An Overview of the Cyprus VAT system
If you own a business in Cyprus and need a brief, easy-to-follow guide on navigating the VAT system, you’ve come to the right place.
Our comprehensive guide covers all the essential Cyprus VAT rules, including VAT registration and submission. Updated for the 2022 tax laws, this guide applies to tax years ending 31 December 2022, ensuring you’re informed with the latest regulations.
Introduction
Welcome to our guide on the Cyprus Value Added Tax (VAT) system, regulations, rates, and the newly implemented in 2022 by the Cyprus Tax Authorities. As a leading provider of accounting, audit, tax, and advisory services in Cyprus, we aim to provide you with valuable insights into the Cyprus VAT landscape. In this article, we will explore the key aspects of the Cyprus VAT system, including VAT rates, registration, compliance, the VAT Information Exchange System (VIES), and the newly introduced Tax For All system. Whether you’re a business owner or an individual seeking to understand the VAT environment in Cyprus, this article will serve as a valuable resource.
Understanding Cyprus VAT
1.1 What is VAT?
Value Added Tax (VAT) is a consumption tax and an essential component of the tax system in Cyprus, is levied on the supply of goods and services within the country, as well as on the acquisition of goods from the European Union and the importation of goods into Cyprus. Taxable individuals are responsible for charging VAT on their taxable supplies (output tax) and are also subject to VAT on goods or services they receive (input tax).It is an indirect tax that is ultimately borne by the final consumer. In Cyprus, VAT is a fundamental source of revenue for the government.
1.2 VAT in Cyprus – An Overview
Cyprus follows the , with its own specific regulations. The Cyprus VAT system requires businesses to register for VAT if their taxable turnover exceeds certain thresholds.
1.3 VAT Registration Thresholds
VAT registration is compulsory for businesses meeting either of the following criteria:
– Turnover exceeding EUR 15,600 during the preceding 12 months.
– Expected turnover exceeding EUR 15,600 within the next 30 days.
1.4 Voluntary VAT Registration
Even if a business’s turnover does not exceed the mandatory VAT registration threshold, it can still opt for voluntary registration with the . Voluntary registration can provide benefits, such as enabling businesses to reclaim input VAT on their expenses.
Cyprus Vat Rates and Exemptions
2.1 Standard VAT Rate
The standard VAT rate in Cyprus is currently set at 19%. This rate applies to most goods and services.
2.2 Reduced VAT Rates
Cyprus VAT Rates also includes the reduced VAT rates of 9% and 5%.
- Reduced VAT Rate of 9%
This rate applies to accommodation, restaurant, and catering services, as well as certain local passenger transport services. It is also applicable to the supplies of goods and services provided by old people’s homes, subject to certain exemptions.
- Reduced VAT Rate of 5%
This rate is applicable to various goods and services, including foodstuffs, pharmaceutical products, books, newspapers, and other specific items.
Additionally, for individuals or eligible persons acquiring new buildings/houses as their primary and main residence, the reduced rate of 5% applies to the first 130 square meters of the buildable area and up to a total cost of €350.000.
Provided, however, that the residence does not exceed 190 square meters of buildable area, and a total cost of €475.000. Any residence exceeding 190 square meters of buildable area and/or having a total cost of more than €475.000 will be subject to VAT at 19% on the total cost. Individuals who have claimed the 5% VAT rate for their primary residence can apply for the reduced VAT for a new residence before a period of ten years has elapsed, provided they refund to the Tax Authorities the amount of VAT resulting from the application of the reduced rate instead of the standard rate (i.e., the difference between 19% and 5% = 14%) on the value of the residence for the remaining years of the ten years period (whereas before the change, they had to refund the total VAT benefit obtained).
Furthermore, the Cyprus VAT legislation states that the 5% reduced rate applies to the renovation, repair, and extension of used private residences that are considered old, with a minimum period of three years elapsed from their first use. The value of materials constituting
over 50% of the service’s total value is excluded from the reduced rate.
2.3 VAT Exemptions and Zero-Rated Supplies
Certain goods and services are exempt from VAT in Cyprus, meaning no VAT is charged on their supply. Zero-rated supplies, on the other hand, are goods and services that are subject to VAT at a 0% rate.
Exports from Cyprus are zero-rated, meaning no VAT is charged on exports, and companies can recover any input VAT related to these transactions. Zero-rated treatment also extends to the supply, modification, repair, maintenance, chartering, and hiring of qualifying aircraft and qualifying vessels. Additionally, the supply of goods for the fueling and provisioning of qualifying vessels and aircraft, along with services meeting the client needs of qualifying vessels/aircraft, are also treated as zero-rated. A qualifying aircraft refers to an aircraft predominantly used by airlines operating for reward on international routes, while a qualifying vessel pertains to a vessel used for industrial purposes in navigation on the high seas.
