EU VAT guide – Cyprus

VAT rates in Cyprus 

How much is VAT in Cyprus? 

The Standard VAT Rate (φόρος προστιθέμενης αξίας (ΦΠΑ)) in Cyprus is 19%. 

Some supplies are exempt from VAT. This applies to business activities like health care, insurance, and postal services.

The exact list of taxable transactions and allocated Cyprus VAT rate can be found in VAT Cyprus regulations. 

VAT thresholds in Cyprus 

Valuable information about the VAT threshold in Cyprus and applicable provisions can be found in the VAT legislation. Also, a helpful source of information is an interpretation of the appropriate information shared by Tax Authority officials. 

VAT registration threshold for resident businesses: If the taxable turnover is higher than EUR 15,600 in 12 consecutive months the liable person should follow the procedure for VAT registration.

VAT registration threshold for non-resident businesses: No registration threshold.

VAT registration threshold for intra-EU distance sales of goods and B2C supplies of services: EU-wide harmonized threshold of EUR 10,000.

VAT registration threshold for non-EU established suppliers of Electronically Supplied Services: No registration threshold.

VAT Taxable Activities in Cyprus

A taxable person by Cyprus VAT Law is a legal person or individual who carries out economic activity independently, whatever the purpose or results. 

Types of taxable activities that trigger the imposition of Cyprus VAT: 

• The supply of goods and rendering of services in Cyprus for consideration;
• Receipt of reverse-charge services by a taxable person in Cyprus;
• Export of goods;
• Import of goods.

Other case scenarios exist where domestic or foreign businesses should impose Cyprus VAT on their transactions. 

Tax Representative in Cyprus 

For non-EU-established businesses, having a tax representative for all VAT compliance-related activities is often mandatory. Tax persons with tax residence in third countries or territories with mutual assistance agreements signed with Cyprus can fulfill their tax obligations without the mandatory requirement to contract a tax representative. 

For EU-established companies, having a tax intermediary isn’t compulsory. Still, the economic operator could acquire the professional to ease up and streamline compliance challenges for its operations in the country. 

VAT on Electronically Supplied Services in Cyprus 

Electronically Supplied Services 

According to the EU VAT Directive 2006/112/EC, Electronically Supplied Services (ESS) are identified as services that are delivered through the Internet or similar digital networks. An irreplaceable element of this category of services is their reliance on automation, and taking this factor into account the existence of human involvement is lowered to a minimum if any at all.

Other groups of services, in which delivery isn’t fundamentally relied upon delivery through digital networks in most cases will not be treated as ESS. Consistent with the EU VAT Directive and its Implementing Regulation, Cyprus has incorporated this uniform definition of ESS into its national laws. 

This adoption ensures a harmonized approach to handling this category of services throughout the EU.

Despite this standardization, the terms “digital services,” “digital products,” and “electronic services” are often used interchangeably, leading to potential confusion and inconsistency in their taxation as well as the legal interpretation. 

Taxability Rules for ESS

The 2021 E-commerce regulatory package introduced revisions to the EU-wide taxability rules, strengthening the position of uniformity and straightforwardness across the common market. These modifications have also modernized the administrative systems for VAT registration and declaration throughout the EU.

Impactful Changes Enacted by the 2021 E-commerce Reform:

• B2B Electronically Supplied Services: The place of supply for these types of transactions, where the purchaser is a taxable person, is defined according to the general place of supply rules;
• B2C Electronically Supplied Services: Non-EU established taxable persons must comply with EU-wide standardized tax rules, which stipulate that the place of supply should be based in alignment with the customer’s residence;
• Distance Sales of Goods and ESS: For EU-based suppliers, reaching an annual turnover threshold of EUR 10,000 is very important. Taxable persons who make turnover below this annual threshold may opt to follow their home country’s VAT rules or report transactions through the One-Stop Shop (OSS) schemes;
• Distance Sales Exceeding the EUR 10,000 Threshold: Merchants established in the EU whose annual turnover exceeds this threshold should apply VAT rates based on the destination principle. 

The comprehensive alignment of VAT regulations. under the umbrella of common rules defined through the EU VAT Directive simplifies compliance procedures for businesses operating within the EU. This policy also supports economic harmony across Member States, fostering a competitive and consistent environment for businesses of all sizes.

How much is VAT in Cyprus for Electronically Supplied Services?

VAT rate Cyprus: A standard VAT rate of 19% is applied in most cases on sales of Electronically Supplied Services in Cyprus.

E-Commerce VAT Rules in Cyprus 

On July 1, 2021, EU regulators adopted important revisions to the VAT Directive, specifically to the sections relevant to the E-commerce sector. These changes were designed to reduce the challenges surrounding VAT compliance for businesses involved in cross-border activities.

Relevant Aspects of the 2021 E-Commerce VAT Reforms:

• Cross-Border Sales of Low-Value Goods: The reforms introduced a uniform EU threshold for the import of low-value goods from third countries or third territories. This measure allows businesses to manage VAT obligations more efficiently through a simplified reporting system;

• Intra-Community Distance Sales: The reforms have eliminated the previously established threshold for intra-community distance sales of goods. These thresholds have been defined per national rules, further complicating the compliance for non-resident suppliers;
• Domestic Sales by Deemed Suppliers: In certain cases, digital platform operators will be the responsible taxable persons for VAT;
• Provision of B2C Services: The scope of provision of services that could be reported under the OSS schemes has been drastically broadened. This expansion simplifies VAT reporting for businesses providing digital services across the EU, fostering a more streamlined approach to VAT compliance and reducing administrative burdens.

