Indirect tax

Indirect tax - Cyprus

01 Jan 202513 min read

This tax guide provides an overview of the indirect tax system and rules to be aware of for doing business in Cyprus.

Indirect tax snapshot
What are the current rate(s) of VAT?	Standard rate of 19% for most goods and services. Higher reduced rate of 9% for some services including hotel accommodation and hospitality. Lower reduced rate of 5% applies to services which include food for human consumption, medicines, renovation of private dwellings and the purchase of new immovable property which is the principal place of residence in Cyprus, subject to conditions. Lower reduced rate 3% applies for items such as books, devices for the disabled, orthopaedic devices and admission to theatrical/musical events. Zero-rated goods and services include supplies related to commercial shipping and exports.
Are there any confirmed or anticipated changes to these rates?	No.
What is the Principal Indirect Tax?	Value Added Tax (VAT) is the principal indirect tax in Cyprus. It is a tax on consumer expenditure, and is collected on business transactions and imports.
Is there a registration limit for the tax?	Yes. It relates to the turnover of taxable transactions in Cyprus at any point in the previous 12 months, and once the limit has (or will be within 30 days) reached it is necessary to register.
Does the same registration limit apply to non-established businesses?	Yes, the same registration limits apply to non-established business. Different registration requirements also apply to businesses involved with ‘distance sales’ made within the European Union (EU) eg mail order and internet sales.
Does a non-established person need to appoint a fiscal representative in order to register?	In certain circumstances, a non-established person may be directed by the Cyprus tax authority to appoint a fiscal representative. This especially applies if the non-established person has their business outside the EU.
How often do returns have to be submitted?	Businesses are required to submit VAT returns covering three month accounting periods.
Are penalties imposed for the late submission of returns/payment of tax?	Yes. If a VAT return, or the corresponding payment, is submitted late a penalty is imposed.
Are any other declarations required?	Yes. Additional declarations have to be submitted in respect of certain supplies made to customers who are registered for VAT elsewhere in the EU and in certain circumstances for goods moving to or from the EU. Declarations also have to be submitted for supplies of electronic, telecommunications or broadcasting services supplied to consumers in the EU.
Are penalties imposed in other circumstances?	Yes. Penalties can be imposed for a range of errors or omissions.
Can the tax incurred by overseas businesses be claimed if they are not registered in your country?	Yes, in certain circumstances and subject to certain conditions.
Deduction of VAT	The following are examples of expenditure for which VAT cannot be deducted: expenditure which is not incurred for business purposes expenditure which relates to most exempt supplies input VAT which relates to supplies of gifts under certain conditions entertainment expenses for persons other than employees or directors input VAT on the cost of saloon vehicles.

Please click on each section to expand further:

What is the principal indirect tax?

Value Added Tax (VAT) is the main type of indirect taxation in Cyprus and in other European Union (EU) countries.

It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process in most cases rests with the business making the supply ie the sale.

A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.

A transaction is within the scope of Cyprus VAT if the following conditions are met:

it is a supply of goods or services
it takes place in Cyprus
it is made by a taxable person. For this purpose, a taxable person is a person or entity who is or ought to be registered according to the provisions of the Cyprus VAT law
it is made in the course of furtherance of a business.

There are five rates of VAT that are applied to goods and services in Cyprus; the standard rate, the higher reduced rate, two lower reduced rates and the zero rates. In addition, some goods and services are exempt from the tax.

Businesses that make exempt supplies in most cases are unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.

Most goods imported into Cyprus from outside the EU are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).

It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within. Once
duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the common market.

Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer.

It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices. It is therefore very important to ensure that the correct rate of duty is applied. VAT is charged on the value of the importation, including any custom duty.

Is there a registration limit for the tax?

A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its taxable supplies in Cyprus exceeds the annual registration limit, or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded.

For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all of his business activities will be covered by the registration – even if the nature of some of those activities are very different.

A penalty may be imposed by the tax authority if a business fails to register at the correct time.

Group registration

Two or more corporate bodies can be registered together as a VAT group if:

each of the bodies is incorporated in Cyprus
there are financial, economic and organisational ties. Financial ties exist where certain elements of ‘control’ exist between the members, economic ties exist where the nature of the activities of the parties are similar or supplementary and organisational ties exist where there is a common management/governance structure.

A corporate body cannot be treated as a member of more than one VAT group at a time.

The main advantage of a VAT group registration is that, apart from a few limited exceptions, any supply of goods or services by a member of the group to another member of the group is disregarded for VAT purposes. This reduces the risk of VAT being accidentally omitted on supplies between separately registered connected companies.

However, there are some disadvantages and any decision on whether to group register should be taken with care. For example, all VAT group members (including former members) are jointly and severally liable for the VAT debt of the group during the period of their membership.

Does the same registration limit apply to non-established businesses?

There is no registration threshold for non-established businesses. This entails that a registration obligation will arise irrespective of the value of supplies made.

