Indirect tax ebook - Cyprus

Reporting

Resident companies
Foreign taxable persons
Recovery of VAT
Sales lists/VAT information exchange system (VIES)
Group registration/fiscal unity
Foreign taxable persons/fiscal representatives
Intrastat
Penalties
Large / small traders

Resident companies

General
How often must a VAT return be submitted?
Taxable persons must account for the VAT on their supplies, and recover VAT on their costs, by submitting a periodic VAT return.

As a general rule returns are submitted for quarterly periods. VAT Service will determine the periods but if you wish your VAT quarter to end on a particular date (to coincide with your financial year end, for example) then VAT Service will generally co-operate.

If your business is such that you normally have repayments of VAT, then you are allowed to file monthly returns on making a written application.

The VAT return must be submitted to VAT Service not later than the 10th day of the second month following the month in which the quarter has ended (i.e. about 40 days after the quarter end).

Late filing of VAT returns will trigger interest at 8% pa, 10% penalty on the payable amount plus a fixed penalty of €51.

Importers
VAT is levied on importation of goods into the Republic of Cyprus. Every person importing goods will be responsible to pay VAT to the authorities, in principle, when filing the import declaration. Subsequently, when filing a periodic VAT return, entrepreneurs importing goods into Cyprus in the course of their business may, as a general rule, recover the VAT paid upon importation as input VAT.

Foreign taxable persons

Businesses not established in Cyprus can still register (and can still be obliged to register) for VAT in Cyprus if they make Cyprus supplies (including distance sales to Cyprus).

If you do not have a Cyprus presence, you have two alternative means of registration to consider.

VAT representative
The first method is to appoint a Cyprus VAT representative. Indeed, in some circumstances, VAT Service may require that a VAT representative be appointed. A VAT representative is jointly and severally liable with its principal for any VAT debts. Alternatively (subject to VAT Service not insisting that a VAT representative be appointed), it may be possible to appoint a tax agent with authority to deal with VAT compliance on the principal's behalf. In this case, the tax agent is not jointly and severally liable with the principal. In practical terms, VAT Service will deal with a VAT representative or tax agent as if he or she were the principal.

Return forms will be sent to him, and he will be required to complete them and send them back. He will be required to pay the tax shown on the return, and will also have to maintain records so that VAT Service can verify the return figures in due course. Appointment of a fiscal representative will often be the most convenient method, especially where there is a subsidiary company already operating in Cyprus, and perhaps registered for VAT in its own right.

If you do not appoint a VAT representative after you have been directed to do so, VAT Service may require you to provide them with security against potential VAT liabilities. This generally takes the form of a deposit of money, or of a bank guarantee. This is specifically required for companies incorporated outside EU.

Dealing with VAT service directly
The second alternative is to deal with VAT Service directly. VAT Service will often accept in practice that the registration may be dealt with effectively without the need for the intermediary (i.e. the VAT representative or tax agent). Under these arrangements, returns are sent direct to your place of business overseas, and are sent back to VAT Service in Cyprus.

It is essential to notify VAT Service of a liability or wish to register at the proper time, and to agree these arrangements in advance in writing with them, if this second alternative is to be followed. Curiously, although VAT Service has the power to require security in these cases it does not appear to be their practice to do so.

Recovery of VAT

If at any quarter end you have recoverable VAT i.e. the input VAT exceeds output VAT then this amount following the strict letter of the law cannot be transferred to a following period and should be recovered by the VAT Service. Following however a general instruction of the Commissioner, VAT recoverable, is transferred to the next period and deducted from VAT due in that period. If however you do not envisage having payable VAT in future periods an application has to be made in writing requesting the amount of VAT to be repaid.

If a non-resident entrepreneur/taxable person does not make any taxable supplies in Cyprus, in order to recover the VAT paid in Cyprus in the course of his business, a request for a refund should be filed in accordance with the Eighth or Thirteenth VAT Directive.

Sales lists/VAT information exchange system (VIES)

General
If you are involved in intra-EU movements of goods then, as well as the VAT return itself, you have to provide certain statistical reports in connection with this trade. As from 1st January 2010 VIES forms will need to be filed for intra community services as well.

EU sales list (form VIES)
The EU sales list must be produced for each calendar quarter (on a monthly basis as from 1/1/2010) , and must be submitted to the VAT Service within 40 days of the quarter end (15 days after the date of the month ended from 1/1/2010). It is submitted on a particular form. The information required consists of a list of all customers elsewhere in the EU to whom supplies of goods or services have been made in the period, their VAT registration numbers and the value of supplies of goods or services to them in the period. As from 1/1/2010 the VIES form will only be submitted electronically.

