Imposition of Value Added Tax
Value Added Tax (VAT) is imposed on goods and services sold or furnished in the Republic of Cyprus, as well as on importation of goods from non-European Countries and acquisitions of goods and services from the European Union member states.

Registration
It is compulsory for businesses to register with the Customs & Excise Department if they had an annual turnover of taxable supplies in excess of €15.377,41 during the preceding 12 months or is expected to exceed the €15.377,41 within the next 30 days, to register with the Customs & Excise Department.

Businesses with a lower turnover may elect to register at their discretion. However, if a business has only zero rated supplies and exceed the threshold of €15.377,41 it has to register for VAT. Businesses with exempt products and services only do not have the right to register even if their turnover exceeds the threshold.

An obligation for registration also arises for companies which make acquisitions of goods from other EU member states in excess of €10.251,61 during any calendar year.

VAT declaration and consequences
VAT returns must be submitted quarterly and payment of any VAT must be made within 40 days after quarter has ended. Delay in payment will result with a 10% fine on the outstanding amount and 9% interest thereon.

Should in any quarter have any refundable VAT, this may be credited against future payments if your entity is classified in the special group of entities or you may apply for an immediate rebate.

Mechanics of VAT

• VAT is charged on taxable supplies of goods and services and is called “output tax”
• VAT is paid on purchases of goods and services received and is called “input tax”
• If the output tax in any given VAT period is greater than the input tax, the difference must be paid to the Republic.
• If the input tax in any given VAT period is greater than the output tax, the Republic will reimburse the difference.
• VAT returns must be submitted within 40 days from the end of each VAT period
• VAT registered entities have the right to request for a different filling period subject to approval

Basic difference between Zero and Exempt supplies
Business entities that offer exempt rated supplies are not entitled to recover any input VAT paid on their purchases, imports, assets and expenses where as business entities that offer zero-rated supplies are allowed to recover the input VAT.

Irrecoverable VAT Input
As an exception to the general rule, input VAT cannot be recovered in a number of cases which include the following:

• Purchase or hire of a saloon motor vehicle
• Non-employee entertainment or hospitality expenses
• Non-director entertainment or hospitality expenses
• Housing expenses for directors and their connected persons
• Acquisition used for making exempt supplies
• Goods acquired in accordance with the second-hand goods scheme
• Expenses which are not wholly and exclusively for the business

Imports and Exports
Imports and Exports to countries other than EU member states have the same treatment as prior to accession of Cyprus to the EU. In other words, exports are zero-rated and VAT input with the appropriate rate will be charged on importation of goods.

Intra Community Transactions
As of 1st May 2004, the terms and tax treatment applicable to imports and exports from/to EU ceased to be applicable. Instead, imports and exports are regarded as intra-community trade and its VAT treatment is outlined below:

INTRA-COMMUNITY SUPPLY
Goods that leave a member state (MS) with a destination in another MS are zero rated in the first MS provided that:

• There is an EU valid VAT number of the buyer and
• There is proof that the goods have left the first MS and
• Have entered another MS

INTRA-COMMUNITY ACQUISITION
Goods acquired by a business entity in a member state (MS) from another MS are not subject to VAT upon arrival, but they will be subject to acquisition accounting (Reverse Charge Procedure) in purchases books as follows:

The purchaser will self-charge VAT at the rate applicable to the goods in his state and at the same time claim back the full amount, thus creating no further costs to the business entity unless it relates to exempt supplies whereby the cost absorbed by the business entity.

Triangulation Transactions
Triangulation transaction is where three parties are involved, where two supplies take place and one movement of goods. However, special rules are applicable to the aforesaid type of transaction.

International Business Companies (IBCs)
The activities of most IBCs fall outside the scope of VAT, but they may opt for a voluntary registration if the satisfy the following criteria:

• Usual place of residence is the Republic
• There is a business establishment in the Republic
• Do not make or intend to make taxable supplies within the Republic
• Trading outside the Republic which would be taxable if traded within the Republic

The effect of voluntary registration would mean that there would be no VAT charge on the income of the entity and refund of all VAT charged within the Republic by VAT registered persons.