Do you have a company in Cyprus? Are you unsure if you should register with VAT or not?  Below is an easy to understand guide of key Cyprus VAT rules.

* This article was updated to reflect 2023 tax rules. This article is relevant for the tax year ending 31 December 2023.

CYPRUS VAT – EVERYTHING YOU NEED TO KNOW

1.  What exactly is VAT?

Every time money changes hands in Cyprus, this is an activity (a transaction) which could be subject to tax (Value Added Tax, or VAT for short). When you buy something from the supermarket, this is a transaction. When you shop from the internet, or when you pay a plumber to fix your sink, all these are transactions. Depending on the type of transaction, VAT may or may not have to be charged.

2.  I have a business in Cyprus. Should I register with VAT?

1.  Is your business activity taxable?
2.  Are you buying and selling in Cyprus (to customers physically based in Cyprus)?
3.  Is your income above the registration threshold?

If the answer is yes to all 3 questions, then you should register with VAT. If the answer is no to any of the questions, then the answer to the question ‘should I register with Cyprus VAT’ is: it depends.

Clarifications:

• To check whether your type of activity is taxable or not, see section ‘3. Cyprus VAT rates’ within this article, are below.
• If you are selling to people outside of Cyprus, see section ‘6. Business activities outside of Cyprus – international trade’ in this article, below.
• The registration threshold is €15.600 in any 12 months. If your income (not profit!) exceeds €15.600 in any consecutive 12 months, then you have a legal obligation to register with VAT.
• Voluntary registration: You are also allowed to register voluntarily with VAT, if you expect your income to be more than €15.600 in the next 12 months.

3.  Cyprus VAT rates

Different goods and services are split into 5 categories. Each category is taxed with a different VAT rate:

• 19% VAT   –   The standard rate of VAT in Cyprus is 19%. All goods and services that don’t fall in any of the other 4 categories are taxed at 19%.

• 9% VAT   –   Hotel accommodation, catering services, and others.

• 5% VAT   –   Books, magazines and newspapers, theatre and cinema tickets, use of sporting facilities, and other.

• 0% VAT   –   Services relating to imports, exports, and others.

• Exempt from VAT   –   Supplies in the public interest (ambulance, postal services, non-for-profit organisations etc) and insurance, financial and management of mutual funds.

Clarifications:

• If you are not sure which is the right category for your product or service, check the complete list here (download tables on VAT rates in individual EU Member States).
• The difference between ‘0% VAT’ and ‘exempt from VAT’ is that if you sell a product which is in the 0% category, you can claim back VAT on expenses paid to make the product. If the product is exempt from VAT, you cannot reclaim VAT you paid.

4.  Is VAT registration only required for Cyprus companies?

No. If you are any of the below, you still have an obligation to register with VAT:

• Individual (physical person)
• Limited liability company
• Partnership
• Club
• Foundation,
• Union,
• International entity,
• Group of companies

5.  Preparation and submission of quarterly returns, and reclaiming VAT

After an individual or a legal entity registers with VAT, they need to submit reports quarterly (every 3 months). You have 40 days after the end of the last month in the quarter to submit the return, and pay the tax due. VAT forms (including the registration form) are only available in Greek language. No forms are available in English. You can reclaim VAT on purchases of goods up to 3 years before registration (unless goods were consumed by registration date) and up to 6 months before registration on purchase of services.

6.  Business activities outside of Cyprus – international trade

The European Union has a common set of VAT rules which must be applied by all businesses which are based in an EU country and are trading ‘cross-border’ (whether to another EU country, or to the rest of the world). If you have a business in Cyprus, and you buy or sell from entities or individuals based internationally (anywhere in the world outside of Cyprus) it is important to understand how EU VAT rules affect your business. VAT treatment is determined by 3 key things – whether you:

• Buy/sell from an EU country, or the rest of the world.
• Buy/sell goods, or services.
• Buy/sell to businesses, or directly to consumers.

The EU has an excellent short summary of its main ‘cross-border trading’ rules, available in this link. See also our own guide for VIES rules regarding intra-EU transactions.

Other situations:

Buying from and selling to the same country: 
A Cyprus-registered company buying and selling goods in the same country is not considered intra-community trade or export. The Cyprus VAT authorities will not accept VAT registration in this case and will likely ask the Cyprus company to register with that country’s VAT department instead.

Non-Cyprus entities doing business in Cyprus: 
Entities based outside of Cyprus may generate income in Cyprus. An example would be an offshore company holding events in Cyprus. If the business activity is taxable, and above the €15.600 threshold, the offshore entity needs to register with Cyprus VAT. If the offshore company is based outside of EU, Israel, or Switzerland, then the VAT department will require either a (personally liable) representative in Cyprus or a bank guarantee for the estimated future liability.

7.  Penalties

• Late registration:   €85 per month of delay
• Late deregistration:   €85 one-off
• Late submission of quarterly return:   €51 per return
• Late payment of VAT:   penalty of 10% x amount due and 4% yearly interest (charged monthly).
• There are similar penalties for late VIES and INSTRAT submissions (relevant only for businesses selling to customers in the EU).
• There are significantly more serious penalties (including criminal charges) if the authorities discover tax evasion.

8.  Special rules and exceptions

The above information is only a summary of the key VAT aspects that a business in Cyprus is likely to face. It is important to note that Cyprus VAT legislation has substantial complexity and depth, originating in EU law, Cyprus law, binding court cases (both on the EU and Cyprus level), and other sources. There are hundreds of rules, exceptions to the rules, and special situations. It is impossible to cover all aspects of VAT in a single article, due to the overwhelming amount of information that would be required.

If your business activity is irregular, or if you need guidance on a specific/peculiar issue, your best course of action is to seek professional VAT consulting. Also, you can always review the legislation yourself, available on the tax department’s website.

We hope you found this article useful. If you have a business in Cyprus and you would like assistance with VAT, get in touch with us. We can help with VAT registrations, preparation and submissions of quarterly returns, and other services.