VAT in Cyprus
Taxpayers charge VAT on their taxable supplies (output tax) and pay VAT on goods or services they purchase (input tax). If the output VAT in the reporting period exceeds the total input VAT, a payment must be made to the state. If input VAT exceeds output VAT, the difference is transferred as a credit and credited against future output VAT. Registration for VAT purposes can be either mandatory or voluntary. The person must register:
- When the value of taxable supplies in the last 12 months exceeds EUR 15,600.
- At any time, if a person provides services to a taxable person in another EU Member State, which are taxable at his place of registration.
- At any time, if there are reasonable grounds to believe that the value of taxable supplies over the next 30 days from now will exceed 15,600 euros.
The VAT registration threshold is 15,600 euros per year. The registration threshold for distance sales (sales of goods to persons not subject to VAT registration in Cyprus by suppliers located in another EU Member State) is 35,000 euros per year.
The registration threshold for purchasing goods in Cyprus from suppliers located in other EU Member States is EUR 10,251.61 per year. A person can decide to register even if their taxable turnover is below the threshold, so they can recover the input VAT paid on purchases. However, this person must take into account the need to comply with the requirements for a VAT payer.
The standard rate is 19%. The reduced rates are 5% and 9%. Individual goods, services or works are taxed at these rates.
Goods and services to which the first reduced rate (5%) applies:
- supply of food and beverages for take-out or delivery, with the exception of sugary carbonated and alcoholic beverages;
- construction, erection or provision of housing used as permanent residence;
- reconstruction and repair of private housing, with the exception of materials that account for more than 50% of the cost of services provided;
- entrance to theatrical performances, circus, cinema, cultural and sporting events;
- use of sports facilities;
- performances by artists, performers, composers, artists and writers;
- books, magazines and newspapers;
- supply of gas in cylinders;
- water supply;
- certain foods and medicines;
- some animal feed;
- hairdressing services;
- equipment used by people with disabilities (eg Braille, wheelchairs);
- child seats for children under 12 years of age for use in land vehicles;
- medical and dental care (if not exempt from VAT); operations of a purely cosmetic and aesthetic nature are taxed at the standard rate;
- works of art made entirely by the artist.
The second reduced rate (9%) applies mainly to:
- restaurant and catering services, including alcoholic beverages;
- domestic transportation of passengers (by taxi, bus or ship) and their accompanying luggage.
- the provision of accommodation in hotels and similar establishments, including the provision of holiday accommodation;
Services and goods subject to zero VAT rate:
- export of goods;
- services within the framework of the processing of goods in the intra-customs territory on behalf of a principal located outside the EU;
- provision of certain services and ancillary services related to ships and aircraft, with the exception of coastal fishing vessels;
- supply of gold to the Central Bank of Cyprus;
- supply of goods to non-profit organizations for further export for humanitarian, educational or charitable purposes;
- transportation of goods to Madeira and the Azores and back;
- intermediary services related to transactions carried out outside the EU;
- goods under customs control or VAT warehousing agreements;
- services for goods under customs control;
- tourist tours outside the EU;
- supply of any goods for the supply of commercial marine vessels and warships.
The following categories of goods and services are exempt from VAT:
- leasing of immovable property (at the same time, leasing with the right to purchase is not subject to exemption);
- most banking, financial and insurance services;
- most medical and dental services;
- certain cultural, educational and sporting events;
- transfer of immovable property (other than the transfer of buildings prior to their first use), including the transfer of land and second-hand buildings;
- postal services provided by the national postal authority;
- lottery tickets and coupons for betting on football and horse racing;
- property management services provided by investment funds.
VAT on real estate
A number of recent amendments to the Cyprus VAT legislation relating to real estate transactions have been implemented since the beginning of 2018. These amendments include:
- Taxation of VAT on the lease of immovable property (land and commercial property other than residential buildings) used by the lessee to obtain taxable supplies. The landlord has the right to refuse to collect VAT on a particular property. This option is irrevocable.
- Application of the reverse charge mechanism for transactions related to the transfer of real estate in the process of loan restructuring and mandatory transfer to the creditor.
- Imposition of VAT at the standard rate on the sale of undeveloped land, the purpose of which is the construction of one or more buildings in the course of business activities. VAT is not charged on the purchase or sale of land located in the livestock zone or in areas that are not intended for development, such as environmental protection zones / areas, archaeological and agricultural zones.
Specific rules for using the reverse charge mechanism
Since March 2012, the reverse charge applies to services (or services with goods) for the construction, renovation, demolition, repair or maintenance of buildings or any construction work.
From October 2013, when a taxable person supplies scrap metal or waste to another taxpayer who is assigned a specific economic transaction code (issued by customs) and the supply is domestic (within Cyprus), the buyer must apply the reverse charge mechanism.
VAT refund for foreigners
For European businesses, the refund application must be submitted electronically through the portal of the tax authorities of the country in which the applicant is registered. The annual minimum (for refund applications for a calendar year or the remainder of a calendar year) is 50 euros. The intermediate minimum (for refund applications for a period of less than a calendar year, but not less than three months) is 400 euros.
The minimum return period is three consecutive calendar months in one year, the maximum period is one calendar year. The application deadline is September 30 of the year following the year for which the application is being submitted. The limitation period is 5 years from the end of the calendar year in which VAT was paid.
When considering an application for a refund, additional documents (invoices) are usually not required, although the Tax Commissioner has the right to request original documents. The tax authorities must decide on the refund within four months of receipt of the application, but if further information is requested, the review period may be extended to six or eight months.
If a decision is made on the refund, within ten working days the amount of the refund will be transferred to the bank account provided to the tax authorities. If the applicant does not agree with the decision of the Tax Commissioner, he may apply to the Minister of Finance within sixty days from the date on which the decision was served on the applicant. Decisions of the Minister of Finance can also be appealed to the Supreme Court of Cyprus within seventy-five days.
Non-European companies can refund input VAT on the purchase of goods and services in Cyprus or import VAT in Cyprus, provided that the company is not located in any of the EU member states or in Cyprus, is not registered, is not required or cannot be registered for VAT in Cyprus and does not make deliveries to Cyprus other than those subject to reverse charge by the recipient, including international shipments of goods.
Cyprus will allow input VAT refunds if reciprocal measures are taken, i.e. if the applicant country makes similar concessions to Cypriot traders. Currently, reciprocity agreements are only in place with Israel, Switzerland and Norway. The company must prove that VAT has been paid. Originals of all invoices and/or import documents must be submitted to apply for a refund.
VIES
The European sales list in Cyprus is called the VAT Information Exchange System, or VIES.
To register for VIES, VAT registration with the tax authorities is first required. Registration in the VIES system can be carried out either automatically along with the registration of the company as a VAT payer, or by submitting a special form after VAT registration. The VIES declaration must be submitted by the 15th day of the month following the reporting month. It can only be submitted electronically.
There is no threshold for VIES. This means that if a Cypriot supplier not registered for VAT provides a service to a taxable person in another Member State and the VAT arises in that Member State, then the Cypriot supplier must register in Cyprus with VIES in order to declare the transaction there.
