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Cyprus Corporate Services Multilysis Services Limited –  Cyprus Lawyers N. Pirilides & Associates LLC

Tax chargeable on any supply of goods or services is a liability of the person making the supply. Taxable person is every person, natural or legal, resident in the Republic or abroad, who carries on a business and has registered as such in the VAT Register or he is liable to be registered according to the provisions of the VAT legislation.

The term “business” includes any trade, profession or vocation.

Employees or other natural persons who are bound to any employer by a contract of employment or by other legal relation, which creates relationship of employer and employee, are not considered to be carrying out an economic activity and therefore they are not considered as taxable persons.

In addition the VAT legislation provides that Governmental Authorities, Local Authorities and Public Authorities are not deemed to be taxable persons for the supplies of goods or services made by them in carrying out their mission. There are however some exceptions.

The supplies of goods or services made by a person who is not considered as taxable, are not VAT chargeable. On the other hand when this person buys goods or services, he is charged with VAT as if he was the final consumer.

VAT is charged on every taxable supply of goods or services that is on every supply of goods or services made within the Republic, by a taxable person in the course or furtherance of any business carried on by him.

As a general rule a supply of goods or services is considered to be taxable if made for consideration. Nevertheless, the Law provides that specific supplies are considered to be taxable even if made for no consideration.

The supply of any goods is treated as made in the Republic if the goods are in the Republic. The supply of any services is treated as made in the Republic if the person supplying them is in the Republic.

As an exception, the legislation provides that the supply of certain services should be treated as taxable even if made by a person who is in another country and received by a person who registered in the Republic.

Registration with VAT

According to the VAT legislation, every person making taxable supplies is liable to be registered in the following cases:

(i)                  At the end of any month, if the value of his taxable supplies in the period of one year then ending has exceeded €15.600

(ii)                At any time, if there are reasonable grounds for believing that the value of his taxable supplies in the period of thirty days then beginning will exceed €15.600.

A person who by virtue of (i) is liable to be registered, is obliged to notify the VAT Commissioner of his liability by submitting an “Application for Registration in the VAT Register” (Form VAT 101) to the local VAT Office, within thirty days of the end of the relevant month and his registration is effective as from the end of the month following the relevant month or from such earlier date as may be agreed between the person and the VAT Officer.

If a person is liable to be registered by virtue of (ii), he is obliged to notify the VAT Commissioner of his liability by submitting an “Application for Registration in the VAT Register” (Form VAT 101) to the local VAT Office, before the end of thirty-day period to which the liability arises and the registration is effective as from the beginning of this period.

Failing to comply, the person is liable to a levy of €85 for every month or part of month of the delay or refusal or omission. It is clarified that the liability of a taxable person to be registered exists whether or not he has submitted an application for registration. The VAT Commissioner is authorized by the Law to register a taxable person retrospectively, that is from the date that person was, according to the Law, liable to registration. If a taxable person liable to registration neglects to be registered, he is still liable to pay tax on all the supplies he made from the date he was liable to registration.
It is noted that persons making zero-rated supplies are also liable to be registered.

Entitlement to register

A person not liable to be registered is entitled to be registered in the following cases:

(i) Voluntary registration

If a person makes taxable supplies the value of which does not exceed the thresholds that would make him liable to be registered, then he is entitled to apply for voluntary registration by submitting an “Application for Registration in the VAT Register”.

(ii) Intending traders

If a person engages in a business and intends to make taxable supplies of goods or services, he is entitled to apply to be registered as intending trader by submitting an “Application for Registration in the VAT Register”.

The registration is effective from the date of the application or any other previous date as may be agreed between the VAT officer and the taxable person.
Additionally, farmers are entitled to voluntary registration, regardless of the value of the supplies they make in the period of one year, which consist of agricultural products of their own produce or agricultural services.

Acquisitions

Any person making acquisitions in Cyprus is liable to be registered:

(a)    at the end of any month , the total value of that person´s acquisitions from all other member States in the year beginning from 1 January has exceeded the registration threshold of €10.251,61; or

(b)   at any time that there are reasonable grounds to believe that the value of the acquisitions that person would be making in the following 30 days alone will be over the registration threshold of €10.251,61;

A person making acquisitions according to the previous paragraph is liable to notify his/her obligation to be registered on Form VAT 106. Failure to comply, renders the person liable to a levy of €85 for every month of the delay or refusal or omission.

Where the acquisitions of any person does not exceed the threshold of €10.251,61, then that person may register for making acquisitions in Cyprus voluntarily.

Distance Sales

Any person making distance sales (sales from a person established in another member State), is liable to register for VAT purposes in Cyprus and account for VAT in Cyprus, if in the period starting from the 1st January of the year, the value of distance sales exceeds €35.000. This person is liable to notify liability to register on Form VAT 105. Failure to conform renders the person liable to a levy of €85 for every month of the delay or refusal or omission.
There is also the right for voluntary registration when the threshold is not reached.

