VAT is an indirect tax applied on services and goods at each stage of supply chain, starting from raw materials, production and up to the point of sale. VAT is added on the value additions at various stages of production, and it applies to the supply of goods and/or services, intra-EU acquisitions and importation of goods.
Businesses charge VAT on their taxable supplies (output VAT) and are charged on the goods and/or services they receive (input VAT). If the input tax is greater than the output tax, a repayment is due from the government, however if the situation is reversed and output tax is greater than the input tax, the payment must be made to the government.
A business is obliged to register with the VAT if:
– Holds acquisitions in the Republic of Cyprus for more than €10,250
- Has taxable supplies exceeding €15,600 in the last twelve months
– Offers zero rated supply of services and goods
– Delivers services to an individual registered with VAT within the EU (nil-registration threshold)
– Obtains company on a going concern basis
– A foreign taxable individual commences distance sales with registration threshold €35,000
Any businesses that do not surpass the above-mentioned limits, do not have an obligation to be registered with the VAT. Based on the trade activities of the business, the VAT department determines the periods when VAT return must be submitted; each submission period is quarterly, where the taxpayers have forty days from the day of the quarter end to submit the VAT return, and to proceed with the settlement if tax payment is due.
In accordance with the laws of Cyprus, there are three VAT rates, which are:
- Zero rate – 0%
- Reduced rate – 5% & 9%
- Standard rate – 19%
Services & goods under zero rate (0%)
– Supply of goods & services to other EU members
– Supply of services to meet direct needs of sea vessels and airplanes
– Supply, maintenance and repair, modification, chartering and hiring of aircrafts, used by airlines, which operate for reward mainly on international routes
– Supply, maintenance and repair, modification, chartering and hiring of sea-going vessels, which are used for reward or industrial, commercial, or other activities.
– International sea & air transport
– Construction services conducted between individuals or companies, which are both registered with VAT
– Commission received from abroad on goods exportation
Services & goods liable under the reduced rate (5%)
– Dry nuts (salted, roasted, spicy)
– Books, newspapers, magazines
– Non-bottled water
– Ice-cream, yogurt, and other similar products
– Salted/spicy products made from cereals/potato/potato substitute
– Supply of seeds
– Supply of animal foods
– Supply of fertilizers
– Supply of live animals, used for food preparation
– Purchase of permanent residence (regardless of the nationality of the purchaser)
– Repair and renovation of private households after first three years of residence in the household
– Construction or purchase of residence (subject to several conditions)
– Garbage and recycling collection, road sweeping
– Funeral services and supply of coffins
– Assorted equipment for the handicapped individuals
– Services of outdoors, composers, artist, and critics (works of art)
Services & goods liable under the reduced rate (9%)
– Local transport of passengers via sea
– Hotel accommodation fees
– Restaurant & catering services
– Delivery for services and supply of goods by nursing homes (which are not exempt transactions)
– Inland transfers of persons and luggage by urban area taxis or by tourist, excursion or intercity buses.
Services & goods VAT exemptions
There are certain services and goods, which are exempt from the VAT:
– Financial services
– Postal services
– Insurance services
– Medical caring services and hospital services
– Rental of immovable properties for residential purposes
Sales of buildings, for which the application for issue of building licence was filed at the Town of Planning and Housing Department after the 01st of May 2004 – are subject to standard VAT rate (19%).
Purchase of buildings (which is bought to be used as first residence), for which the application for issue of building licence was filed after the 01st of May 2004 – a government grant is available.
The sale of buildings, for which the application for issue of planning permission was filed after the 01st of May 2004 – are subject to standard VAT rate (19%).
Difference between zero rate (0%) and exemption
Businesses, which produce exempt supplies are not entitled to the VAT recovery with which they have been charged on their expenses and imports (VAT input).
Irretrievable input VAT
Input VAT cannot be recovered in the following situations:
– Purchase, import or hire of saloon motor vehicles
– Sale of exempt supplies
– Housing expenses of the directors
– Hospitality and entertainment expenses (this is not valid in the case of employees and directors)
First residence acquisition grant
The VAT refund given in the form of grant, is available to citizens of the Republic of Cyprus or any other EU member state, who are permanent residents of Cyprus. This grant is given for purchase or construction of a new apartment/house or building ownership transfer (which is used as first main permanent residence).
The grant applies to the residences for which the application for issue of planning permission was filed after the 01st of May 2004 and the total area does not exceed 250 m2 and is restricted 130 m2.
The grant is valid for purchase and construction of residence which took place before 30th of September 2011. From 01st of October 2011 the grant is not available, however the parliament of Cyprus took a vote and put into practice a reduced VAT rate (5%) instead. In the beginning the reduced VAT rate (5%) was only available to Cypriot nationals and EU citizens, however from 08th of June 2012 the law changed and non-EU citizens became applicable for reduced VAT rate (5%).