VAT is imposed on the provision of goods and services in Cyprus, as well as on the acquisition of goods from the European Union (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).
If output tax in a VAT period exceeds total input tax, a payment has to be made to the state. If input tax exceeds output tax the excess input tax is carried forward as a credit and set off against future output VAT. Refund of excess input VAT can be 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. This involves a simple accounting entry in the books of the business whereby it self-charges VAT and at the same time claims it back if it relates to supplies for which the right to recover input VAT is granted thereby creating no cost to the business.
In cases the acquisition relates to a transaction for which the right to recover input VAT is not granted, 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:
In addition to the above, as from 1 January 2011 changes came into effect in the EU and Cypriot VAT legislation with regards to the country of taxation of cultural, artistic, sporting, scientific, educational, entertainment and similar services including services of organisers 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 1 January 2011, only 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.
VAT rates
The legislation provides for the following four tax rates:
Changes have been made to the VAT rate applicable for foodstuff, pharmaceutical products, vaccines and supplies in the course of catering as from 10 January 2011 due to the termination of the derogation enjoyed up to 31 December 2010 by the Republic of Cyprus.
Exemptions
Certain goods or services are exempt from VAT. They include:
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 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:
Registration
Registration is compulsory for businesses with (a) turnover in excess of €15.600 during the 12 preceding months or (b) an expected turnover in excess of €15.600 within the next 30 days.
Businesses with turnover of less than €15.600 or with supplies that are outside the scope of VAT but for which the right to claim the amount of the related input VAT is granted, have the option to register on a voluntary basis.
An obligation for registration also arises for businesses which make acquisition of goods from other EU Member States in excess of €10.251,61 during any calendar year. In addition as from 1 January 2010 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 subject to the registration threshold of €15.600 per any consecutive 12 month period.
No registration threshold exists for the provision of intra-Community supplies of services.
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.
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 tax 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, input tax is higher than output tax, the difference is refunded or is transferred to the next VAT quarters.
Thresholds and penalties |
Amount |
|
1. | Registration threshold (taxable supplies in Cyprus) | 15.600 |
2. | 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 |
3. | Registration threshold for acquisition of goods in Cyprus from suppliers resident in another EU MS | 10.251,61 |
4. | Registration threshold for intra – Community supply of services | No threshold |
5. | Registration threshold for receipt of services from abroad for which the recipient must account for VAT under the reverse charge provisions | 15.600 |
6. | Penalty for late submission of VAT return | 51 for each return |
7. | Penalty for omission to keep books and records for a period of 7 years | 341 |
8. | Penalty for late submission of VIES return | 50 for each return |
9. | Penalty for late submission of corrective VIES return | 15 for each return |
10. | Omission to submit the VIES return for a period of over 3 months constitutes a criminal offence with a maximum penalty of | 2.562 |
11. | Penalty for late registration with the VAT authorities | 85 per month of delay |