VAT Rates in Cyprus

VAT Deduction Limits in Cyprus

Input VAT is generally deductible as long as the goods or services are used for business purposes. Unlike most EU countries, Cyprys only restricts VAT deduction on a few items.

• The following supplies are subject to special rules concerning input VAT deduction:
• Input VAT from the purchase or hire of saloon cars is not deductible, unless for resale, or other qualifying purposes.
• Accommodation, foodstuffs, and entertainment, unless for employees, is not deductible.
• Business gifts of a value less than EUR 17 are 100% deductible.
• Mobile phone, advertising, attendance to conferences and training, fuel expenses, etc. are 100% deductible.

A valid and fully compliant VAT invoice must be issued for each expense on which VAT is deducted.

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Statute of Limitations in Cyprus

The statute of limitations in Cyprus is six years.

The statute of limitations period determines the periods on which the tax authority can go back to review the information declared, and apply additional VAT assessments, penalties, or interests. However, voluntary corrections of the reported data can only go back 3 years, after which, the tax authorities must approve such voluntary correction.

Also, the statute of limitations determines the period a taxpayer can voluntarily correct any errors on past submissions, and deduct input VAT.

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Tax point rules in Cyprus

The tax point is the time when VAT becomes due. VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.

• General rule: VAT becomes due when the goods are put at the customer’s disposal, or when the services are completed.
• Invoice issuance: if an invoice is issued up until the 14th day after the tax point date following the general rule, then the invoice date becomes the tax point. The invoice needs to be sent to the customer in order to create the tax point. If that time has passed without the issuance of an invoice, then the tax point is determined according to the previous general rule.
• Supplies of goods with installation: the tax point is the day the goods are made available to the customer.
• Advanced payments or prepayments: the tax point is at the moment of receiving the prepayment or deposit.
• Continuous supplies of services: there is a tax point every time an invoice is issued or a payment is received, whichever occurs earlier.

Find here an overview of the tax point rules in Cyprus.

Use and Enjoyment rules in Cyprus

When it comes to establishing the place of supply of a transaction, Member states may introduce another exception to the B2B and B2C rules according to the place where the services have been used and enjoyed. This exception may be introduced to avoid double taxation (positive use and enjoyment rules), to avoid non-taxation (negative use and enjoyment rules), or both.

Cyprus introduced both the negative and positive use and enjoyment rule. The use and enjoyment rules apply in Cyprus covering the following scenarios:

• "TBE" services (telecom, broadcasting, and electronically supplied services).
• Hiring of goods.
• Short-term hire of means of transport.

The place of supply for the previous services is Cyprus where the same were used and enjoyed in Cyprus and, according to the general rules, such services would be taxable in a country outside the EU.

The place of supply for the previous services is outside of Cyprus where the same were used and enjoyed in a country outside Cyprus and, according to the general rules, such services would be taxable in Cyprus.

Cypriot Bad Debt Relief

The bad debt regime applies to scenarios where an invoice has been issued with VAT, reported in the VAT return and the VAT amount has been paid to the tax authorities but the whole price has not been collected from the customer.

This is often due to the client´s bankruptcy, insolvency, or simple missed payments to suppliers. In the EU, most countries allow taxpayers to recover the VAT initially paid to the authorities, however, the conditions change from one country to another.

Cyprus allows for bad debt relief provided that the following conditions are met:

• You have paid the VAT to the Tax Authorities
• You have deleted the transactions from the accounts and included it on a separate bad debt account.
• You have taken the necessary steps to claim the debt from the customer.
• The debt has remained unpaid for 12 months counted from the date of the transaction.

If you meet the above conditions, you can claim the VAT refund to the tax authorities within 4 years from the date on which the debt became due and payable, or from the transaction date, whichever is later.

In order to claim the VAT refund of the bad debt you need to deduct the VAT amount in your VAT return.

When your customer is a taxable person, you must send a communication within 7 days from the submission of the VAT return, informing about the bad debt relief.

Find the official guidelines from the Cyprus authorities on bad debt relief, information Form 14.

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