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.

2. 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.

3. 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.

4. 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).

5. 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.

7. 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.

10. 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.