Obligations of person/s registered with VAT

According to the VAT legislation, every taxable person is liable, among others, to:

(i) Be registered if the value of taxable supplies of goods or services exceeds the thresholds as set by the VAT Law.

(ii) Notify their liability to be registered within 30 days of the date that the liability emerged.

(iii)Notify the termination of taxable supplies or of the intention to make taxable supplies within 60 days of the date of the termination.

(iv)  Pay a levy of €85 for every month or part of month of the delay or refusal or omission to comply with point (i) and (ii) above and €85 for the delay or refusal or omission to comply with point (iii) above.

(v)   Submit tax declarations not later than the 10th day following the end of the month following the end of each tax period.

(vi)  Pay the tax due not later than the 10th day following the end of the month following the end of each tax period.

(vii)Pay a levy of €51 for the delay or refusal or omission to submit a tax return.

(viii)    Provide other taxable persons with tax invoices.

(ix)        Retailers must issue a tax invoice, if the customer is a taxable person and asks for one and if the consideration exceeds €85.

(x)        Issue tax invoices at the prescribed time.

(xi)       Pay any amount that has been assessed or reassessed by the VAT Commissioner.

(xii)     Produce certain documents relating to input tax upon request by the VAT Commissioner.

(xiii)    Give such amount of security, upon request by the VAT Commissioner, for that amount of tax payment.

(xiv)   Not make any taxable supplies, if the VAT Commissioner requires so, unless the taxable person furnishes the VAT Commissioner with any form of security for securing payment of the tax concerned.

(xv)      Pay any amount that has been charged as VAT on an issued invoice.
(xvi) Pay an additional levy equal to 10% of the amount which the taxable person neglects or refuses to pay.

(xvi)   Pay interest at 9% in cases where the taxable person continues to neglect or refuses payment of any amount due after 30 days.

(xvii)  Keep books and records for the purposes of verifying the supplies of goods or services which the taxable person makes or receives.

(xviii)Provide every facility that may be required by the VAT Commissioner for the purpose of examination by any person authorized by the VAT Commissioner of any books and records.

(xix)   Preserve books and records for at least seven years, unless the VAT Commissioner fixes otherwise.

(xx)     Pay a levy of €85 for the omission to comply with the above – points xix and xx.

(xxi)   Notify the VAT Commissioner of such facts and information in respect of any change or alteration of circumstances and conditions of the business.

(xxii)  Furnish to the VAT Commissioner such information relating to the goods or services or the supplies of goods or services or importation.

(xxiii)Produce for inspection and search at such time and place as may be reasonably required any documents relating to the business.

(xxiv)                   Pay a levy of €85 for the omission to comply with the above – points xxiii – xiv.

(xxv) Provide samples of goods to enable the correctness of their tax treatment to be examined.

VAT on imported goods

VAT is charged on all imported goods regardless of the importer being a taxable person or not.  In the importation of goods of goods, VAT is considered to be an imports duty and is charged as if it were a duty of Customs.

In certain cases, the importation of services, that is the supply of services from abroad to Cyprus, is treated as a taxable supply of services made by the recipient, if he is a taxable person.

Tax returns, tax payment and credit

Every taxable person is liable to submit Tax Declarations and pay the tax that may be due, usually every three months. Tax declarations relate to certain tax periods that are made known to the taxable person at the stage of his registration. The VAT Service dispatches tax declarations to the last known address of a registered person. The liability to submit tax declarations exists regardless of the relevant form being received or not by the taxable person. Thus, if he has not received it on time, he should contact the VAT Office of his district and ask for the form to be reissued.

On the tax declarations, taxable persons calculate their output tax (the tax on supplies of goods or services they made during the relevant tax period and the VAT calculated on the acquisition of goods from other member States).

Books and records to be kept

According to section 43 and the Tenth Schedule of the VAT Law, every taxable person must keep books and records and preserve them for at least seven (7) years after the completion of the entries or deeds written therein, unless the VAT Commissioner, by relevant notification to the person concerned, fixes otherwise. Every taxable person has to keep books and records of all the taxable supplies of goods or services he makes or receives for the purpose of his business and for intra-community transactions he makes. Books and records must be kept up-to-date, with adequate information and in a manner that enables taxable persons to use them to calculate the payable or claimable amount of tax and fill in tax declarations. Books and records must also be kept in a manner that VAT officers can easily examine them in order to verify VAT declarations but this manner should not be contrary to business practices. In addition VAT legislation provides for special arrangements concerning keeping books and records in connection with the special regimes i.e. Retail Schemes, Profit Margin Schemes etc.

Taxable persons must keep and preserve the required books and records at the premises of the business.

