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Information for Cyprus Expats on Cyprus Value Added Tax (VAT)
Imposition of VAT
VAT is imposed by a person who is, or should be, registered for VAT (a taxable person) in the course of furtherance of a business on:
(a) every taxable supply of goods and services made within Cyprus, other than an exempt supply
(b) the acquisition of any goods in Cyprus from other European Union member states, and
(c) the importation of goods from countries outside the European Union.
Mechanics of VAT
• VAT is charged on taxable supplies of goods and services made (output tax) and is paid on purchases of goods and services received
(input tax)
• VAT returns showing the output tax and input tax must normally be submitted every three months, or monthly if approved or directed by the VAT Commissioner
• If the output tax is greater than the input tax, the difference must be paid to the VAT Office within 40 days from the end of each VAT period
• If the output tax is less than the input tax, the difference is carried forward, except in specific cases when it may be refundable.
Recent changes
With effect from 1 January 2010, Cyprus has implemented the changes introduced by EU directives in relation to:
• the place of supply of services
• the introduction of an electronic VAT
Refund Scheme for intra-Community transactions
• intra-community sales list – form VIES
The new general rule for the place of supply of intra-EC services is now B2B (Business to Business) supplies of services where the customer is established and no longer where the supplier is established, as was the case up to 31.12.2009. In
this case the customer will have to account for VAT under the reverse charge method.
For intra-EC B2C (Business to Consumer) supplies, the general rule for the supply of services continues to be the place where the supplier is established.
As it was the case before 1.1.2010, there continue to be exceptions to the general rule for certain services, with a view to achieving taxation in the place of consumption. These are mainly being implemented on 1 January 2010, with further
changes to the ‘where performed’ rule from 1 January 2011 and for long-term hire of means of transport from 1 January 2013.
From 1 January 2010, EC Sales Lists (VIES) needto be completed for intra-EC taxable supplies of services which are subject to the reverse charge arrangements in the customer’s Member State, irrespective of the amount, thus, suppliers of such services are required to be registered for VAT, if not registered. Intra-EC supplies of services which are exempt or zero-rated in the customer’s Member State are not required to be listed in the VIES form.
As from 1 January 2010, all taxable persons registered for VAT in a Member State (state of establishment) may claim electronically for the refund of any VAT paid on business expenses in another Member State (state of refund). VAT may
be refunded only on prescribed business expenses in respect of input tax allowable in accordance with
the VAT legislation of the Member State of refund.
Registration
Registration is compulsory for businesses with an annual turnover of taxable supplies in excess of €15.600. Registration is also required, irrespective of amount of taxable supplies, where a person ought to submit a VIES return in respect of intra-EC supplies of services which are taxable in the customer’s Member State. Businesses with a lower
turnover may register at their option.
Zero-rated supplies are taxable supplies and should be included in the total of taxable supplies for the purposes of determining whether the threshold has been reached. If a business makes only zero-rated supplies that
exceed the threshold it has to register for VAT.
Goods or services exempt from VAT
These include:
• land
• used buildings
• new buildings for which application for a
building permit was made prior to 1 May 2004
• rents
• banking and financial services
• insurance
• health
• education
• sports
VAT tax rates
The VAT legislation provides for the following four VAT rates:
• zero rate (0%)
• lower reduced rate (5%)
• higher reduced rate (8%)
• standard rate (15%)
Zero-rated taxable supplies (0%)
These include:
• exports to non EU Countries
• supplies to other EU member states provided the purchaser uses these supplies for business purposes
• commissions received from abroad relating
directly to exports of goods outside member states
• Commissions received from abroad relating directly to the importations of goods from non EU member states where the goods are placed under customs suspensive arrangements, including temporary storage, free zones, customs warehousing, etc.
• international air and sea transport
Lower reduced rate taxable supplies (5%)
These goods include:
• foodstuffs, except in the course of catering
• medicines
• supply of agricultural fertilizers and insecticides
• animal foods, including foods for fish and birds.
• vaccines for doctors and veterinarians
• supply of live animals used for human consumption
• non-bottled water
• newspapers, magazines, books
• equipment for use by the disabled
• ice cream and similar products including various spices, salted or roasted products
• gas
• confectionery except biscuits and cakes, but including chocolates and chocolate covered biscuits
• bottled water, industrialized drinks, juice drinks (excluding carbonated drinks, alcoholic beverages, beer and wine)
• ingredients used in the production of foods
• car seats for children
• services of writers, composers and artists, as
well as the royalties received by them
• hair salon services
• improvement and repair of a private residence (older than 3 years)
• products for contraception
• products for women’s health
• medical equipment used exclusively by handicapped persons
• services by undertakers and coffins
• road cleaning, refuse collection and recycling, other than services supplied by state authorities, local authorities and public utility corporations
• transport of passengers and their accompanying luggage by urban and rural buses
• letting of places on camping or caravan sites
• admission to shows, circuses , parks, concerts, museums, zoos, movie theatres, galleries and similar cultural events
• admission to sporting events and use of sporting facilities
• repair of medical equipment and certain products that are used by handicapped persons
• medical and dental services and bathing-cure that are not exempted from VAT under paragraphs 2 and 3 of the Fifth Schedule of the VAT Law. Medical examinations or treatment of cosmetic or aesthetic nature are excluded from this paragraph
• accommodation in hotels, tourist and other similar establishments including provision of holiday accommodation (8% from 30.4.10).
Higher reduced rate taxable supplies (8%)
• transport of passengers and their accompanying luggage with urban, suburban and rural taxis as well as with tour, excursive and suburban buses
• restaurant services and other similar catering services, including alcoholic beverages, beer and wine
• accommodation in hotels, tourist and other similar establishments including provision of holiday accommodation (5% from 30.4.09 to 30.4.10)
• domestic sea transport of passengers and their accompanying luggage
Irrecoverable input tax
For certain supplies of goods and services, input VAT is irrecoverable. These include:
• private or non business activities or the business of another person
• purchase, import or hire of saloon cars, unless used for qualifying purposes, such as car rental and driving instruction, or as taxis
• business entertainment expenses (unless relating to employees and directors not including ancillary expenses)
• goods acquired in accordance with a secondhand goods scheme
• accommodation of directors and their connected persons
• purchases which directly relate to the provision
of exempt supplies, subject to part-exemption
provisions.
Zero-rate vs. Exemption
Businesses which provide zero-rated supplies are entitled to recover VAT paid, whereas businesses which only supply exempt goods or services, are not entitled to recover VAT which they have been charged on their purchases, expenses or imports.
© Grant Thornton Cyprus website
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