VAT guide for Cyprus

Value Added Tax (VAT) is one of the fundamental elements of the tax systems in all European Union countries, including Cyprus. Although the island is often associated with a favorable tax environment, the VAT system in Cyprus complies with EU regulations and applies similarly to other member states. This article will provide a closer look at the VAT system in Cyprus and the key rates that apply there.

Standard VAT rate in Cyprus – 19%

The standard VAT rate in Cyprus is 19% and applies to most products and services that are not subject to reduced rates. This standard rate is close to the average within the European Union. For comparison, Germany and Romania have the same rate, while lower rates are found only in Malta (18%) and Luxembourg (17%).

Reduced VAT rates in Cyprus

Cyprus offers three reduced VAT rates: 9%, 5%, and 0%. Each of these applies to specific categories of products and services, allowing for adjustments in taxation according to market specifics.

9% rate

The VAT rate of 9% in Cyprus primarily applies to the passenger transport sector and the hospitality industry. Specifically, this rate covers:

• Domestic passenger transport, both road and sea,
• Restaurant and catering services,
• Café operations.

With this reduced rate, Cyprus aims to support tourism-related sectors, which play a key role in the island’s economy.

5% rate

The 5% VAT rate covers a broad range of products and services, many of which are essential goods. The most significant include:

• Certain food items, including non-alcoholic beverages,
• Water supplies,
• Pharmaceutical products,
• Medical equipment for disabled persons,
• Child car seats,
• Books, newspapers, and magazines,
• Works of art, collectibles, and antiques.

The reduced VAT rate on these categories of products aims to minimize the tax burden for consumers, particularly concerning necessary daily goods and cultural items.

0% rate

As in many other EU countries, Cyprus has a 0% VAT rate for selected services and goods. This includes:

• International and intra-community transport,
• Goods purchased during international flights.

VAT-exempt services

In Cyprus, as in many other countries, there are categories of services exempt from VAT. These include:

• Rental of residential properties,
• Insurance services,
• Certain financial services,
• Hospital and medical care,
• Postal services.

VAT registration in Cyprus

The obligation to register for VAT in Cyprus applies to entrepreneurs in various situations, both those conducting transactions within the EU and those operating outside it. Entrepreneurs must register for VAT if they:

• Import goods into Cyprus from outside the EU,
• Export goods from Cyprus outside the EU,
• Provide services or sell goods within Cyprus or to other EU countries,
• Acquire goods from other EU countries and bring them into Cyprus,
• Store goods in Cyprus.

Additionally, businesses operating in another EU country and making intra-community supplies to individual consumers are subject to a distance sales threshold of EUR 10,000. Once this threshold is exceeded, the company is required to account for VAT in the buyer’s country, which can be done either through local VAT registration or the VAT OSS system.

VAT registration procedure in Cyprus

VAT registration in Cyprus can be done either in person or electronically. To register, it is necessary to submit the appropriate forms, including TD 2001 and TΦ1101. Additionally, documents confirming VAT registration in another EU country, copies of directors’ identification documents, and the company’s articles of association are required. The registration process is handled by the Cypriot tax authority, known as Τμήμα Φορολογίας (Tmíma Forologías).

VAT number in Cyprus

The Cyprus VAT number consists of 9 characters, with the last character being a letter, and the country code is “CY”. This unique number is essential for conducting taxable transactions within Cyprus.

VAT declaration deadlines

VAT taxpayers in Cyprus are required to submit quarterly declarations, with a deadline of 1 month and 10 days after the end of the quarter. If the deadline falls on a weekend or public holiday, the declaration can be submitted on the nearest working day. All declarations are submitted electronically.

Penalties and sanctions

The Cyprus tax system provides for penalties for late submission of declarations or delays in VAT registration. Sample penalties include:

• EUR 85 for each month of late VAT registration,
• EUR 51 for a late declaration,
• 10% of the amount due plus 5% annual interest,
• EUR 85 for late deregistration.

Intrastat in Cyprus

Cyprus has two thresholds for Intrastat declarations – simplified and detailed – which vary depending on the type of transaction. Businesses that exceed the threshold must submit the relevant declaration concerning the flow of goods within the EU. The threshold for the simplified declaration is EUR 75,000 for dispatches and EUR 320,000 for arrivals. For the detailed declaration, these values are much higher: EUR 5.8 million for dispatches and EUR 2.7 million for arrivals. Exceeding these thresholds requires reporting detailed information about intra-EU trade.

For more information on Intrastat in Cyprus, see our article: Intrastat in Cyprus: Rules, obligations, and consequences.

Summary

The VAT system in Cyprus appears relatively favorable for businesses, especially regarding reduced rates on selected goods and services. Cyprus offers one of the lowest standard VAT rates in the European Union, making it an attractive location for business operations. However, as in other EU countries, entrepreneurs need to be aware of the applicable regulations and deadlines to avoid unnecessary penalties and sanctions.