Relevant to the above is chapter VIII of the VAT Guide, information leaflet 10 and information leaflet 12A on the Margin Scheme for Tour Operators published by the VAT Service.

VAT Invoice

As a general rule, every registered taxable person

- who makes taxable supplies of goods or services to other taxable persons in Cyprus
- makes a supply of goods or services, other than an exempt supply, to a person in another member state

- receives a payment on account from a person in another member state for a supply that he has made or intends to make,

 is required to provide them with VAT invoices.

This obligation does not apply if the supply involved is:

- zero-rated;

- made for no consideration;

- made by a taxable person that uses the Profit Margin Scheme.

Registered retailers may issue the “retail invoice”, if the customer is a taxable person and asks for a tax invoice, provided that the consideration is below €85,43.

Foreign enterprises doing business in Cyprus

If a trader is not resident in the Republic – in the case of a natural person or the legal person is based abroad – carries out a business in Cyprus and is liable or entitled to registration in the VAT Register of the Republic, the VAT officer may appoint a person who is resident in the Republic and is recommended by the trader, to act on behalf of the trader for VAT matters (a VAT representative) or require security for the protection of public revenue.

It should be noted that for persons resident in another member state or legal persons incorporated in another member state, there is no obligation to appoint a Vat representative.

Cyprus Corporate Services Multilysis Services Limited –  Cyprus Lawyers N. Pirilides & Associates LLC

ZERO-RATING OF INTRA-COMMUNITY SUPPLIES

Prior to 1st May 2004 all exports of goods to destinations outside Cyprus, qualified for the zero rate of VAT.  This continues to be the case for exports to countries outside the EU.  However, under the EU VAT arrangements, as from that date a Cypriot trader registered for VAT may zero-rate the supply of goods to a customer in another Member State (MS) provided that:

-The customer is registered for VAT in the other MS,

- The customer’s VAT registration number is obtained and retained in the supplier’s records,

- This number, together with the supplier’s VAT registration number is quoted on the sales invoice,
- The goods are dispatched and transported to the other MS,

- The supplier retains appropriate commercial documentary evidence that the goods have been removed from Cyprus,

- The supplier submits the Recapitulative Statements to the VAT Service.

PURPOSE OF THE VIES SYSTEM

VIES (VAT Information Exchange System) contributes to the effectiveness of this new VAT regime and provides a mechanism for preventing and deterring of the abuse of the VAT zero-rating provisions on intra-community trade of goods and detecting unreported movements of zero-rated goods between MS. An integral part of the system is a requirement that each MS must store and process specific information which it collects from its traders about their supplies to other MS.

OBLIGATIONS OF TRADERS UNDER VIES

Under the EU and the national legislation regulating VIES, any VAT-registered person who supplies goods to a VAT-registered person in another MS has to submit the Recapitulative Statement declaring all the intra-community supplies made during a calendar quarter. The Statement must be submitted to the VAT Service until the tenth day of the second month following the calendar quarter to which the statement relates. If a person fails to comply, this person is liable to a penalty of fifty one euro (€51) for every month of non-compliance, the maximum being three months. Non-compliance that continues after the three months constitutes a criminal offense and a convicted person may incur an additional fine of up to two thousand five hundred sixty two euro (€2562).

Moreover, the relevant legislation provides that the submitted Recapitulative Statement should not be incomplete or contain inaccuracies, such as wrong VAT numbers of the customers in other MS. If a submitted Recapitulative Statement is incomplete or contains inaccuracies, the taxpayer should submit a corrective statement within two months following the calendar quarter to which the Recapitulative Statement relates. In opposite case, a penalty of fifty one euro (€51) is imposed.

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Legal basis

• The Customs and Excise Duties Law of 2003 no. 224(I) of 2002, Section 17.
• The Customs and Excise Duties (Relief on Imported Goods) Regulations of 2004, P.I. 380/04, Regulation 13.

The relief regime from import and excise duties for goods imported for use by offshore companies or their expatriate personnel has been terminated since 31 December 2003.

Motor vehicles under relief

In spite of the fact that the relief regime for offshore companies has been abolished, as mentioned earlier, entitled offshore personnel reserves the right to continue to possess a duty free vehicle which has been registered in their name prior to the 31st March 2003 in cases whereby they:

• change employment to another entitled offshore company;
• continue their employment in the same entitled company, which has extended its activities into Cyprus and has chosen to be taxed in accordance with the provisions of section 46 of the Income Tax Law, under the normal corporate tax rate;
• change employment to another company which was entitled to relief but has elected to be taxed in conformity with the provision of section 46 of the Income Tax Law, under the normal corporate tax rate.

In case of disposal of the vehicle, the provisions of Regulation 12 of the Customs and Excise Duties (Relief on Imported Goods) Regulations of 2004, P.I. 380/04, will apply

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