Cyprus VAT Law – Amendments

On 31 July 2020, the house of Representatives of the Republic of Cyprus enacted some important amendments to the Cyprus VAT law. The amendments were published in the Government Gazette on 20 August 2020, therefore effective since the date of publication.

The aim of these amendments is to improve tax collection and challenge VAT fraud. In order to ensure compliance and utilize any opportunities, any affected businesses need to obtain guidance as soon as possible.

Important amendments of the VAT law

  1. Construction services – Extension of domestic reverse charge (Article 11B)
  • A taxable person is required to self-account for VAT by applying the reverse charge mechanism on services or services together with goods in relation to demolition, modification, construction, maintenance or repair of a property (as the recipient of the services). This is now extended to occasions where the supplier of the services is not a taxable person. Specifically, even if the supplier is not a taxable person registered for VAT, the recipient as a taxable person will have an obligation to self-account for VAT.
  1. Electronic devices – Domestic reverse charge (Article 11E)
  • A new article has been introduced (Article 11E) extending the method of reverse charge to include certain categories of goods. These 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 responsible to account for applicable VAT on transactions involving these goods is no longer the supplier but the responsibility is assigned to the purchaser with immediate right for input VAT recovery subject to the relevant rules.
  • The seller 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.
  1. Application of 5% reduced VAT rate - Definition of the term “renovation”
  • The reduced VAT rate of 5% used to be applicable only on any improvements and repairs. Following the new amendment, the term “renovation” was added that also covers (under the 5% VAT rate) additions/extensions to a private dwelling, provided that at least 3 years have passed since its first occupation.
  1. Increase of VAT penalties for non-compliance
  • Late submission of VAT returns: from €51 to €100 per VAT return whose submission is overdue.
  • Any person who fails to comply with the provisions of Article 11 or 11A or 11B or 11C or 11D or 11E or 12A shall be subject to a financial charge of two hundred euros (€ 200) per tax period, which may not exceed a total of four thousand euros (€ 4,000).
  1. VAT refund on credit balance
  • In cases where the taxpayer has failed to fulfil the obligation to submit income returns then the Tax Commissioner reserves the right to suspend the payment of a VAT credit balance and applicable interest. The taxpayer needs to comply with the outstanding obligations in order to stop the suspension of the refund.
  • A refund request for a VAT credit balance can be applied from the end of the VAT period in which the refund arose with a limit of six (6) years. The request will be examined at the discretion of the Tax Commissioner if the refund request is submitted after the six (6) year limitation.

6. Non-resident taxable persons – VAT registration obligation

  • People who are not residents in Cyprus but are taxable people who are engaged or expected to be engaged in taxable activities in Cyprus are required to register for VAT purposes. Registration for VAT under this Article is not subject to any threshold.
  1. Objection to the Tax Commissioner – The Submission Deadline
  • Any objection of the decision of the Tax Commissioner should be submitted within sixty (60) days from the date of notification of the decision to the taxable person.

8.   Write-off of debts

  • Debts to the Tax Department created by the application of the provisions of the VAT Law and which due to the circumstances of the debtor, cannot be collected, will be administered by the competent Technical Committee consistent with the Law on Accounting and Financial Management and Financial Control. The Tax Commissioner will not have the right to write off any overdue VAT.

9. Passenger Transportation Services

  • Transportation of passengers from within the Republic abroad or vice versa, to the extent that the transportation takes place within the Republic, it is subject to the zero rate VAT.
  1. Taxable leases/rentals
  • Since November 2017, the lease/rental of immovable property to businesses carrying out taxable supplies, has been considered itself a taxable supply. The new amendments of the VAT Law also include the lease of undeveloped buildable land.

Effective Dates – Exception of Article 11E:

  1. Domestic reverse charge on electronic devices will become effective as of 1st October 2020.
  2. The penalties in relation to the non-application of the Domestic reverse charge on electronic devices mechanism will apply as of 1st July 2021.

