Tapping into the Cypriot market is an excellent opportunity for growth. Learn more about Cyprus VAT with this guide to avoid costly oversights.
A Practical Guide to Cyprus VAT
Cyprus is known for its breathtaking sights, rich history, and cultural diversity. Nowadays, it offers untapped potential for business growth. If you plan to expand your market reach to this island nation, you must understand what Cyprus VAT is and how to comply with it.
Knowing essential facts about VAT in Cyprus ensures you’re doing business right to reduce the risks of costly oversights. Here is a guide to get you started.
1. Mind the Lower Threshold for VAT Registration
European Union (EU) countries each have their respective registration thresholds for engaging in activities subject to VAT, such as distance selling. In Cyprus, registration was mandatory for businesses with gross sales of €15,600 or more for 12 months.
However, the threshold now stands lower at €10,000, which is an EU-wide threshold for VAT registration. The reduced turnover threshold was one of the changes reflected in the revised VAT rules for cross-border e-commerce implemented last 1 July 2021.
But even if you think your total turnover won’t exceed this threshold, it’s more prudent to register VAT with the local tax authority for compliance.
2. You Must Be Registered for Cyprus VAT
Before doing business in Cyprus, it’s important to be VAT-registered with the country’s tax office to comply with their legislation. It bears repeating that registration is compulsory for businesses whose cross-border sales exceed the minimum threshold.
Violations such as submitting your forms late or selling taxable goods without applying for a VAT number may result in penalties, which can weigh on your margins. If you fail to comply, you would face a fine of €85 for every month of delay, omission, or refusal.
To be registered for Cyprus VAT, you must complete the forms TD2001 and ΤD1101, the latter in Greek. You must also attach the following documents to your application:
- A copy of the Articles of Association or Incorporation
- An excerpt from your business’ trade register
- Certificate of VAT liability if registered elsewhere in the EU
- Proof of taxable transactions in Cyprus, e.g. copy of contract or invoices
- Original authorisation document, such as power of attorney, if done through fiscal representation
Submit or email the accomplished forms and documents to the district or local tax offices.
3. There’s No Need to Establish a Local Company
If your business involves distance selling or trade of imported goods, it should be registered for VAT. Fortunately, applying for a VAT number in Cyprus doesn’t require a local presence, so non-resident businesses like yours can obtain their VAT despite being overseas.
While you don’t need to establish a local branch of your company to do business in Cyprus, you may need to work with a local firm for your VAT obligations.
4. Fiscal Representation May or May Not Be Required
Registering for Cyprus VAT depends on where your company is based as this determines whether you’ll need a fiscal representative. Non-EU companies are required to have one, except for UK businesses post-Brexit.
Although fiscal representation is not mandatory for UK-based companies, it’s better to work with one to ensure stress-free processing of your VAT application. Sterlinx Global has a team of local tax agents to ease your burden of becoming VAT-compliant in unfamiliar territory.
5. You Can Be VAT-Registered in One EU State Only
One primary purpose of the EU’s revised rules on VAT for cross-border e-commerce is to simplify the entire process for traders. To support this goal, the Import One Stop Shop (IOSS) was developed and introduced.
IOSS is the online platform for non-EU sellers that allows them to register for VAT in only one EU member state instead of being VAT-compliant in the countries where they have buyers.
Once e-commerce sellers get their unique IOSS number, they can start trading in any EU country without applying for VAT ID in each. Distance sellers can declare and pay VAT for all EU sales on the electronic portal.
The streamlined system ensures that the correct taxes and amounts go to the right EU country, making compliance more straightforward and effective for traders outside the EU.
6. All Goods Imported to Cyprus Are Subject to VAT
Before the issuance of the EU’s revised VAT rules on e-commerce, imported goods with less than €22 were considered exempt from VAT. However, this loophole was exploited by non-EU sellers to offer lower prices, undermining traders within the EU. They mislabel the goods to avoid charging and paying VAT.
The exemption no longer applies to imported goods—all items that enter the EU are charged with VAT, regardless of their value. If you’re a cross-border seller, ensure you apply the correct rate for goods sold in Cyprus.
7. Standard Cyprus VAT Is Above 15%
Like other member states, Cyprus based its legislation on the EU’s directives on VAT. According to broad guidelines, the standard VAT rate should be higher than 15%. The default rate is 19%, which is charged on most goods and services in the country.
Since the country’s VAT system is tiered, there are two reduced rates of 9% and 5% applied to certain goods, including supplies for hospitality and tourism industries, books, magazines, medicines, and fertilisers, to name a few.
8. You Must Fulfil Your VAT Obligations
Being registered for Cyprus VAT means fulfilling your obligations as part of compliance. Your two most crucial responsibilities are paying the correct tax liability and filing the corresponding return within the deadline.
Taxpayers must pay their VAT obligations and file the corresponding returns quarterly, which are due by the 10th day of the month following the end of the covered reporting period. If the due date happens to be a weekend or public holiday, it is moved to the next working day.
To file your returns, fill out Form VAT4 and submit it electronically via the TaxisNet system.
As well as the deadlines, keep in mind the following penalties for not complying on time:
- Late filing: €51 per VAT return submitted late
- Late payment: 10% of the VAT due + 3.5% annual interest rate on outstanding VAT amount
9. VAT Compliance Requires Expertise
Complying with Cyprus VAT regulations is complicated because of continuously evolving rules and increasing obligations. As a busy entrepreneur, juggling your responsibilities between operations and tax compliance may result in missed deadlines, hefty penalties, and stressful audits.
The most effective and cost-efficient way to be VAT-compliant is to partner with an experienced accounting firm like Sterlinx Global. As your expert intermediary, we will handle your obligations—from calculating VAT to filing the returns—on your behalf.
Frequently Asked Questions
How long does VAT registration in Cyprus take?
Once you’ve submitted the forms and required documents, the processing of VAT registration normally takes 3 to 5 weeks. You can expect to receive your VAT identification number by then.
If you’re pressed for time, consider registering for VAT through the IOSS.
Can I register for Cyprus VAT on my own?
Yes, you can handle the registration yourself. However, it’s not the most efficient method for doing so and could lead to errors with costly repercussions later. Instead of spending time and effort on this endeavour, it’s better to work with an expert like Sterlinx Global so you can focus more on running your business.
Why should I leave VAT computation to professionals?
Estimating VAT obligations yourself often leads to inaccurate calculations due to wrong rates, incorrect figures, and overlooked transactions. Ensure you’re paying the correct amounts by having a tax professional calculate the VAT due. The advantages include cost savings and reduced risk of fines.
Entering the Cypriot market is an excellent opportunity to expand your business. However, complexities regarding Cyprus VAT can offset growth through costly mistakes due to non-compliance.
Be compliant without the complications with the above must-know facts and by working with the local experts from Sterlinx Global.