Cyprus

Cyprus- New super-reduced VAT rate The introduction of new VAT rates can pose problems for businesses, who will need to adapt systems and categorisations to accommodate such rates. However, they are often viewed as an effective fiscal strategy for governments to manage their tax agendas.   The European Union has recently provided EU Member States with greater flexibility to dictate their own VAT rates. These concessions extend to the introduction of super-reduced VAT rates, which previously could not be set below 5%. This restriction has now been abolished, and it is likely that several Member States will take advantage of this to introduce new categories of goods / services subject to the super-reduced rates in line with specific wider fiscal and social initiatives.   Cyprus is the one of the first countries to take advantage of this increased latitude, via the introduction of a super-reduced rate of 3% VAT for specific goods and services. This will co-exist alongside the 19% standard VAT rate and 5% reduced VAT rate and will be effective from 21 July 2023.  The new 3% rate will impact the following goods and services: 

• Goods, including specific books, certain lifting devices, vehicles specific to people impacted by disability, orthopaedic items and appliances, and other specific items which can assist people living with a disability.  
• Services, including specific cleaning services performed by private entities, waste treatment and debut performances for specific cultural activities. 

In addition to the new 3% super-reduced VAT rate, the Cypriot government has re-categorised several of its goods and services under the zero VAT rate. This re-classification is also currently active and will last until 31 October 2023, in contrast to the new 3% super-reduced rate, which is expected to be a permanent feature.  The law relating to both the new super-reduced rate and the re-classification of goods can be found here.  Cyprus is a compliant territory for Kofax, and the Tungsten Web Form Portal supports the new rate. Kofax is communicating with impacted Cypriot suppliers and buyers to facilitate the new super-reduced VAT rate.    

Potential new VAT rate The VAT landscape is set to change quite dramatically as the EU has afforded countries greater latitude to determine their own tax rates. This, combined with a post-pandemic era where countries strive to restore economic stability, means we can expect VAT rate changes to be the norm rather than the exception in 2023 and beyond.   Cyrus has approved the decision to implement a new 3% VAT rate which will apply to the following products: 

• books, magazines, and similar products, whether provided on a physical basis or in electronic form 
• stairs, lifts, and wheelchairs for persons with disabilities 
• orthopaedic devices 
• street cleaning and dog collection services 
• waste water disposal and treatment 
• entry to the debut of theatrical, musical, dance or classical performances. 

The Council has also enacted the re-categorisation of certain VAT products, including the introduction of a zero VAT rate for the following: 

• typewriters with braille characters and similar electronic devices 
• wheelchairs for persons with disabilities exclusively for their personal use. 

These VAT rate changes still need to be confirmed by the Cypriot Council of Ministers.   Cyprus is a compliant territory for Kofax and we are following developments around the proposed VAT rate changes.  We will support the new 3% rate if confirmed and incorporate all valid VAT rates as part of our e-invoicing solution in the country.  

VAT reduction on basic goods Cyprus, following recent VAT changes in the country, is proposing yet further changes as part of its fiscal overhaul- including a reduction in the standard rate and reduced rate for specific goods. The move endeavours to target basic everyday goods such as milk and eggs and is expected to last until 31 October 2023. Cyprus is a compliant territory for Tungsten Network and our solution supports all valid VAT rates in the country.

Extension of VAT reduction on domestic energy Inflation is rising sharply across Europe and governments are responding accordingly with a variety of fiscal measures. Further to this, the Cypriot government has extended the reduction in VAT on domestic energy, from 17% to 9%, until 31 August 2022. This was initially expected to end at the end of June 2022.

Mandatory B2G e-invoicing planned

Cyprus is looking to implement some changes around e-invoicing in the sphere of public procurement. The current framework is covered by the scope of Public Procurement Law (89(I)/2019).  

There are some proposals under review from the Cypriot Ministry of Finance, including making e-invoicing mandatory for transactions in the public sector. These proposals have been published for public consultation.  

It is intended that the proposed amendments to the law will come into force from 1 January 2022, although it is slightly uncertain at the moment whether this will go ahead, due to the legal and administrative procedures which need to be followed. 

The relevant provisions of the law cover central governmental entities and the remaining public agencies as defined in the legislation. Certain sectors will be exempt from the obligation to use e-invoicing.