Since the beginning of 2020, some important VAT changes enacted in Cyprus. The main ones are following.
COVID-19 VAT RELATED MEASURES
- Temporary deferral of VAT payments for certain businesses
VAT amending law N. 24(I)/2020 of 27 March 2020 introduced temporary changes to the Cypriot VAT Law N. 95(I)/2020-2020 (as amended) so that, certain categories of businesses were allowed to defer VAT payments until 10 November 2020 without the imposition of penalties and interest charges.
The specific measure, which excluded a number of categories of businesses (listed in the amending law), allowed for a deferral of VAT payments only for the VAT periods ending 29 February 2020, 31 March 2020 and 30 April 2020 – provided that the respective VAT returns were timely submitted.
It is worth noting that, unless an extension is given, if any of the deferred amounts are not paid by 10 November 2020, penalties and interest charges will be imposed, with the late payments possibly constituting a tax offence.
- Temporary change of VAT reporting periods and due VAT payments for certain businesses
Following the issuance by the Council of Ministers of the VAT Decree ΚΔΠ170/2020 on 16 April 2020 and the respective announcements issued by the Tax Department, certain categories of businesses were informed by email that the duration of their VAT respective returns has temporary changed, as well as their liability to settle the resulting VAT amounts due.
The measure taken is illustrated by Table 1 below.
Table 1: Illustration of Degree ΚΔΠ170/2020
|Old reporting periods||New reporting periods||New deadline||VAT amount due|
|01/01/20-31/03/20||01/01/20-31/03/20||27 April 2020||30% of the amount due for the period ending 31/03/20|
|01/02/20-30/04/20||01/02/20-31/03/20||27 April 2020|
|01/03/20-31/05/20||01/03/20-31/03/20||27 April 2020|
|01/04/20-30/04/20||27 May 2020||30% of the amount due for the period ending 30/04/20 plus 30% of the amount due for the previous period ending 31/03/20|
|01/05/20-31/05/20||27 June 2020||30% of the amount due for the period ending 31/05/20 plus 30% of the amount due for the previous periods ending 31/03/20 and 30/04/20|
|01/06/20-30/06/20||27 July 2020||30% of the amount due for the period ending 30/06/20 plus 30% of the amount due for the previous periods ending 31/03/20, 30/04/20 and 31/05/20, with remaining balance deferred until 30/11/20|
As from 1 July 2020, the VAT periods and VAT payment obligations of all affected businesses were reversed back to their usual format. It is worth noting that, unless an extension is given, if any of the deferred amounts are not paid by 10 November 2020, penalties and interest charges will be imposed, with the late payments possibly constituting a tax offence.
- Temporary reduction from 9% to 5% VAT rate for certain hospitality and travel services
The Council of Ministers issued on 23 June 2020 Decree Κ.Δ.Π 268/2020, temporary changing Schedule 5 and Schedule 12 of the Cypriot VAT Law N. 95(I)/2000-2020 (as amended), which in effect reduced the VAT rate applicable to certain hospitality and travel services from 9% to 5%.
The amendment is only temporary and concerns the following types of services provided in Cyprus:
- Accommodation services provided by hotels and similar establishments, including the provision of holiday accommodation;
- Restaurant and catering services;
- Transportation of passengers and their accompanying luggage within the Republic by urban, intercity and rural taxis and by tourist and intercity buses.
The change applies for the period between 1 July 2020 and 10 January 2021. Hence, as from 11 January 2021, the applicable VAT rate will revert back to 9%.
QUICK FIXES IMPLEMENTATION IN CYPRUS
The respective amendments were voted by Parliament on 19 June 2020 and published in the Official Gazette of the Republic on 3 July 2020.
The changes concern the implementation of the EU VAT Quick Fixes simplifications into the Cypriot VAT Law N.95(I)/2000-2020 (as amended) and were enacted retrospectively as from 1 January 2020.
In particular, the following amending legislation and regulation were issued:
- Amendments to Article 10 of VAT Law in respect of the place of supply of goods in certain chain transactions
New sub-paragraphs 15 and 16 were added to Article 10 of the Cypriot VAT Law N. 95(I)/2000-2020 (as amended), which implement Article 36a of the Principle EU VAT Directive 2006/112/EC (as amended) in respect of the described chain transactions.
The new provisions stipulate that
- where the same goods are supplied successively and those goods are dispatched or transported from one Member State to another Member State directly from the first supplier to the last customer in the chain, the dispatch or transport shall be ascribed only to the supply made to the intermediary operator.
What this means in effect is that, under such circumstances, the supply from the first supplier to the intermediary operator is an intra-Community supply, whereas the supply from the intermediary operator to the last customer in the chain is a local supply.
- by way of derogation from (i) above, the dispatch or transport shall be ascribed only to the supply of goods by the intermediary operator where the intermediary operator has communicated to his supplier the VAT identification number issued to him by the Member State from which the goods are dispatched or transported.
What this means in effect is that, under such circumstances, the supply from the first supplier to the intermediary operator is a local supply, whereas the supply from the intermediary operator to the last customer in the chain is an intra-Community supply.
- for the purposes of the above chain transactions, ‘intermediary operator’ means a supplier within the chain other than the first supplier in the chain who dispatches or transports the goods either himself or through a third party acting on his behalf.
- Amendments to Article 42C of VAT Law in respect of the Recapitulative (VIES) Statements
- Sub-paragraph 2 replaced
Sub-paragraph 2 of Article 42C was replaced by a new sub-paragraph 2, which now clearly states that VIES statement must be submitted for the following types of transactions:
- Intra-Community supplies of goods to VAT registered persons in other EU Member States under the conditions of Article 10 of the VAT Law;
- Triangular transactions and intra-Community supplies of goods with installation or assembly under the conditions of Article 12E;
- Intra-Community supplies of services to VAT registered persons in other EU Member States under the conditions of Article 10A of the VAT Law, unless the services are exempt or zero-rated in the Member State of the recipient.
- New sub-paragraph 2A
New sub-paragraph 2A was added to Article 42C of the Law, which establishes a requirement for taxable persons transferring goods as a call-off stock to other EU Member States, under the conditions of the new Special Regulation Κ.Δ.Π. 284/2020, to include in the VIES statement the VAT number of the taxable persons for whom the call-off stock goods are intended and any change in the submitted information.
The new Special Regulation Κ.Δ.Π. 284/2020 transposes Article 17a of the Principal EU VAT Directive 2006/112/EU (as amended) and deals with the conditions of the call-off stock simplification rules.
In addition, related to the new call-off stock provisions are Regulations 2 and 3 of the new VAT Regulation Κ.Δ.Π. 283/2020, which amends the General VAT Regulations 314/2001-2020 (as amended), providing for the need to keep certain registers with specific information and transposing Article 243(3) of the Principal EU VAT Directive 2006/112/EU (as amended) and Article 54a of the EU VAT Implementing Regulation 282/2011 (as amended).
VARIOUS AMENDMENT OF THE VAT LAW
The respective amendments were voted by Parliament on 31 July 2020 and published in the Official Gazette of the Republic on 20 August 2020.
The changes concern various provisions of the Cypriot VAT Law N.95(I)/2000-2020 (as amended), effective as from 20 August 2020, unless noted otherwise in the relevant text below.
In particular, the following amending legislation acts were issued.
- Changes concerning the write off of VAT debts
Paragraph 11 of Schedule 10 of the VAT Law N.95(I)/2000-2020 (as amended) was replaced by a new paragraph 11, which in effect removes the Tax Commissioner’s right to write off VAT debts.
As a result of the change, all cases of VAT debts write offs are to be handled as per the provisions of the Accounting, Financial Management and Financial Control Law.
- Changes in certain definitions
- Definition of a ‘legal person’ added
A definition of a ‘legal person’ was added to Article 2 of the VAT Law N.95(I)/2000-2020 (as amended).
As per the new definition, ‘legal person’ includes a company, a partnership, a club, an association, an organisation or any other union of persons, irrespective of whether it has been established or not in accordance with the provisions of any Law or regulation.
- Definition of a ‘person established in the Republic’ was added to Schedule 1 in respect of VAT registration obligations
A definition of a ‘person established in the Republic’ was added in a new sub-paragraph 7 to paragraph 1 of Part I of Schedule 1 of the VAT Law N.95(I)/2000-2020 (as amended).
As per the new definition, a person is treated as a ‘person established in the Republic’ if the person has a business establishment or a fixed establishment in the Republic in relation to the business carried out by that person.
- Amended definition of ‘renovation’ in paragraph 11 of Table B of Schedule 5 (Reduced VAT rate – 5%)
The amended definition extends the application of the reduced VAT rate of 5% to any extensions added to a private home, subject to three years having passed since its first occupation.
Prior to the amendment, the reduced VAT rate of 5% was only applicable to improvements and repairs but not to any extensions added.
- Changes in the local reverse charge provisions
- Extending the application of the local reverse charge provisions in the construction industry
By amending Article 11B of the VAT Law N.95(I)/2000-2020 (as amended), its scope of application is extended to include transactions of taxable recipients with non-taxable suppliers in respect of certain supplies of services or services together with goods in the construction industry.
