* This article was updated to reflect 2023 tax rules. This article is relevant for the tax year ending 31 December 2023.
THE IMPLICATIONS OF VIES RULES FOR CYPRIOT BUSINESSES
VAT treatment when a Cyprus company sells to other EU countries
When a Cyprus company sells goods or services in another EU country, there are 2 main possibilities with regard to VAT treatment:
- Cyprus company sells to a non-VAT registered counterparty (typically Business-to-Consumer transactions): The seller’s invoice must include VAT.
- Cyprus company sells to a VAT-registered counterparty (typically Business-to-Business transactions): The seller’s invoice should include 0% VAT (the ‘reverse charge’ mechanism).
Before the seller is allowed to sell at 0% VAT, the seller has an obligation to verify the VAT number of its counterparty. This is to ensure the 0% VAT rule is correctly applied, and not abused.
What does VIES mean exactly, and what is a ‘valid VAT number’?
As explained in the section above, a Cyprus VAT-registered seller needs to verify that the buyer has a valid VAT number, before charging 0% VAT.
Verification is done by using the VIES database. This is a database of all VAT numbers, in every EU country. The database is available on this link. VIES stands for VAT Information Exchange System.
For more guidance on EU VIES rules, see the extensive VIES FAQ by the European Commission.
For more information on Cyprus VAT, see our VAT guide.
Obligations of Cyprus companies under VIES rules
Under VIES rules, a Cyprus company must submit a tax return (called ‘Recapitulative Statement’) every month on which it must indicate:
- total amounts sold to EU counterparties,
- provide a valid VAT number for each counterparty.
This means that a Cyprus company selling to an EU VAT-registered counterparty needs to submit monthly VIES Recapitulative Statements in addition to its quarterly VAT returns.
Is there a difference between a company, a self-employed individual, or any other business structure?
No. Intra-EU VAT rules apply exactly the same way, whether you are a limited liability company, a public company, a sole trader, or other.
VIES Registration threshold
There is no threshold for VIES registration.
A company is obliged to register with VAT (if not already registered) and start submitting Recapitulative Statements, the moment a sale takes place in another EU country (regardless of amount).
VIES Deadlines
Deadline for submission of the VIES monthly Recapitulative Statement is 15 days after the month’s end. For example, the sales of a company during January need to be declared no later than the 15th of February.
If the 15th falls during a weekend or public holiday, the VIES return can be submitted on the next working day.
VIES returns (Recapitulative Statements) can only be submitted electronically.
VIES Penalties
- Late submission of a monthly Recapitulative Statement results in a penalty of €50 (for every monthly return missed).
- Correction of a mistake on a VIES return is allowed up to 1 month after submitting the return. If a correction is made later than 1 month, a penalty of €15 per return is imposed.
- As per the Cyprus tax department guidance, a continuing failure to submit VIES returns is a criminal offence, punishable by a fine of up to €850.
Non-EU countries & Brexit
Sales to non-EU countries are outside the scope of VIES / EU VAT rules, and should not be included in the Recapitulative Statement.
As of 01 Jan 2021, sales to UK are considered as situated outside the EU, and therefore not taxable under EU VAT legislation. The UK has ceased to be a member of the VIES validation mechanism as of that date.
Do you have a a company in Cyprus, which sells products or services in other EU countries? Get in touch with us! Our tax team can assist you with the submission of monthly VIES Recapitulative Statements, quarterly VAT returns, and other tax obligations.
