VAT is levied on goods and services in Cyprus and also on goods bought from other EU countries and goods imported into Cyprus. Registered taxable persons or entities are required to charge VAT on their supplies and to pay VAT on services. Individuals or companies must register for VAT with the VAT Service. Penalties apply for failure to register (EUR85 for every month of delay).
The threshold for registration is EUR15,600, but voluntary registration is also permitted. Registration for VAT by those engaged in distance selling is also compulsory where revenue from such activities exceeds EUR35,000 in the period commencing on 1st January of the year in question.
The current rates of VAT in Cyprus are in the following bands:
- Standard rate 15%;
- Reduced rate 8%, levied on restaurants and catering establishments, fertilisers and animal feeds, livestock for human consumption, publications and periodicals (books, magazines, newspapers), water and liquid gas;
- Reduced rate 5%, applying to hotel accommodation, transport services, tourist excursions and long distance bus services.
- Zero rate applying to include goods and services supplied to other EU member countries, exports to EU countries, food, certain medicines and vaccines, international air and transport charges and commissions received in the import-export business.
VAT exemption applies to certain sectors, including rent, medical services, insurance, banking services, education, real estate, postal services and lottery and betting tickets.
The EU VAT Directives
As Cyprus is a member of the European Union, it is subject to European VAT legislation, as defined under the Sixth VAT Directive (2006/112/EC), and therefore, VAT-registered individual businesses operating from the Cyprus will be subject to the VAT directive, to the degree that the Cypriot authorities are bound by it in putting in place standard and reduced rates within the permitted range, and setting the national rules regarding when and how VAT should be charged by registered businesses and individuals.
Under new rules coming into force between 2010 and 2015 (with changes relating to telecoms, broadcasting and electronic services delayed until January 1, 2015) , business to business (B2B) supplies of services will be subject to VAT in the country in which the consumer is located, rather than the supplier's country of residence, with the business consumer required to account for VAT using the reverse charge mechanism (whereby they act as both the supplier and the consumer, charging themselves the VAT where appropriate, and then claiming it back).
For business to private consumer (B2C) supplies of services, the place of taxation with regard to VAT will remain as the supplier's location.
There will, however, be certain exceptions, where the general rules do not apply, and specific rules will be in place, to reflect that the place of taxation should be where the service is consumed. Exempted areas will include:
- the electronic supply of services;
- telecommunications and broadcasting;
- certain catering and hospitality services;
- scientific and educational supplies;
- cultural and sporting services and supplies.
The new rules have effectively removed the advantage of locating in an EU jurisdiction with a low VAT rate, such as Luxembourg or Madeira. Changes referred to above came into effect on 1st January 2010.
This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .