The House of Representatives of the Republic of Cyprus on 31/07/2020 enacted several important amendments to the Cyprus VAT law. These amendments, an overview of which is provided below, were announced in the Government Gazette on 20/08/2020.

The amendments have been enacted as part of a package of measures which aim to improve tax collection and tackle VAT fraud. Affected businesses must seek guidance immediately to ensure compliance and utilize any opportunities.

Key amendments

1. Article 11B

• The obligation of a taxable person to self-account for VAT by applying the reverse charge mechanism on services or services together with goods in relation to construction, modification, demolition, repair or maintenance of a property (as the recipient of the services) under Article 11B of the Cyprus VAT Law has been extended to cases where the supplier of the services is not a taxable person.
• This means that even if the supplier is not a taxable person registered for VAT purposes, the recipient (being a taxable person) will have an obligation to self-account for VAT under Article 11B.

2. Domestic reverse charge under Article 11E on electronic devices

• A new article has been introduced (Article 11E) extending the method of reverse charge to encompass certain categories of goods, in relation to which fraudulent activities have been detected by the Tax Department of Cyprus and other Member States.
• The goods which come under the scope of the aforementioned Article include mobiles phones, other devises which utilize a recognized network functioning at certain frequencies, microprocessors, central processing units, gaming consoles, tablets and laptops.
• The person liable to account for applicable VAT on transactions involving these goods is no longer the supplier of the goods but the obligation is transferred to the purchaser of the goods, with immediate right for input VAT recovery subject to the relevant rules.
• The seller, therefore, in a similar manner as with Intra-community supplies, will issue invoices without imposing VAT and the purchaser will be responsible to self-account for output VAT under the reverse charge provisions where such goods are acquired in the context of furtherance of a business.

3. Increase of VAT penalties for non-compliance

• The penalty for late submission of VAT returns increases from €51 to €100 per VAT return whose submission is overdue.
• Failure to apply the reverse charge provisions pursuant to Articles 11, 11A, 11B, 11C, 11D, 11E or 12A, will result in the imposition of a €200 penalty per VAT return which will not exceed a total penalty of €4.000. This provision will apply irrespectively of whether a taxpayer is able to fully recover the relevant input VAT.

4. VAT refund on credit balance

• The Tax Commissioner reserves the right to suspend the payment of a VAT credit balance and applicable interest in cases where taxpayers have failed to comply with the obligation to submit income tax returns [i.e. Company Income Tax Return (IR4), Self-employed Income Tax Return (IR1), Employer’s Return (IR7)]. The refund is suspended until the taxpayer complies with the relevant obligations. No interest will be paid to the taxpayer where the delay in refunding the VAT is due to late submission of income tax returns.
• The right to request refund of a VAT credit balance is limited to six (6) years from the end of the VAT period in which the refund arose. Any VAT refund requests submitted after the six-year period will be examined at the discretion of the Tax Commissioner.

5. VAT registration obligation of non-resident taxable persons

• Taxable persons who are not established in Cyprus but are engaged or expect to be engaged in taxable activities in Cyprus in the course of their business, will have the obligation to register for VAT purposes.  VAT registration under this Article is not subject to any threshold

6. Definition of the term “renovation” for application of 5% reduced VAT rate

• The term “renovation” for the purpose of application of the 5% reduced VAT rate has been extended to also cover additions/extensions to a private dwelling, provided that at least 3 years have passed since its first occupation.
• Prior to this amendment, the reduced VAT rate of 5% was applicable only on any improvements and repairs.

7. Passenger Transportation Services

• Passenger transportation services to and from the Republic are subject to the zero rate VAT to the extent the transport takes place within the Republic.
• The amendment restores to zero the VAT rate relating to international passenger transport which was removed on 1/1/2011.

8. Deadline for submitting an objection to the Tax Commissioner

• The deadline for submitting an objection to the Tax Commissioner is set at 60 days from the date of the notification of the decision of the Commissioner to the taxpayer and not from the date of issuance of the relevant assessment.

9. Write-off of debts

• The Tax Commissioner will not have the right to write off overdue VAT based on the VAT Law. All the Government’s non-recoverable funds will be administered by the competent Technical Committee pursuant to the Accounting, Financial Management and Financial Control of the Republic Law.

10. Taxable leases

• The lease/rental of immovable property to businesses carrying out taxable supplies, is considered itself a taxable supply since 13/11/2017 pursuant to the VAT (Amending)(No.3) Law of 2017. The relevant provisions have been amended to encompass also the lease of undeveloped buildable land.

Effective Date

The Law has become effective from the date of its Publication in the Official Government Gazette with the exception of the following:

1. Article 11E (reverse charge for mobile telephones, integrated circuit device, PC tablets, laptops and game consoles) will become effective as of 1st October 2020.
2. The penalties in relation to the non-application of the reverse charge mechanism will apply as of 1st July 2021.