Value Added Tax


VAT is imposed on the provision of goods and services in Cyprus, as well as on the acquisition of goods from the European Union and the importation of goods into Cyprus.

Since 1/5/04 a statute in respect of VAT on properties was introduced. In addition to other amendments, this statute introduced VAT on the rate of 15%.

Generally, 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 a repayment is due from the state.

With regard to intra-community acquisitions the trader does not pay VAT on receipt of the goods in Cyprus but instead he accounts for VAT using acquisition accounting. 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.

VAT rates

The legislation provides for the following four tax rates:

  • Zero rate (0%)
  • Reduced rate (5%) from 1 July 2000
  • Reduced rate (8%) from 1 August 2005
  • Standard rate (15%) from 1 January 2003

Zero rate 0%

Zero rated goods and services include the following:

  • Supplies of goods to other EU Member States
  • Commissions received from abroad for exportation of goods
  • Medicines
  • Exports
  • Food
  • International air and sea transport

Reduced rate of 5%

The reduced rate of 5% applies to:

  • Funeral services and supply of coffins
  • Road sweeping, garbage collection and recycling
  • Supply of fertilizers
  • Supply of animal feeding stuffs
  • Services of authors, composers, artists and critics of works of art
  • Books
  • Newspapers and magazines
  • Ice-cream, yogurt ice-cream and similar products
  • Supply of seeds
  • Supply of live animals of a kind generally used for human consumption
  • Non-bottled water
  • Transfer of persons and their luggage on a rural or city bus
  • Various goods for the use of handicapped persons
  • Salted or spicy products made from potato
  • Dry roasted or spicy nuts
  • Gas

Reduced rate of 8%

The reduced rate of 8% was introduced on 1 August 2005 and applies to the following services:

  • tourist, excursion and long distance bus services (excluding private and rural buses which continue to be subject to VAT at the standard rate (15%).
  • rural and private taxi transport services

Prior to 1 August 2005 the above services were taxed at the standard rate of 15%.

From 1 January 2006 the following supplies were transferred from the lower reduced rate (5%) to the higher reduced rate (8%):

  • supplies of goods made in the course of catering with the exception of alcoholic drinks which are subject to VAT at the standard rate.
  • hotel accommodation services

Exemptions

Certain goods or services are exempt from VAT.

  • Medical Services
  • Rents
  • Insurance and financial services
  • Disposal of used immovable property and new immovable property for which a proper application for planning permission was filed with the relevant authority before 1 May 2004.

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 with which they have been 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:

  • Entertainment and hospitality expenses (except those relating to employees and directors).
  • Acquisition used for making exempt supplies.
  • Housing expenses of directors.
  • Purchase, import or hire of saloon cars.

Registration

Registration is compulsory for businesses with a turnover in excess of £9.000 during the 12 preceding months or an expected turnover in excess of £9.000 within the next 30 days. Businesses with turnover less than £9.000 and companies which make supplies for which the right to claim the amount of the related input VAT is granted have the option to register if they wish to do so.

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 within 40 days from the end of each quarter.

VAT registered persons and companies have the right to request for a different filing period. Approval of the VAT authorities is required.

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 to be credited against any payable account.

 

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