• VAT applied to sales invoices is referred to as “output tax”.
• VAT applied to purchase invoices is referred to as “input tax”.
• VAT must be reported every 3 months

When output tax in a VAT period is greater than the input tax a payment has to be made to the state.  If input tax exceeds output tax the excess input tax is carried forward as a credit and set off against future output VAT or can be refunded in the following cases:

• 3 three years has elapsed from when the VAT became refundable
• When the refundable amount cannot be set off against output VAT until the 4th VAT period of the year following a year in which the VAT period in which the credit was created falls
• The input VAT relates to sales outside Cyprus but would have been subject to VAT had they been carried out within Cyprus
• The input VAT relates to zero rated transactions
• The input VAT relates to the purchase of capital assets of the company
• The input VAT relates to exempt services provided to non EU resident

For goods purchased from within the EU but outside Cyprus, the business does not pay VAT on receipt of the goods but will account for VAT using the purchase accounting method. 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.  In cases where the purchase relates to an exempt transaction, the business must pay the VAT that corresponds to the purchase.

VAT Rates: 15% (Standard rate); 8%; 5%; 0% (Zero)

Zero Rate

ero Rate

• Export of goods to non EU countries and Intra-community supplies of goods
• Foodstuffs (except those taxed at 5% or 15%)
• Supplies of medicine falling within codes CN30.03 and CN30.04 and CN30.02

5% Rate

• funeral services
• road sweeping, refuse collection and recycling
• Services provided by; writers; artists and composers
• Supply of fertilizers; animal feeding stuffs; seeds
• Supply of live animals for human consumption
• Books, magazines and newspapers
• Gas
• Non-bottled water;
• Transport of passengers and luggage by bus
• Camping caravan parks
• Various goods for the use of handicapped persons
• Medicines and vaccines; Contraceptives; Women’s sanitary products; medical equipment when intended for the exclusive personal use of disabled persons
• Medical services (medical examinations or surgeries of cosmetic nature are not included);
• Ice-cream, yogurt ice-cream and similar products as well as certain salted or spicy products made from cereal, salted or spicy products made from potato and dry roasted or spicy nuts which are used for human consumption;
• Supply of food in the form of catering services from school canteens
• Services related to the renovation of property (when lived in for more than 3 years) which is primary residence; construction; plumbers, electricians, carpenters and oil painters. When the cost of materials exceeds 50% of the total value, VAT shall be charged at 15% on the value of the materials and the reduced rate of 5% on the value of service
• hair salon services
• Confectionery items; bottled water; manufactured beverages; juice drinks (except those taxed at the standard VAT rate)
• Food ingredients which are used in the preparation of foodstuffs and food supplements and foodstuffs substitutes
• Admission to cultural sporting and certain entertainment events and facilities

Reduced rate of 8%

• Transportation of passengers and luggage by taxi or sea
• Restaurant services and the supply of food (not the supply of alcoholic drinks)
• Hotel accommodation

Exemptions (The following goods or services are exempt from VAT)

• Letting of property (the letting of immovable property with the right of purchase is not exempt)
• Banking and financial services and insurance services (with some exceptions)
• Hospital, medical and dental care services (with some exceptions)
• Postal services provided by the national postal authority
• Management services provided to mutual funds

The difference between Zero rated and exempt rated supplies is that businesses that make exempt supplies are not able to recover the input tax.

Additionally; as an exception to the general rule, input VAT cannot be recovered in a number of cases which include; Purchase or hire of private cars and; Entertainment expenses other than those for employees and directors.

Key changes:

1. Place of supply of services.  The rules for determining VAT on international services will change.

   1. The range of Services not to be subject to local VAT when supplied internationally will increase

   2. The principle of taxation at the point of delivery/consumption will be adapted.

2. The Scheme for services supplied electronically as applicable to non-EU businesses will include services such as telecommunication and broadcasting

3. Reporting obligations:

   1. Even more additional filing requirements will be introduced for businesses making intra-EU supplies of services!

   2. Failure to comply may result in severe penalties.

4. The reclaiming of VAT by non-resident EU companies will be reformed to include; electronic filing; structured timetable for processing refund applications and; the right to interest on overdue refunds.