businesses carrying out economic activities where they receive any services from abroad for which an obligation to account for Cyprus VAT under the reverse charge provision exists (threshold of €15.600 exists).
Thresholds for VAT Registration – Summary
|Provision of taxable supplies in Cyprus||15.600|
|Acquisition of goods in Cyprus from other EU Member states suppliers||10.252|
|Supply of intra-community services||Nil|
|Receipt of services from abroad – under reverse charge rules||15.600|
Difference between zero rate and exempt supplies
The difference between zero rate and exempt supplies is that businesses that make exempt supplies are not entitled to recover the input VAT charged on their purchases, expenses or imports.
Irrecoverable input VAT
As an exception to the general rule, input VAT cannot be recovered in a number of cases which include the following:
- Acquisitions used for making exempt supplies.
- Purchase, import or hire of saloon cars.
- Entertainment and hospitality expenses (except those relating to employees and directors).
- Housing expenses of directors.
VAT declaration – Payment/return of VAT
VAT returns are prepared on a quarterly basis and must be submitted by the 10th day of the second month that follows the month in which the tax period ends. Any payable VAT arising for the quarter must be paid prior to the submission of the return.
Where in a quarter input tax is higher than output tax, and therefore a repayment is due, the difference is refundable or is transferred to the next VAT quarter.
|Late submission of VAT return||100 each|
|Omission to submit VIES Return for a period over three months*||850|
|Late submission of VIES Return||50 each|
|Late submission of Intrastat Return||50 each|
|Late registration with VAT authorities||85 per month of delay|
|Omission to keep books and records for 6 years||341|
* Criminal offence with maximum penalty
VAT on immovable property
- Effective from 2/1/18, imposition of VAT at the standard rate of 19% on the sale of undeveloped building land which is intended to be used for the construction of one or more structures in the course of carrying out a business activity with the exception of land situated in livestock, agricultural, archaeological and environmental protection zones.
- An exemption to the above relates to the reduction of the effective VAT rate on building land from 19% to 5% in the form of a refund (under certain conditions), where the plot of land will be used for the construction of a permanent residence which qualifies for the reduced rate of 5%.
- Effective from 13/11/17, imposition of VAT at the standard rate of 19% on the rental/leasing of immovable property (land and commercial buildings other than residential buildings) when the lessee is engaged in vatable activities. The lessor has the right to apply for an irrevocable exemption from imposition of VAT.
- Effective from 2/1/18, the application of the reverse charge mechanism in relation to transfer of immovable property during loan restructuring or compulsory transfer processes.
- Effective for 1/1/19, Leases of immovable properties which effectively transfer the risks and rewards of ownership of the immovable property are subject to 19% standard VAT rate
Reduced rate of 5% on the acquisition or construction of residences for use as the primary and permanent place of residence
A reduced VAT rate of 5 % applies to all contracts which were concluded as from 1/10/2011 onwards and which relate to the acquisition or construction of all type of residences which are to be used as the primary and permanent place of residence for the next 10 years by the applicant. For all contracts which were concluded up to 30/9/2011 the eligible person must apply for a grant (explained in next section).
The rate of 5% applies for the first 200m2 of the residence. Where the covered area of the residence is more than 200m2 then the additional m2 are subject to VAT at the standard rate of 19%. In cases where the residence is for a family with more than 3 children the allowable total covered area increases by 15m2 per additional child beyond the three children.
Note that the 5 % reduced rate can only be imposed after obtaining the relevant certified confirmation from the VAT Office. The eligible person must submit a fully completed and documented application to the VAT Office prior to the actual delivery of the residence to him.
As from June 2012, eligible persons include also residents of non EU countries, provided that the residence will be used as their primary and permanent place of residence in Cyprus.
Grant for acquisition of first residence
The grant is given to eligible persons who will construct, purchase or transfer a new residence (total covered area should not exceed 200 m2) which will be used as the primary place of their residence. This grant applies for contracts which were concluded up to 30/9/2011. The application for the grant can be filed only in cases where an application has been submitted for the issue of a planning permission after 1/5/2004. Entitled persons for the grant are persons who are citizens of Cyprus or citizens of other EU Member State countries who reside permanently in Cyprus and are at least 18 years old.
Reduced rate of 5% on the renovation and repair of private residences
With effect from December 2015 the renovation or repair of private residences for which a period of at least 3 years has elapsed from the date of their first use is subject to VAT at the reduced rate of 5 % (instead of 19 %), excluding the value of the materials which constitute more than 50 % of the value of the services.
Originally published 03 February 2021
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.