Value Added Tax

Definition

Value added tax is imposed on the provision of goods and services in Cyprus, on the acquisition of goods from the European Union and on the importation of goods into Cyprus.

Taxable persons charge VAT on their taxable supplies (output VAT) and are charged VAT on goods or services received (input VAT).

If input tax > output tax = repayment is due from the state.
If output tax > input tax = payment has to be made to the state.

Registration

Registration is compulsory for business:

with turnover > C£9.000, or acquisitions in Cyprus from member states > C£6.000 or making distance sales (sales from a person established in another member State) > £20.000 during the 12 preceding months.
if there are reasonable grounds for believing that in a period of thirty days then beginning the thresholds as stated above will be exceeded.

Business that do not exceed the above thresholds have the option to register if they wish to do so.

VAT payment / return of VAT

VAT returns must be submitted quarterly. The payment of VAT must be made within 40 days from the end of each quarter.

VAT rates

Legislation provides for these tax rates.

Zero rate (0%)
Reduced rate (5%)
Standard rate (15%)

Zero rated goods and services (0%)

Supplies to other member states of the European Union
Exports
Foods
Medicines
International air and sea transport
Commission received from abroad for exportation goods

Reduced rate in goods and services (5%)

Hotel accommodation fees (as of 1.1.2006 it will be increased to 8%)
Supplies of goods in the course of catering except alcoholic drinks, which are standard rated (as of 1.1.2006 it will be increased to 8%)
Funeral services and supply of coffins
Road sweeping, garbage collection and recycling
Services of outdoors, composers, artist, and critics of works of art
Supply of fertilizers
Supply of animal feeding stuffs
Supply of seeds
Supply of live animals used for the preparation of foods
Non-bottled water
Newspaper and magazines
Books
Various equipments used by handicapped persons
Ice-cream, yoghurt and similar products
Salted or spicy products made from cereals or potato or potato substitute
Dry nuts salted, roasted or spicy
Gas
Transfers of persons and luggage by urban and rural area buses

Reduced rate in goods and services (8%)

Transfers of persons and luggage inland by urban and rural area taxis or by tourism, excursion or intercity buses
Local transport of passengers by sea (as of 1.1.2006)
Hotel accommodation fees (as of 1.1.2006)
Supplies of goods in the course of catering except alcoholic drinks, which are standard rated (as of 1.1.2006)

Exemption

Certain goods and services are exempt from VAT, for example:

Rent
Medical Services
Insurance and financial Services
Disposal of immovable property

For the sales of buildings for which an application was filed at the Town of Planning and Housing Department after the 1st May 2004 for the issue of building license are subject to standard rated VAT. For the purchase of buildings that is to be used as first residence and for which an application was filed for the issue of building licence after the 1st May 2004, a government grant is available (see section for government grant for the purchase of new property).

Difference between zero rating and exemption

Businesses that make exempt supplies are not entitled to recover Vat with which they have been charged on their purchases, expenses or imports (Vat input).

Irrecoverable input VAT

Input VAT cannot be recovered in the following cases:

Sale of exempt supplies
Purchase, import or hire of saloon cars
Directors' housing expenses
Entertainment and hospitality expenses (except expenses relating to employees and directors)