Provision of services by a Cyprus VAT Company to an EU Company
- The Cyprus Company must not charge VAT on its invoices provided that the EU company is VAT registered and has provided its VAT registration number to the Cyprus Company
- If the EU company has not provided the Cyprus company with a VAT number then the Cyprus company is obliged to charge Cyprus VAT at the rate of 19%
- This provision of services by the Cyprus Company to an EU VAT registered company creates the obligation for an immediate VAT registration in Cyprus (no threshold exists) and at the same time for a VIES registration.
- The VAT return is submitted on a quarterly basis and the VIES return on a monthly basis
Provision of services by a Cyprus Company to an EU or non EU individual (B2C) transaction
- The Cyprus Company must charge Cyprus VAT at the standard rate of 19% on the invoice which will issue to the EU or non EU resident individual as the place of supply of the service of B2C is the country where the provider of the service is situated.
Provision of services by a Cyprus Company to a non EU Company (outside the scope of Cyprus VAT)
- The Cyprus Company will not charge VAT on the invoice to be issued to the non EU Company provided that it has information that the non EU Company is an active company with a registered address and/or a website etc. If the Cyprus Company does not have any information about the non EU Company and its substance or activities then it must charge Cyprus VAT on its invoice.
Provision of services by a Cyprus Company to another Cyprus Company
- When a Cyprus VAT registered company will charge another Cyprus company or individual for services then the Cyprus Company is obliged to charge Cyprus VAT at the rate of 19% on its invoice and declare this output VAT in its quarterly VAT return.
- If the Cyprus company is not VAT registered, then it will have an obligation for VAT registration at the point where the value of the services provided exceeds the threshold of euro 15.600 per consecutive twelve months period. At that point the Company must register for VAT purposes and start charging local VAT to its Cyprus clients.
Services received by a Cyprus company from abroad (from both EU and non EU companies)
- When a Cyprus company receives professional services from abroad (i.e. legal, consulting, accounting, marketing, IT services, royalties and licenses rights etc) then it must treat these services under the reverse charge rules, that is to self charge local VAT at the rate of 19% on the value of the services received. However, this does not apply where the services received from abroad are exempt services from VAT. The most common exempt services are the following:
- Intermediation, negotiation and arrangement services in respect of trading/transactions to shares, securities and currencies
- Insurance services
- Services in relation to specific immovable property situated outside Cyprus
- Management and similar services provided to investment/mutual funds
- The granting and the negotiation of credit by the person who grants the credit
- Receipt of such services from abroad in excess of the registration threshold of euro 15.600 per a consecutive twelve months period creates an obligation for VAT registration for the Cyprus company.
- The recoverability of this self charged input VAT will depend on the nature of the activities of the company. Companies which have exempt activities with income from EU/Cyprus sources (i.e. loan interest income, proceeds from disposal of securities, insurance and banking services, medical services, rental activities and educational services) do not have the right to claim back this input VAT and generally the input VAT charged on their expenses by their suppliers.
- The above treatment does not apply for purely investment holding companies (co’s which do not have any other activities or sources of income other than dividend income), as the pure holding of investment is not an economic activity for VAT purposes. Pure holding companies do not have the right for a VAT registration. We note that holding companies which at the same time have financing activities or are engaged in trading of shares are not considered as pure holding companies.
NATURE OF ACTIVITIES AND RECOVERABILITY OF INPUT VAT
The recoverability on input VAT suffered on local expenses or input VAT self charged for services received from abroad which were subject to reverse charge rules depends on the nature of the activities of a company. The most common examples are:
- For informational purposes, purely investment holding companies which receive only dividend income (and are not engaged in any activities such as management of subsidiaries, financing, trading in securities etc) do not have the right or obligation for a VAT registration in Cyprus.
- The mere holding of investments is not considered as being an economic activity for VAT purposes. As a result, purely investment holding companies which receive professional services from abroad which are treated under the reverse charge rules do not have the obligation for a VAT registration and application of the reverse charge rules.
Activities/Income which allow for input VAT recoverability for a Company
- Provision of services (i.e. marketing, legal, accounting, IT, consulting, management services etc) to Cyprus or abroad
- Royalty/license income from Cyprus or abroad
- Commission income from Cyprus or abroad
- Loan interest income received from non EU sources only
- Proceeds from disposal of securities/currencies from non EU sources only
- Lease Income from Cyprus or abroad
- Brokerage Income (which includes intermediation, negotiation and arrangement services for trading in securities) from non EU sources only
- Income from trading in goods from Cyprus or abroad
Activities/Income which do not allow for input VAT recoverability for a company
- Dividend income
- Loan interest income received from EU and Cyprus sources
- Proceeds from disposal of securities/currencies from EU and Cyprus sources only
- Rental income from Cyprus
- Brokerage Income (which includes intermediation, negotiation and arrangement services for trading in securities) from EU and Cyprus sources
Author: Marinos D Marinou Tax Planning specialist at D Marinou & Co EST 1988 offering a range of corporate services including company incorporation, audit, vat and tax planning in Cyprus companies and international Clients.