Value Added Tax (VAT) is imposed on the provision of goods and services in Cyprus, in addition to the acquisition of goods from country members of the European Union.
Individuals subjected to tax, charge VAT on their taxable supplies (output tax) and are charged with VAT on goods and services that they receive (input tax).
A payment to the state is required when output tax in a VAT period is greater than the total input tax. In the case of input tax being greater than output tax, the surplus of input tax is carried forward as a credit and set off against upcoming output VAT.
A refund of surplus input VAT can be acquired in the following instances:
- A period of three years passes from the date the VAT becomes refundable
- The government can decide to carry forward the surplus to the next taxable period and offset it against tax due in that period
- The input VAT relates to zero rated transactions
- The input VAT relates to the purchase of capital assets of the company
- The input VAT relates to transactions which are outside the scope of VAT but would have been subject to VAT had they been carried out within Cyprus
- The input VAT relates to exempt financial and insurance services provided to non EU resident clients (services for which the right to recover the related input VAT is granted)
For intra-community attainment of goods (goods which are subject to excise duty or new means of transportation are expected), the merchant is not required to pay VAT upon receiving the goods in Cyprus. Nevertheless, he must account for VAT by using the acquisition accounting method which requires a simple entry in the books of the business for accounting purposes. With such an entry, the merchant charges VAT upon himself and simultaneously claims it back on the provision associated to taxable supplies. No additional cost is created to the business with such an entry.
Standard rate 15%
Reduced rate 8%
Reduced rate 5%
Zero rate 0%
Cyprus Tax Facts Rates Applicable
Standard Rate of 15%
Applies to any provision of goods and services in Cyprus not subject to the zero rated, reduced rates or is exempt.
Reduced Rate of 8%
- All restaurant services and the supply of food during catering (excluding school canteens) aside from the distribution of alcoholic beverages (applicable from 1st May 2010).
- Accommodation in hotels, tourist residences and any other similar residences including the provision of holiday residences (applicable from 1st
- May 2010).
- Transportation of passengers and their accompanying luggage within
- Cyprus using urban, intercity and rural taxis, and by tourist and intercity buses.
- Transportation of passengers and their accompanying belongings by sea within Cyprus.
Reduced Rate of 5%
- The supply of fertilizers, coffins, services supplied by undertakers, services of writers, artists, food in the form of catering services from school canteens, food for animals, seeds, live animals used for the preparation of food, non bottled water, books, newspapers and magazines, ice cream, certain types of nuts (salted), syrups, bottled water, packaged drinks, juices, and confectionary products.
- Medical equipment for the sole intention of personal use, and sundry goods used by disabled people.
- Some services for the repair of medical equipment and equipment used by disabled people.
- Medical and dental services, services of thermal treatment which were not exempt from VAT before (medical examinations or cosmetic surgeries are not included).
- Transportation of passengers and their accompanying belongings with urban and rural buses.
- The leasing of camping sites and caravan parks.
- Pharmaceutical products that were previously taxed at the standard rate of 15%.
Cyprus Tax Facts
- Products used for contraception and women’s sanitary protection.
- Children’s’ car seats.
- Entry fees to theatres, circus, festivals, fairs, concerts, museums, zoos, cinemas, exhibitions, amusement parks, cultural events, and other related events and facilities.
- Entry fees at sports events and fees for using athletic centers.
- Hairdressing services.
- Repair and maintenance of private households after three years of first residence. If the cost of materials exceeds 50% of the total value, the VAT charged is the standard rate of 15% on the value of the materials and the reduced rate of 5% on the value of the services.
- Importation of archaeological items that are more than 100 years old, which fall under code CN 9706 00 00.
- The supply, hiring and repair of sea-going vessels and aircrafts.
- The supply of services to meet the direct needs of sea-going vessels and aircrafts.
- Supplies of medicines falling under the codes CN30.03 and CN30.04.
- Supplies of vaccines for medical and veterinary use falling under code CN30.02.
- Intra-community supplies of goods.
- Processing performed on goods in Cyprus in aid of a customer abroad given that the goods will be exported outside the European Union after the processing finishes.
- Transportation of goods from an EU country to a country outside the EU, to the extent that the transportation takes place in Cyprus.
- Most foodstuffs other than those taxed at 5% or 15%.
- International air and sea transportation.
- Export of goods to non European countries.
Cyprus Tax Facts Exemptions
- Rental of immovable property.
- Disposal of immovable property where the application for building permission has been submitted before 1st May, 2004.