The transactions which figure on ESLs are, broadly, supplies of goods or services delivered to other member states for acquisition by a taxable person, and the value and timing of supplies for ESL purposes are generally the same as for VAT return purposes.

There are some transactions which have special treatments for ESL purposes.

Non-compliance with the VIES obligations can result in a maximum penalty of €50 per late return.

Group registration/fiscal unity

If persons constituting a fiscal unity file individual VAT returns, they are also required to submit separate VIES statements. If only one (group) VAT return is filed, in principle, only one VIES statement has to be filed.

Foreign taxable persons/fiscal representatives

How to appoint a fiscal representative
To appoint a Cyprus VAT representative, you need to find a person established in Cyprus who is prepared to perform this role. This may be difficult as the VAT representative will not only be responsible for ensuring that you comply with Cyprus VAT requirements, but will also be jointly liable with you for Cyprus VAT liabilities and, to the extent that he is connected with the circumstances giving rise to them, penalties imposed in connection with Cyprus VAT.

The appointment of a Cyprus VAT representative must be notified to VAT Service using form VAT 104, which must be signed both by the business which registered for VAT and by the VAT representative.

For the appointment of a tax agent (as opposed to a VAT representative), a letter from the principal showing that the tax agent has authority to act on behalf of the principal with regards to specified actions must be sent to VAT Service.

Intrastat

The supplementary statistical declaration (SSD) is a monthly return detailing all movements of goods between Cyprus and other EU states. It covers transfers between branches of the same business as well as purchases and sales of goods, and provides the information needed for the trade statistics.

The obligation to submit SSDs arises separately for imports and exports and depends on the value of the movements. The assimilation threshold for the calendar year 2009 is €55,000 for both imports and exports whereas the specific threshold is €1,500,000 for imports and €1,200,000 for exports.

On the SSD you must give details of each shipment, including such matters as the detailed trade classification of the goods, quantities, shipping costs, countries of departure and arrival, etc.

Businesses whose arrivals (goods in) or dispatches (goods out) fall below the specific thresholds of €1,500,000 and €1,200,000 respectively need not give details of delivery terms (e.g. Free on board (FOB) on their SSD).

The SSD must be submitted within ten days of the month end.

Movements of goods excluded from SSDs.
The following movements of goods should not be included on the SSD:

• goods dispatched to another EU member state for less than two years, if they would qualify for temporary importation relief if arriving from outside the EU (e.g. exhibition goods); 
• goods transferred temporarily for hire, lease or loan, or for use in carrying out a service in another EU member state; 
• industrial or commercial samples sent to actual or potential customers free of charge;
• goods sent to another EU member state for examination, analysis or testing followed by return or destruction, or the return of such goods after testing, etc.; and
• dispatches of goods (other than excise goods or new means of transport) to unregistered customers.
  
  

Penalties

General
A system of penalties exists to discourage failure to comply with the VAT system. In the main these are civil penalties, which can be applied by VAT Service without recourse to the courts, although there is a right of appeal against the imposition of a penalty.

Failure to register for VAT
If you are late in notifying your liability to register for VAT a penalty of €85 for each month of delay applies.

Late returns or payments
If you are late in submitting your VAT return the VAT Service charge a fixed penalty of €51 for each return. In case that an amount of VAT is due with the return, then an additional 10 per cent penalty is imposed on the tax due.

Incorrect returns
If you have filed an incorrect return then the following applies.

1. If you discover the mistake yourself and the mistake is less than €1,708 of VAT (payable or recoverable) then you must correct the mistake by making an entry in the VAT quarter you have discovered the mistake. 
2. If the mistake is more than €1,708 of VAT (payable or recoverable) then you must write to the VAT Service and ask them for their permission to correct the mistake in the VAT quarter you have discovered it explaining the reason why it has occurred. The VAT Service will normally grant permission for doing so provided that that the taxpayer was not under a control visit when the mistake was discovered.
   
   

In either of the above cases there is no penalty or interest to pay. In the case of the VAT Service discovering the mistake itself then they will raise an assessment for the VAT due and will be a ten per cent penalty on the amount of VAT underpaid and eight per cent interest (nine per cent interest applies for periods up to end of year 2006) from the date the VAT underpaid was due.

There is no penalty for the incorrect completion of the statistical parts of the VAT return. Penalties and interest only apply to VAT underpaid - if any.

Breaches of regulations

Interest is payable at eight per cent per annum (nine per cent interest applies for periods up to end of year 2006) from the due date on all amount due to VAT Service including the penalties. 

Large / small traders

The Cyprus VAT legislation doesn’t provide special regulations for large or small traders. 
 

• Introduction
• Scope
• Registration
• Tax rates
• Reporting & filing
• General tax application/Time of supply