Ten country relegations due to the rise of incoming Covid-19 positive cases: Updated Travel Advice for Cyprus valid from 28/08/2020

Specifically:

  • Austria moves from Category A to Category B.
  • Switzerland moves from Category A to Category B.
  • Denmark moves from Category A to Category B.
  • Ireland moves from Category A to Category B.
  • Iceland moves from Category A to Category B.
  • Croatia moves from Category B to Category C.
  • France moves from Category B to Category C.
  • The Netherlands moves from Category B to Category C.
  • Andorra is moving from Category B to Category C.
  • Tunisia moves from Category B to Category C.
  • Sweden moves from Category C to Category B.

Category A – Low-risk countries at this stage

  • Member States of the European Union: Germany, Estonia, Latvia, Lithuania, Hungary, Slovakia, Slovenia, Finland
  • Members of the Schengen Area: Liechtenstein, Norway
  • Third Countries: Georgia, Canada, New Zealand, South Korea, Thailand

***Please note that for passengers from Category A countries, a COVID-19 laboratory test certificate and/or self-isolation ARE NOT required.

Category B – Countries with potentially low risk but with higher doubt compared to Category A

  • Member States of the European Union: Austria, Belgium, Denmark, Greece, Ireland, Italy, Poland, Portugal, Czech Republic, Sweeden
  • Small states: Monaco, Vatican City, San Marino
  • Third Countries: China, Morocco, Rwanda, Uruguay, Japan
  • United Kingdom
  • Members of the Schengen Area: Switzerland, Iceland

It is noted that passengers coming from Category B countries are required to have undergone a COVID-19 laboratory test in the last at least 72 hours before departure and to have a Certificate proving a negative PCR test for the virus.

It is also clarified that passengers from category B countries falling into the following categories may undergo the molecular examination upon arrival in the Republic:

  1. Cypriot citizens and members of their families (their foreign spouses, minor children and their parents),
  2. all legal residents of the Republic,
  3. persons entitled under the Vienna Convention;
  4. persons regardless of nationality, that in their country of residence laboratory analysis service is NOT provided (public or private) and they wish to travel to the Republic of Cyprus and upon relevant announcement.

*** It is noted that the cost of the examination is covered by them and they should remain self-isolated until the result of the test is issued.

Category C – Countries at increased risk compared to Categories A and B

  • Member States of the European Union: Bulgaria, France, Croatia, Luxemburg, Romania, The Netherlands, Spain, Malta
  • Third Countries: Andorra, Algeria, Serbia, Morocco, Montenegro, Australia, Tunisia, Russia, Ukraine, Faroe Islands, Egypt, United Arab Emirates, Israel, Lebanon, Qatar, Bahrain, Saudi Arabia

According to the Decontamination Decree (No. 30) of 2020
(https://www.pio.gov.cy/coronavirus/diat/50.pdf) only certain categories of citizens who have the right to enter the Republic are allowed to enter the Republic. They have the ability to choose to undergo a diagnostic test for COVID-19 disease upon arrival in Cyprus (60 euros) or to have with them a PCR Covid-19 certificate with a negative result at least 72 hours before departure. It is noted that these individuals should remain in self-isolation for 14 days regardless of whether the result of the COVID-19 laboratory test is positive or negative. Relevant health instructions can be found by following the link: https://www.pio.gov.cy/coronavirus/info.html.

***Citizens arriving from Category C countries must undergo a COVID-19 molecular test 48 hours before the end of their 14-day self-limitation period at their own expense. The result of the laboratory test must be sent to monada@mphs.moh.gov.cy.

***However, the self-isolation ends on the 14th day even if the result of the repeated laboratory test is negative.

Only the following categories of passengers shall be allowed to travel to the Republic of Cyprus from Category C countries: 

  1. Cypriot citizens, their alien spouses, and under-age children,
  2. Persons residing lawfully in the Republic,
  3. Persons allowed to enter the Republic under the Vienna Convention,
  4. Persons regardless of nationality may enter Cyprus following a special permit by the Republic of Cyprus.

Cyprus Flight Pass

It is emphasized that all passengers, regardless of country Category, are required to apply for the CyprusFlightPass (https://cyprusflightpass.gov.cy/) within 24 hours before the departure of their flight. In addition, for the purposes of ensuring Public Health and surveillance of the epidemiological picture, a COVID-19 sample molecular laboratory test will be performed on passengers of selected arriving flights.

The law provides for a fine of 300 euros for those passengers who arrive in the Republic of Cyprus without holding the necessary travel card (CyprusFlightPass), even if they have filled in the relevant documents by hand.

In this case, the following two options are given:

  • To enter the Republic, where they will be fined 300 euros or
  • To return to their country of departure

Ppassengers arriving in the Republic of Cyprus from Category A countries without holding this document will be treated as Category B passengers. Therefore, in adding to the payment of 300 euros fine, they will be required to carry out a laboratory Covid-19 test at the respective airport of the Republic, paying the amount of 60 euros for the test.

***In addition, for the purposes of ensuring public health and surveillance of the epidemiological picture, a COVID-19 molecular laboratory test will be randomly performed on passengers of selected arriving flights.


Government Support Continues for Covid-19: Applications for special support projects for businesses, employees and unemployed (1/8/2020-31/8/2020)

The Ministry of Labor, Welfare and Social Insurance announces that the applications for all the Special Plans for the period from 1 August 2020 to 31 August 2020 have been posted on the special website www.coronavirus.mlsi.gov.cy. It is reminded that the Special Plans for which applications are submitted for the above period are the following:

  1. Special Plan for Hotel Units and Tourist Accommodations (https://www.coronavirus.mlsi.gov.cy/6-measure1)
  2. Special Plan for Economic Activities Related to the Tourism Industry or Economic Activities that are directly affected by Tourism or Economic Activities related to Companies that are under Mandatory Full Suspension (https://www.coronavirus.mlsi.gov.cy/6-measure2)
  3. Special Plan for Complete Suspension of the Company’s Operations (https://www.coronavirus.mlsi.gov.cy/6-measure3)
  4. Special Plan for Businesses of Certain Financing Activities (https://www.coronavirus.mlsi.gov.cy/6-measure4)
  5. Special Unemployment Support Plan (https://www.coronavirus.mlsi.gov.cy/6-measure5)
  6. Special Plan for Certain Categories of Self-Employed Employees (https://www.coronavirus.mlsi.gov.cy/6-measure6)

Samples of the Certified Accountant Report that must be submitted electronically together with the respective application have also been posted on the special website www.coronavirus.mlsi.gov.cy. The interested parties are invited to submit the application that concerns them in time and it is emphasized that in order for the payment of the Special Allowances to be possible, the appropriate Bank Account Statement mentioned in each application must be submitted, only if it has not already been submitted and confirmed.


Cyprus and Russia Double Tax Treaty - Amendment

On 10 August 2020, Cyprus and Russia have agreed to amend their Double Tax Treaty following the request from Russia for an increase in the withholding tax on income from dividends and interest.

In April 2020, a request from the Russian side was made regarding an increase in the withholding tax on income from interest and dividends to 15%. Currently, the Treaty allows for withholding tax of 0% on interest and either 5% or 10% on dividends.

Russia perceived the first talks with Cyprus on amending the Treaty as a failure and the Russian Ministry of Finance stated on 3 August 2020 that it would commence the process of denunciation of the Treaty. Following this, new negotiations between Cyprus and Russia were scheduled for 10-11 August in Moscow.

The two parties agreed that certain types of regulated entities would be exempt from the 15% withholding tax on dividends, such as insurance companies, pension funds, and listed entities with specific characteristics. Interest payments from corporate bonds, government bonds, and Eurobonds will also be excepted from the 15% withholding tax. The exemption from withholding tax on royalty payments will continue to apply.

Russia also confirmed that similar provisions will apply to other countries with which it has concluded similar treaties from the same date that they will apply to Cyprus.

The revised Treaty is expected to be signed in Autumn 2020 and be applied from 1 January 2021.


Updated Travel Advice for Cyprus valid from 06/08/2020: Greece, Thailand and Morocco changed category

Category A – Low-risk countries at this stage

  • Member States of the European Union: Austria, Germany, Denmark, Estonia, Ireland, Latvia, Lithuania, Malta, Hungary, Poland, Slovakia, Slovenia, Finland
  • Members of the Schengen Area: Switzerland, Iceland, Liechtenstein, Norway
  • Third Countries: Georgia, Japan, Canada, New Zealand, South Korea, Thailand

***Please note that for passengers from Category A countries, a COVID-19 laboratory test certificate and/or self-isolation ARE NOT required.

*** If your flight is selected for random laboratory tests, then you should remain self-isolated until you receive the result of your test.

Category B – Countries with potentially low risk but with higher doubt compared to Category A

  • Member States of the European Union: Belgium, France, Greece, Spain, Italy, Croatia, The Netherlands, Romania, Czech Republic
  • Small states: Andorra, Monaco, Vatican City, San Marino
  • Third Countries: Australia, China, Rwanda, Tunisia, Uruguay
  • United Kingdom

It is noted that passengers coming from Category B countries are required to have undergone a COVID-19 laboratory test in the last at least 72 hours before departure and to have a Certificate proving a negative PCR test for the virus.

It is also clarified that passengers from category B countries falling into the following categories may undergo the molecular examination upon arrival in the Republic:

  1. Cypriot citizens and members of their families (their foreign spouses, minor children and their parents),
  2. all legal residents of the Republic,
  3. persons entitled under the Vienna Convention;
  4. persons regardless of nationality, that in their country of residence laboratory analysis service is NOT provided (public or private) and they wish to travel to the Republic of Cyprus and upon relevant announcement.

*** It is noted that the cost of the examination is covered by them and they should remain self-isolated until the result of the test is issued.

Category C – Countries at increased risk compared to Categories A and B

  • Member States of the European Union: Bulgaria, Portugal, Sweden, Luxemburg, Romania
  • Third Countries: Algeria, Serbia, Montenegro, Morocco
  • All other countries not listed in Categories A and B

According to the Decontamination Decree (No. 30) of 2020
(https://www.pio.gov.cy/coronavirus/diat/50.pdf) only certain categories of citizens who have the right to enter the Republic are allowed to enter the Republic. They have the ability to choose to undergo a diagnostic test for COVID-19 disease upon arrival in Cyprus (60 euros) or to have with them a PCR Covid-19 certificate with a negative result at least 72 hours before departure. It is noted that these individuals should remain in self-isolation for 14 days regardless of whether the result of the COVID-19 laboratory test is positive or negative. Relevant health instructions can be found by following the link: https://www.pio.gov.cy/coronavirus/info.html.

Only the following categories of passengers shall be allowed to travel to the Republic of Cyprus from Category C countries: 

  1. Cypriot citizens, their alien spouses, and under-age children,
  2. Persons residing lawfully in the Republic,
  3. Persons allowed to enter the Republic under the Vienna Convention,
  4. Persons regardless of nationality may enter Cyprus following a special permit by the Republic of Cyprus.

Cyprus Flight Pass

It is emphasized that all passengers, regardless of country Category, are required to apply for the CyprusFlightPass (https://cyprusflightpass.gov.cy/) within 24 hours before the departure of their flight. In addition, for the purposes of ensuring Public Health and surveillance of the epidemiological picture, a COVID-19 sample molecular laboratory test will be performed on passengers of selected arriving flights.

The law provides for a fine of 300 euros for those passengers who arrive in the Republic of Cyprus without holding the necessary travel card (CyprusFlightPass), even if they have filled in the relevant documents by hand.

In this case, the following two options are given:

  • To enter the Republic, where they will be fined 300 euros or
  • To return to their country of departure

In addition, passengers arriving in the Republic of Cyprus from Category A countries without holding this document will be treated as Category B passengers. Therefore, in adding to the payment of 300 euros fine, they will be required to carry out a laboratory Covid-19 test at the respective airport of the Republic, paying the amount of 60 euros for the test.

***In addition, for the purposes of ensuring public health and surveillance of the epidemiological picture, a COVID-19 molecular laboratory test will be randomly performed on passengers of selected arriving flights.