Value Added Tax
(VAT)
Value Added Tax is an indirect tax which is imposed on goods and services at each stage of production, starting from raw materials to final product. VAT is levied on the value additions at different stages of production. Vat applies to a supply of goods or services, to intra – E.U. acquisitions of goods from fiscal warehousing arrangements and to importation of goods.
Taxable business charge VAT on their taxable supplies (output VAT) and are charged VAT on goods or services received (input VAT).
If input tax is more than the output tax then a repayment is due from the government. On the other hand if output tax is more than input tax then a payment has to be made to the government.
A business has obligation to be registered to VAT if:
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Has a taxable supplies in the last 12 months exceeds €15.600
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Has acquisitions in Cyprus more than €10.250
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Provide services to a VAT registered person within the EU (nil registration threshold)
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Offers zero rated supplies of goods or services
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Acquires company on a going concern basis
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A foreign taxable person makes distance sales with registration threshold €35,000
Businesses that do not exceed the above thresholds don’t have the obligation to be registered.
According to the trade activity of each business, VAT Department determine the periods that VAT returns must be submitted. Each period is quarterly, and the taxpayers have 40 days from the day that the quarter ends to submit the VAT returns and also proceed with the payment if there is a tax due.
According to the Cyprus Law there are three VAT rates that are applied.
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Zero rate (0%)
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Reduced rate (5% and 9%)
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Standard rate (19%)
Under the zero rate (0%) are liable the below services and goods
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Supplies to other member of the European Union (B2B)
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Supply of services to meet the direct needs of sea going vessels and aircrafts
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Supply, modification, repair, maintenance, chartering and hiring of aircrafts, used by airlines operating for reward mainly on international routes
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Supply, modification, repair, maintenance, chartering and hiring of sea-going vessels, which are used for reward or used for the purpose of commercial, industrial or other activities.
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Exports
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Construction services between companies/individuals that are both registered on VAT
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International air and sea transport
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Commission received from abroad for exportation goods
Under the reduce rate (5%) are liable the below services and goods
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For purchase of permanent residence despite the nationality of the owner.
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Renovation and repair of private households after three years of first residence
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Acquisition or construction of residence (subject conditions)
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Funeral Services and supply of coffins
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Road sweeping, garbage collection and recycling
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Services of outdoors, composers’ artist, and critics of works of art
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Supply of fertilisers
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Supply of animal feeding stuffs
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Supply of seeds
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Supply of live animals used for the preparation of foods
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Non -bottled water
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Newspaper and magazines
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Books
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Various equipment used by handicapped persons
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Ice-cream, yogurt and similar products
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Salted or spicy products made from cereals or potato or potato substitute
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Dry nuts salted, roasted or spicy
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Gas
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Foods
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Medicines
Under the standard rate (9%) are liable the below services and goods
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Transfers of persons and luggage inland by urban area taxis or by tourism, excursion or intercity buses.
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Local transport of passengers by sea
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Hotel accommodation fees
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Restaurant and catering services
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Provision for services and supply of goods by nursing homes, which are not exempt transactions.
Exemption of VAT for goods and services
Certain goods and services are exempt from VAT:
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Hospital and medical caring services
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Financial services
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Postal services
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Insurance services
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Rental of immovable property for residential purposes.
For sales of buildings for which an application was filed at the Town of Planning and Housing Department after the 1st of May 2004 for the issue of building license are subject to standard rated VAT. For the acquisition of buildings that is to be used as first residence and for which an application was filed for the issue of building license after 1st of May 2004, a government grant is available.
Also the sales of buildings for which an application was filled for the issue of planning Permition after the 1st of May 2004 are subject to standard rated VAT.
Difference between zero rated and exception
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:
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Sale of exempt supplies
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Purchase, import or hire saloon vehicles
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Director’s housing expenses
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Entertainment and hospitality expenses. That is not valid in the case of directors and employees.
Grant for acquisition of first residence
The VAT refund that is given in the form of grant, is available to citizens of the Republic of Cyprus or any other European Union member state, who are permanent residents of Cyprus. The grant is given for the construction or purchase of a new house or apartment, or the transfer of ownership of a building which is used as the first main permanent residence.
The grant is given for residences which the application for planning permission was submitted after the 1st of May 2004 and the total area does not exceed 250 m2 and is restricted to 130 m2 and furthermore that the application for planning permission was submitted after the 1st of May 2004.
The VAT grant is applicable for construction and purchase of residence that took place until the 30th of September 2011. From 1st of October 2011 the grant is not available and the Cyprus parliament voted and put into practice a reduced VAT rate (5%) for the construction or purchase of a residence. The reduced rate it was first applicable for Cypriots and European citizens only but as from 8th of June 2012 the law has changed and non-European citizens can also benefit from the 5%.