- Value Added Tax
Value Added Tax was first introduced in Cyprus in 1992. Initially, both companies and individuals paid a maximum of 5% VAT; the rate has gradually increased since then, and on January 14th 2013 reached the current rate of 19%. On May 1st 2004 Cyprus companies became subject to the European Union VAT system.
- Companies subject to VAT
The fact that a company is subject to VAT in Cyprus does not necessarily mean that the company is tax resident from the point of view of corporation tax. Therefore, if a company is registered in Cyprus, but the management takes place outside Cyprus, then the company can, or even must, be subject to the Cypriot, and automatically therefore, EU VAT systems. Foreign companies, on the other hand, can only be subject to Cyprus VAT, if they register premises (a branch) in Cyprus and apply for VAT registration.
- Tax liability
Any company registered in Cyprus – or foreign company with a branch in Cyprus – is liable for tax in Cyprus, provided that the income liable for VAT in a given financial year reaches or exceeds 9000 Cyprus pounds (1 CYP = 1,7 EUR).
- EU VAT number
Any company registered in Cyprus – or foreign company with a branch in Cyprus – may obtain an EU VAT number in Cyprus. The application for a VAT number takes a few working days (it is usually the company’s accountant in Cyprus who files the application with the tax authorities).
- VAT returns
Companies subject to the VAT system are required to prepare quarterly VAT returns and file them with the competent tax authority. If the amount of VAT payable is higher than the amount being reclaimed, then this must be paid within 40 days. If the amount being reclaimed is greater, then the difference will be transferred by the tax authorities.
- VAT rates
– Basic rate 19%
– Reduced rate 5%, 9%
– Zero rate 0%
- VAT-free services
Service providers who provide only VAT-free services are not authorised to deduct or reclaim VAT on acquisitions.
The following services are currently VAT-free:
– letting services (the letting of immovable property with the right of purchase is not exempt)
– medical services
– banking, financial and insurance services
– cultural, educational and sport activities
– real estate transactions (exempt a building, or a part of buildings and the land on which they stand if the application for a building permit was submitted after the 1st May 2004)
– lottery tickets and betting coupons for football and horse rating
– management services provided to mutual founds
- Zero-rated services
This covers, for example:
– food and food products (exempt the supply of food in the course of catering)
– export products
– air and sea transport
Distributors of zero-rated products and companies offering zero-rated services can reclaim the VAT paid on acquisitions, or can deduct it from the VAT they have to pay.
- Products and services subject to reduced rate 5% VAT
The main services covered in this field typically include the following:
– acquisition and /or construction of residences for use as primery and permanent place of resident
– fees arising from artistic and performing arts activities
- Products and services subject to reduced rate 9% VAT
– fees for hotel services
– catering services (excluding alcoholic beverages)
- Products and services subject to basic rate 19% VAT
Products and services not mentioned above; that is the majority of products and services fall into this category.
- Real estate
From May 1st 2004, services related to the sale of real estate, including building land, are subject to VAT as follows:
– 5% on new property (if first house)
- Trade within the community
After May 1st 2004 the terms import and export lost their meaning in regard to the EU member states.
It is only possible to export to and import from countries outside the EU. Trade between Cyprus and other EU member states became so-called “intra community supply and intracommunity acquisition”.
Cyprus has adopted the use of the general EU regulations with regard to community trade. Accordingly, in the case of sales within the community, if the goods leave one member state and enter another, for sales purposes, then the first member state does not have to charge VAT on the sale of the goods, provided that
– the buyer is in possession of a community VAT number
– there is documentary proof that the goods left the first country and arrived in the second one.
Similarly, in the case of acquisition within the community, VAT is not charged in the country of arrival, provided that
– both the buyer and seller have EU VAT numbers and have informed each other of the fact
– the goods actually left one country and arrived in the other.
- Triangular business transactions
There is a special type of international trading transaction, where companies from three different countries are involved in the trade. The company buying the goods, acting as an intermediary, buys goods from one country and sells them on to a third country, without the goods ever actually entering the country of the intermediary.
In these triangular transactions within the EU, the most favourable situation occurs when all three trading partners possess community VAT numbers, and there is documentary proof that the goods were actually transported from one country to the other for the purpose of being sold. In this case there is no VAT charged on either the acquisition or the sale. Of course, this does not mean that the company in Cyprus is exempt from the preparation of VAT returns. Returns have to be prepared and filed with the tax authorities quarterly in this case too.
In a Triangular Transaction simplified procedure can be applied under the following conditions:
– All three parties must be registered for VAT purposes in one of the Member States,
– The intermediary supplier (Cyprus) must not be registered for VAT in the third Member State (France), where the goods are delivered,
– The invoice of the intermediary issued to the Buyer includes the phrase “ VAT EU Art.28 Simplified Invoice” The second buyer is registered for VAT purposes in the Country of delivery of the goods (France).