Areas of Practice

Value Added Tax

VAT is charged on every taxable supply of goods or services, that is on every supply of goods or services made within the Republic, by a taxable person in the course or furtherance of any business carried on by him, other than a supply exempted in accordance with the provisions of the Law. Additionally, VAT is charged on the importation of goods into the Republic and on the acquisition of goods from other member states.

VAT as an indirect form of taxation intended to burden consumption expenditure. It is an indirect tax because the trader / taxable person acts as an agent of the VAT Service, collecting VAT from customers / consumers on its behalf and returning the tax to the Republic.

VAT is imposed on supplies and collected at every stage of the production, transportation and distribution of goods and services.

(a) VAT Rates
The legislation provides for the following tax rates:

  • • Standard rate 15%
  • • Reduced rate 8%
  • • Reduced rate 5%
  • • Zero rate 0%

 

VAT is charged on every supply of goods or services at the standard rate of fifteen per cent (15%). The reduced rate of 5% is imposed on the supply of coffins, services supplied by undertakers, services of writers, artists , on the supply of fertilisers, foodstuff for animal, live animals, seeds, non bottled water, newspapers, books, periodicals, certain products for persons with special need, ice cream, certain types of nuts (salted, etc), transport of passengers and their accompanying luggage with urban and rural buses, the letting of camping sites and caravan parks.

As from 1 August 2005, the following are taxable at the reduced VAT rate of 8%: transport of passengers and their accompanying luggage within Cyprus, with urban, suburban and rural taxis as well as with tour and suburban buses.

The VAT reduced rate of 8% is also imposed as from 1 January 2006 on the services of restaurants and the supply of food in the course of catering except the supply of alcoholic beverages wine and beer, which is chargeable at 15%, as well as on the provision of accommodation in the hotel sector or in sectors with a similar character. As from 1 January, 2006, the transport of passengers and their accompanying luggage by sea, within Cyprus is taxable at the VAT rate of 8%.

Certain supplies of goods or services are zero-rated; the supply, hiring and repair of sea-going vessels and aircrafts, the supply of services to meet the direct needs of sea-going vessels, the supply of goods entered into customs regime, the supply of medicines and food - except the supply of food in the course of catering. In addition, a supply of goods is zero-rated if the VAT Commissioner is satisfied that the goods have been exported or supplied to a registered person
in another member state.

No VAT is charged on supplies of goods or services which are exempted under the VAT legislation; leasing or letting of immovable property, the supply of immovable property with the exception of buildings or parts of buildings and the land on which they stand if the application for a building permit was submitted after the 1st May, 2004, financial services, lotteries, medical care, social welfare, education, sports, cultural services, insurance transactions, etc.

 

(b) Registration
According to the VAT legislation, every person making taxable supplies is liable to be registered in the following cases:

(i) At the end of any month, if the value of his taxable supplies in the period of one year then ending has exceeded Euro 15,377
(ii) At any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of thirty days then beginning will exceed Euro 15,377

A person who by virtue of (i) is liable to be registered, is obliged to notify the VAT Commissioner of his liability by submitting an "Application for Registration in the VAT Register" (Form VAT 101) to the local VAT Office, within thirty days of the end of the relevant month and his registration is effective as from the end of the month following the relevant month or from such earlier date as may be agreed between the person and the VAT Officer.

If a person is liable to be registered by virtue of (ii), he is obliged to notify the VAT Commissioner of his liability by submitting an "Application for Registration in the VAT Register" (Form VAT 101) to the local VAT Office, before the end of thirty-day period to which the liability arises and the registration is effective as from the beginning of this period.

Failing to comply, the person is liable to a levy of Euro 85 for every month or part of month of the delay or refusal or omission.

It is clarified that the liability of a taxable person to be registered exists whether or not he has submitted an application for registration.

The VAT Commissioner is authorised by the Law to register a taxable person retrospectively, that is from the date that person was, according to the Law, liable to registration. If a taxable person liable to registration neglects to be registered, he is still liable to pay tax on all the supplies he made from the date he was liable to registration.

It is noted that persons making zero-rated supplies are also liable to be registered.

(c) Tax returns, tax payment and credit
Every taxable person is liable to submit Tax Declarations (Form: VAT 4) and pay the tax that may be due, usually every three months.

Tax declarations relate to certain tax periods that are made known to the taxable person at the stage of his registration. The VAT Service dispatches tax declarations to the last known address of a registered person. The liability to submit tax declarations exists regardless of the relevant form being received or not by the taxable person. Thus, if he has not received it on time, he should contact the VAT Office of his district and ask for the form to be reissued.

Tax declarations could be submitted either by mail, by hand at district VAT offices or electronically using the TAXISnet service.

On the tax declarations, taxable persons calculate their output tax (the tax on supplies of goods or services they made during the relevant tax period and the VAT calculated on the acquisition of goods from other member states) and their input tax (the tax on supplies of goods or services made to them, the tax calculated on the acquisition of goods from other member states, as well as the tax paid on the importation of goods). The difference of the two amounts is either paid to the VAT Commissioner (debit balance) or carried forward to the next period (credit balance).

VAT legislation provides for certain cases in which the credit balance may be refunded to taxable persons. These cases are listed in the general order issued on 22 August 2003.

No right for credit of tax is allowed if the expenditure involved concerns, vehicles up to nine seats not intended for resale, receptions and entertainment for others than the employees of the business and accommodation expenses for the directors of a company.

When a taxable person makes exempted supplies as well as taxable supplies, his input tax should be apportioned.