- Financial, banking and insurance services.
- Hospital, medical and dental services.
- Postal services.
- Certain cultural educational and sports activities.
- Supplies of real estate including supplies of land and used buildings (except supply of new buildings before their first use).
- Management services provided to mutual funds.
- Lottery tickets and betting coupons for football and horse racing.
Grant for acquisition of first residence
Entitled persons receive grant for the construction or purchase or transfer of a new house that is used as the main and primary place of residence.
The application for receiving a grant is submitted to the Ministry of Finance in relation to houses, for which an application has been submitted to the issue of a planning permission after 1st May, 2004. Entitled to this grant, is any individual citizen of Cyprus or other country member of the EU, who is a permanent resident of Cyprus and over 18 years old at the time of application. The grant is given to houses with a total covered area of up to 250 m².
The level of the grant is extended to houses with a total covered area of 130 m² for families with four children or more and depends on the type of the property and if the house was purchased or constructed. According to the legislation related to this matter, the level of the grant will be adjusted annually for the increase in the Retail Price Index.
Difference between zero-rated and exempt supplies
Businesses that make exempt supplies are not allowed to claim the VAT charged on their purchases, expenses or imports.
Cyprus Tax Facts Writing off Input VAT
Input VAT cannot be recovered in the following cases:
- Acquisitions used for making exempt supplies.
- Import, hire, or purchase of saloon cars.
- Entertainment and hospitality expenses other than those related to employees and directors.
- Housing expenses for directors.
Businesses with turnover of more than €15.600 in a year or with an expected turnover of more than €15.600 in the month that follows are obligated to register.
Businesses attaining goods from other member countries of the European Union that exceed €10.252 during any calendar year, are also obligated to register.
In accordance with the current VAT legislation of Cyprus and EU that came to force on 1st January 2010, businesses with turnover less than €15.600 or with supplies that are outside the range of VAT, but for which the amount of the related input VAT is approved, have no longer the option on whether or not to register. It is compulsory that they too register.
When calculating the annual turnover for registration purposes, exempted products and services, and disposals of items of capital nature are not taken into consideration.
Right of Registration
An individual having a business in Cyprus or the residence of incorporation is in Cyprus and provides goods or services only outside Cyprus, has the right to register for VAT and consequently recover all the VAT incurred on the expenses, given that the supplies would have been taxable in Cyprus if they were provided in Cyprus.
VAT Returns and Payment of VAT
Submission of VAT returns is done quarterly, and the VAT payment must be rendered by the tenth day of the second month following the month in which the tax period ends.
An approval of the VAT authorities is essential when a request for a different filing period is made by a VAT registered individual.
Cyprus Tax Facts
In the case where input tax in a quarter is greater than output tax, the difference is reimbursed or transferred to the next VAT quarter.
Administration of Intra-Community Trading
Merchandisers, who take on intra-community trading, for example perform purchases and sales from and to other country members of the European Union need to complete the following forms:
- Intrastat - Arrivals
- Inclusion in the VAT return (on a totals basis)
- Intrastat - Departures
- Recapitulative schedule for supplies (VIES from)
- Inclusion in the VAT return (on a totals basis with 0%)
INTRASTAT forms are submitted to the VAT authority by the tenth day following the end of the month stated on the form.
VIES forms were submitted to the same authorities within 40 days from the end of each calendar quarter. Subsequent to the changes of the VAT legislation that took place on 1st January 2010, as mentioned above, VIES forms are submitted to the VAT authority by the tenth day following the end of the month stated on the form.
Cyprus Tax Facts Limits, Penalties and Interest
Registration limits for taxable supplies in Cyprus €15.600
Registration limits for the sale of goods to individuals not subject to VAT registration in Cyprus, by suppliers residing in another country member of the EU €35.000
Registration limits for acquisition of goods in Cyprus from suppliers residing in another country member of the EU €10.252
Late registration €85 for every month of delay
Late submissions of VAT return €51 for each return
Late payment of VAT 10% of amount due plus 8% interest
Late de-registration €85 for every month of delay
Late submission of Intrastat form €8 for every working day of delay with a max of 30 working days
Late submission of VIES* €51 for every month of delay with a maximum of 3 months, forgetting to submit the VIES return for more than 3 months, involve a criminal offence with a maximum penalty of €2.562
Penalty for not keeping books and records for the period of 7 years
*VIES is defined as: VAT Information Exchange System
Note: The House of Representatives has not voted the draft legislation that includes the applicable changes that were made on 1st January 2010.