Definition
Value Added Tax (V.A.T.) is a consumer tax on taxable
supplies of goods and services, made by taxable persons,
in the normal course of business as well as on importation
of goods in Cyprus.
Taxable supply is any supply of goods or services
made or considered to be made in the Republic, which
is not exempt or outside the scope of V.A.T.
A supply of goods or services is considered as outside
the scope of V.A.T. in the following circumstances:
• If it is made outside Cyprus
• If it is made by a non taxable person
• If it is not made in the course of business.
Tax Rates
There are three tax rates. These have recently changed
due to the admission of Cyprus in the E.U. and since
the 1st of January 2003 are as follows:
• The standard tax rate – 15%
• The reduced tax rate – 5%
• The zero tax rate – 0%
Registration
Compulsory registration
Compulsory registration is required if at the end
of any month, taxable supplies in the last 12 months
have exceeded CYP9.000 (approx. EURO15.500) or at
any point in time, supplies in the next 30 days are
expected to exceed CYP9.000.
Voluntary registration
A person or a company making taxable supplies less
than CYP9.000, or do not make and do not intend to
make taxable supplies within the Republic are not
obliged but are entitled to register. Therefore International
Business Entities (IBC’s) that are making supplies
outside the Republic and which would have been taxable
if made within the Republic are entitled to register.
International Business Companies
Under the new legislation IBC’s with fixed establishment
(fully fledged office) in the Republic are either
entitled or obliged to register. All other IBC’s are
interpreted by the Commissioner of V.A.T. as if they
have an establishment elsewhere, therefore they are
neither entitled to nor obliged to register for V.A.T.
By definition IBC’s activities are restricted outside
the Republic and therefore most of their taxable supplies
are outside the scope of V.A.T. However IBC’s with
fixed establishment in the Republic have the entitlement
to register if their supplies outside the Republic
would have been taxable, had they been performed in
Cyprus. Such an entitlement will enable the company
to recover V.A.T. on expenditure paid in Cyprus.
On the other hand IBC’s have the obligation to register
if one of the following occurs:
• They provide taxable supplies whose place of supply
is deemed the Republic.
• They receive services from abroad described in 3rd
Schedule of the law.
Services received from abroad that fall under the
3rd Schedule of the law are treated as supplied where
received. These supplies are considered as performed
by the recipient and V.A.T. is payable by the recipient,
if in Cyprus. At the same time, V.A.T. payable can
be recovered given that they relate to taxable supplies,
as part of input V.A.T. (on the same V.A.T. return).
3rd Schedule of the law - Services
supplied where received
•
Copyrights, patents, licenses, trademarks and similar
rights
• Advertising services
• Services of consultants, engineers, lawyers, accountants,
data processing and supply of information
• Supply of staff / personnel
• Letting on hire of movable goods
• Telecommunication services
• Undertaking of commitments not to carry out, in
whole or part, any business activities or to exercise
the rights of intellectual property referred to above.
• Banking, financing and insurance services (except
the rental of safety deposit boxes)
• Rental of goods with the exception of transportation
means (hire of freight containers, mobile phones,
computers etc).
• Agent services in relation to the above.
Why an IBC's should register?
IBC’s activities are usually outside the Republic
and therefore most of their taxable supplies are outside
the scope of V.A.T. This simply means that an IBC
which has the entitlement to register it would be
beneficial to exercise it because this would bring
the company in a net refund position.
An IBC that decides to register will not have to
pay any V.A.T. on its supplies (output tax) because
the supplies will be outside the Republic. On the
other hand the registration will enable the company
to recover V.A.T. on expenditure (input tax) paid
in Cyprus.
However, before deciding whether the entitlement
should be exercised a careful consideration should
be given by weighting the benefits and costs of such
an entitlement.