Simplified reporting tools:

Beyond the primary modifications introduced by the 2021 E-commerce package, this legislative refinement includes a broad update of the uniform reporting system. The willingness to further simplify reporting systems for businesses operating cross-border, the EU regulators have introduced an entirely new scheme the Import One-Stop Shop (IOSS).

The E-Commerce VAT package made the following special schemes available:

• Union One-Stop-Shop Scheme;

• Non-Union One-Stop-Scheme;

• Import One-Stop-Shop Scheme.

Overview of EU VAT Special Schemes

Eligibility for the Non-Union Scheme:

The Non-Union OSS scheme is developed to be used exclusively by sellers established outside the EU. This reporting mechanism allows non-EU-based suppliers to efficiently report a broad spectrum of business-to-consumer (B2C) cross-border service transactions.

This approach facilitates ease of VAT reporting for non-EU vendors engaging in the European market.

Eligibility for the Union Scheme:

• EU-based businesses: Taxable entities that are residents in one of the Member States can take advantage of this scheme if they provide B2C services or engage in intra-community distance sales of goods. An important condition that cannot be overlooked is that domestic supplies, i.e., where the customer is a resident of the same MS, cannot be reported under this scheme;
• Non-EU-based taxable persons providing intra-community distance sales of goods: Businesses not based in the EU are also eligible to use the Union Scheme specifically for intra-community distance sales of goods;
• Digital Marketplaces: Whether based in the EU or not, digital marketplaces facilitating intra-community distance sales of goods and for certain domestic supplies can leverage the Union Scheme. 

Eligibility for the Import Scheme:

The Import One Stop Shop (IOSS) scheme is accessible to EU and non-EU-established taxable persons. This scheme applies to various taxpayers, including digital marketplaces under certain conditions, facilitating simplified VAT obligations for import of low-value goods.

OSS Return and Payment 

Cyprus’s VAT system doesn’t offer a specially designed simplified registration system for non-resident digital service providers.  Nonetheless, non-resident businesses can utilize the One-Stop Shop (OSS) schemes. By leveraging these schemes, they can avoid being registered according to domestic rules. 

The rollout of the OSS schemes has substantially decreased the level of VAT compliance burden for foreign providers that have customers in Cyprus. Before the 2021 updates to EU VAT regulations, foreign businesses involved in supplying goods or services to Cypriot consumers generally needed to register for local VAT.

Should a taxable entity be unable to utilize the OSS scheme for transactions where the place of supply is in the country, they should in most cases be ready to register for local VAT and follow the domestic rules.  

Electronic Platform and Deemed Supplier Rules 

Cyprus has adopted the revised E-commerce VAT rules from the EU VAT Directive introduced by the 2021 E-commerce reform. Implementation of standardized EU VAT rules has notably decreased compliance and administrative expenses for foreign businesses operating with customers based in Cyprus.

Following the introduction of new concepts, Cyprus has implemented the “deemed supplier” concept, which substantially streamlines the tax process for specific online transactions. According to the EU VAT Directive, a digital marketplace operator is classified as a “deemed supplier” in two particular cases:

• When goods valued at EUR 150 or less are imported from outside the EU, and when the original suppliers sell directly to EU customers using the intermediary services of the digital marketplace or;
• When goods in free circulation within the EU are offered by vendors whose residence is outside the EU to customers based in the Member States through the usage of the facilitation service provided by the digital platform.

This approach streamlines VAT responsibilities for digital marketplaces,  bringing Cyprus’s VAT practices in line with EU norms. The adoption of the EU-wide rules through domestic legislation shows the commitment of the Cyprus regulators to follow the uniform approach when it comes to the applicability of the deemed supplier legal institute. 

Under this regulatory framework, the digital marketplace operator becomes the deemed supplier, practically meaning that VAT compliance liabilities are shifted from the online merchant to the platform. 

This transactional model is comprised of two separate transactions:

• The initial supply from the original vendor to the digital platform and that transaction is defined as a B2B transaction.
• The subsequent supply from the platform to the end consumer is treated as a B2C transaction.

This ensures compliance and facilitates smoother operations under the simplified tax framework provided by the EU.

Invoice Requirements in Cyprus 

General invoice information:

• Date of invoice issuance;
• Date of the supply of goods or provision of services if different from the date of the invoice issuance;
• Unique invoice numbers issued in sequence.

Seller information:

• Company name;
• Full address (head office);
• Billing address if different from company address;
•  VAT number.

Customer information:

• Name;
• Full address;
• VAT number;
• Delivery address;
• The billing address is different from the delivery address.

Fiscal Information:

• Description and breakdown of the goods or services – quantity, discounts, unit price excl. VAT;
• Total without VAT;
• VAT amount in EUR;
• The VAT rate(s) applied and the breakdown of VAT per rate;
• Invoice Total.

Additional information required in particular cases:

• Exemption reference – guaranteed by precise norm;
• Reverse charge – term if applicable;
• Self-billing – term if applicable;
• Tax Representative information for non-resident business.

Foreign Currency Invoice in Cyprus  

In Cyprus, it’s permissible to issue tax invoices in foreign currencies, but the VAT amount on the invoice must be shown in EUR.

VAT Return in Cyprus 

Domestic returns

Domestic taxpayers and non-established foreign businesses who conduct business under the national VAT Cyprus rules should submit quarterly declarations. 

Penalties for late reporting and omitted declarations 

Taxpayers should charge Cyprus VAT on their transactions when the responsibility rises and submit the VAT return. If they do the return fillings after the deadline, they can expect to allocate more funds than they would if they had filled the return within the permitted time frame. 

In the case of the late filing of VAT returns and payments, the Cyprus Tax Authorities enforce the following penalties:

• Penalty for late registration – EUR 85 per month of delay;
• Penalty for late submission of VAT return – EUR 51 per return.

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