Does a non-established business need to appoint a fiscal representative in order to register?

The VAT authority in Cyprus may direct a person to appoint a VAT representative to act on his behalf for VAT purposes where the person:

is a taxable person, or without being a taxable person carries out taxable supplies or acquires goods in Cyprus from other member states
is not established, and does not have a ‘fixed establishment’ in Cyprus
is established in a country or territory which is not an EU country (or part of such a country) and where it appears to the Cypriot authorities that there is no provision for mutual assistance similar to that which provided between Cyprus and other EU countries
in the case of an individual, he does not have his ‘usual place of residence’ in Cyprus.

How often do returns have to be submitted?

VAT returns normally cover an accounting period of three months, ending on the last day of a calendar month.

All VAT returns have to be submitted within 40 days following the end of the relevant period.

Are penalties imposed for the late submission of returns/ payment of tax?

A default surcharge penalty is imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date.

There is a late submission penalty of €100 if a VAT return is not submitted on time. There is also a default surcharge for late payment equal to 10% of the unpaid tax. Interest is imposed on the unpaid tax and late payment surcharge according the government interest rate which is announced at the beginning of each year.

This is calculated on a monthly basis.

Are any other declarations required?

Businesses that are registered for VAT in Cyprus, and make supplies of goods or services to traders registered for the tax in other EU countries are required to complete and submit EC Sales Lists (ESLs). The ESLs must show details of the recipients of the goods and services.

ESL’s must be submitted on a monthly basis, by the 15th of the following month, regardless of the value of goods or services which are supplied.

In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU Member States is above an annual threshold, a supplementary declaration (referred to as an Intrastat declaration) has to be submitted for either or both. These declarations have to be submitted on a monthly basis, by the 10th of the following month.

Businesses which supply electronic, telecommunications or broadcasting services to consumers residing in the EU are required to report these supplies to each Member State via the One-Stop Shop (OSS). The submission and payable VAT for these supplies is made quarterly and are due within one month following the end of each quarter.

Are penalties imposed in other circumstances?

Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.

Civil penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied in certain situations including where the business has failed to maintain adequate records, provide information (including additional declarations), issue a legal receipt or comply with any of the directions or regulations of the commissioner.

Criminal proceedings may be brought in the case of more serious matters.

Can the VAT incurred by overseas businesses be claimed if they are not registered in Cyprus?

Yes, it may be possible to reclaim the VAT incurred in certain circumstances.

Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.

The EU cross border refund scheme is available in all EU member States, and enables a business established in another EU country to recover VAT incurred in Cyprus. To be eligible to make a claim, the claimant must be a taxable person established in an EU member State other than Cyprus and in addition the claimant:

must not be registered, liable, or eligible to be registered in Cyprus
must have no fixed establishment, seat of economic activity, place of business or other residence in Cyprus
during the refund period they must not have supplied any goods or services in Cyprus.

The amount that is refundable is determined by the deduction rules that apply in Cyprus and the claim is submitted electronically to the tax authority from whom the repayment is being sought.

The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT was incurred.

Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into Cyprus or purchases of goods and services used in Cyprus.
The scheme is available to any person carrying on a business established in a third country ie outside the EU, provided that in the period of the claim:

they were not registered or liable to be registered for VAT in Cyprus
they were not established in any EU country
they made no supplies of goods and services in Cyprus
where they are established in a third country having a comparable system of turnover taxes, unless the Cyprus tax authority allows otherwise, that country provides reciprocal arrangements for refunds to be made to taxable persons established in Cyprus.

The claim period in Cyprus is from 1 January to 31 December each year. Claims have to be submitted to the Cyprus tax authority no later than 30 September of the following year.

What information must a VAT invoice show?

A VAT invoice must normally show:

an invoice number which is unique and sequential
the invoice date
the seller’s name and address
the seller’s VAT registration number
the time of supply (also known as tax point) if this is different from the invoice date
the customer’s name and address
the customer’s VAT registration number where applicable
a description sufficient to identify the goods or services supplied to the customer
for each description the number of goods or the unit price or the extent of services, the VAT rate and the net payable in Euro
the total net amount without VAT
the portion of any discount offered
analysis of each VAT rate and the total amount payable thereon, for each rate
the total amount of VAT in Euro
where any of the margin schemes are used adequate reference should be made on the invoice, eg Margin Scheme

– Travel Agents

where the cash accounting scheme is used the invoices should state ‘Cash Accounting Scheme’
where self billing is being applied the invoices should state ‘Self Billing’
where the recipient in another Member State is responsible for accounting for the tax the invoice should state ‘Reverse Charge’.

Where a VAT invoice includes zero-rated or exempt goods or services, it must:

show clearly that there is no VAT payable on those goods or services
show the total of those values separately.

VAT invoices can be issued, received and stored in electronic format and there is no need to notify the tax authority.

Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.