Supplies of goods taking place outside the European Union fall outside the scope of Cyprus VAT.
VAT Registration in Cyprus
3.1 Compulsory VAT Registration
VAT registration is compulsory for businesses meeting either of the following criteria:
Turnover exceeding EUR 15,600 during the preceding 12 months.
Expected turnover exceeding EUR 15,600 within the next 30 days.
Businesses with turnover below EUR 15,600 or with supplies falling outside the scope of VAT but eligible for claiming input VAT have the option to register voluntarily.
Registration is also obligatory for businesses that:
- Make acquisitions of goods from other EU member states exceeding EUR 10,251.61 during a calendar year.
- Engage in intra-Community supply of goods or services, or supplies of goods subject to reverse charge provisions. No registration threshold exists for intra-Community supplies.
Furthermore, businesses engaged in economic activities due to services received from abroad, where Cyprus VAT must be accounted for under reverse-charge provisions, have an obligation to register if their total turnover exceeds EUR 15,600 within any consecutive 12-month period. Supplies of VAT-exempt goods and services and disposals of capital items are not considered when determining the annual turnover for registration purposes.
3.2 VAT Registration Process
The VAT registration process involves submitting an application to the Cyprus Tax Department, providing relevant information about the business, its activities, and its anticipated turnover. Upon successful registration, the business will receive a VAT number.
3.3 VAT Registration Obligations and Deadlines
Once registered for VAT, the taxable person in Cyprus has various obligations, including issuing VAT invoices, maintaining proper accounting records, and submitting periodic VAT returns.
3.4 VAT Invoicing Requirements
VAT invoices must include specific details, such as the supplier’s and recipient’s information, the VAT rate applied, and the total VAT amount. Invoices should be issued in a timely manner and retained for future reference.
The New Cyprus Tax and VAT system
4.1 Introducing Tax for All
is a new digital platform introduced by the Cyprus Tax Department to streamline and simplify VAT reporting and compliance processes. The second stage is the implementation of the tax system.
4.2 Benefits of Tax For All
Tax For All offers several benefits, including simplified VAT reporting, faster processing times, reduced paperwork, and improved accuracy for a taxable person.
The Tax For All system enables businesses to submit their VAT and VIES reports electronically through a secure online portal. It automates data validation, reduces errors, and facilitates efficient communication with the tax authorities.
Cyprus VAT and International Trade
5.1 VAT on Imports
Imported goods into Cyprus are generally subject to VAT at the applicable rate. VAT is payable at the time of importation, and certain customs procedures and exemptions may apply.
5.2 VAT on Exports
Exports of goods and certain services from Cyprus to non-EU countries are generally zero-rated for VAT purposes. Businesses engaged in export activities can claim VAT refunds or apply for specific schemes, such as the VAT suspension scheme.
5.3 VAT Refunds for Non-EU Businesses
Non-EU businesses that incur VAT in Cyprus may be eligible to claim VAT refunds under certain conditions. Appropriate procedures and documentation must be followed to initiate the refund process.
5.4 VAT on Cross-Border Services
VAT treatment for cross-border services varies based on the nature of the services and the location of the recipient. Businesses need to assess the applicable rules and determine their VAT obligations accordingly.
Capital Gains Tax
Capital Gains Tax (CGT) is imposed at the rate of 20% on gains from the disposal of immovable property situated in Cyprus or the disposal of share in companies that own Cyprus- situated immovable property when the disposal is not subject to income tax. CGT includes the sale, exchange, lease, gifting, abandoning use of right, granting of right to purchase, and any sums received upon cancellation of disposals.
CGT is also imposed on disposals of shares in companies that indirectly own immovable property situated in Cyprus where at least 50% of the market value of the said shares derives from Cyprus-situated immovable property.
Shares listed on any recognized stock exchange are excluded from CGT. In the case of share disposals only that part of the gain relating to the immovable property situated in Cyprus is subject to CGT. The value of the immovable property will be its market value at the time the shares were disposed of.
Shares listed on any recognized stock exchange are excluded from these provisions while CGT is payable within one month after the date of disposal.
Conclusion
Understanding the Cyprus VAT system, compliance requirements, and recent developments is essential for businesses operating in Cyprus.
This brief guide has provided valuable insights into the Cyprus VAT system, including registration, rates, compliance, the VAT Information Exchange System (VIES), and the newly introduced Tax For All system. By staying informed and proactively managing VAT obligations, businesses can navigate the complexities of the Cyprus VAT system, ensure compliance, and optimize their tax processes.
For personalized assistance or professional advice regarding VAT matters in Cyprus, feel free to reach out to our team of experts. We are dedicated to helping businesses achieve VAT compliance and operate efficiently in the Cyprus market.