Before the amendment, the local reverse charge provisions were only applicable to relevant transactions between taxable recipients and taxable suppliers.
Therefore, care should be taken by all taxable recipients of the relevant supplies so that the reverse charge provisions are correctly applied not only to transactions with VAT registered suppliers but also to transactions with non-VAT registered suppliers.
For example, services provided to a construction company by a non-VAT registered carpenter will now fall within the scope of the local reverse charge provisions. This means that the construction company needs to self-account for the due VAT at the applicable standard VAT rate, including the corresponding VAT amounts and the value of the services in its VAT return.
- Introducing new local reverse charge provisions in respect of certain electronic goods
This change will become effective on 1 October 2020.
A new Article 11E was added to the VAT Law N.95(I)/2000-2020 (as amended). The Article applies to the supply in Cyprus of the following goods to taxable persons:
- mobile telephones, being devices made or adapted for use in connection with a licensed network and operated on specified frequencies, whether or not they have any other use;
- integrated circuit devices such as microprocessors and central processing units in a state prior to integration into end user products;
- game consoles, tablet PC’s and laptops.
Therefore, as of 1 October 2020, care should be taken by both suppliers and buyers of the above listed goods, so that no VAT is charged by the suppliers in case of sales to taxable persons, who are in turn liable to self-account for the due VAT under the reverse charge procedure.
For example, a tablet sold locally by a store in Cyprus to a Cypriot VAT registered buyer, for its business purposes, should not charge VAT on the relevant sales invoice. Instead, the buyer should self-account for the VAT due at the applicable standard VAT rate, including the corresponding VAT amounts and the value of the goods in its VAT return.
- Refund of VAT credit balance
- Introducing rights to suspend refunds of VAT credit balances
New paragraph 5A was added to Article 20 of the VAT Law N.95(I)/2000-2020 (as amended).
Under the new provision, the Tax Commissioner reserves the right to suspend refunds of any pending VAT credit balances (and any applicable interest) until a taxpayer, who has defaulted on its obligations to submit income tax returns (under the provisions of Article 5 of the Assessment and Collection of Taxes Law), submits the respective returns.
- Introducing a time limit on the right to claim a refund of VAT credit balance
New paragraph 6A was added to Article 20 of the VAT Law N.95(I)/2000-2020 (as amended).
Under the new provision, taxpayers’ rights to request a refund of a VAT credit balance is limited to six (6) years from the end of the relevant VAT period in which the credit balance arose.
Any requests submitted after the 6-year time limit will be examined only at the discretion of the Tax Commissioner.
- Increase of certain monetary penalties
- Increasing the penalty for a late VAT return submission
Paragraph 2 of Article 45 of the VAT N.95(I)/2000-2020 (as amended) was changed, increasing the late VAT return submission penalty from EUR 51 to EUR 100.
- Introducing penalties for failure to apply the reverse charge provisions
This change will become effective on 1 July 2021.
New paragraph 7B was added to Article 45 of the VAT N.95(I)/2000-2020 (as amended), introducing a monetary penalty of EUR 200 per VAT return, limited to EUR 4,000 in total, for failure to apply the reverse charge provisions in respect of the following Articles:
- Article 11 (taxable services acquired from suppliers established outside Cyprus);
- Article 11A (gas and electricity supplies acquired from suppliers established outside Cyprus);
- Article 11B (local supplies of certain services or services together with goods in the construction industry);
- Article 11C (local supplies of used metals and scrap falling within Combined Nomenclature code 46771;
- Article 11D (transfer of immovable property in the process of loan restructuring and for compulsory transfer to the lender);
- Article 11E (local supplies of mobile phones, integrated circuits, laptops and game consolers);
- Article 12A (taxable acquisition of goods from other Member States).
It is noted that the penalties will apply to all defaulting taxpayers irrespective of their right to deduct or not the VAT arising from the application of the reverse charge procedure. Hence, even if a taxpayer has a 100% right to input VAT deduction, resulting in a nil cash flow impact, not reporting the relevant reverse charge transactions in the respective VAT boxes of the VAT return will result in imposition of the above-mentioned penalties.
- Important changes to the VAT registration obligations of non-established taxable persons
The VAT registration threshold (EUR 15 600) only applicable to persons established in Cyprus
- Amending Part I of Schedule 1 of the VAT Law
- Refence is now made to ‘the person being established within the Republic’, which in effect means that the Part I of Schedule 1 of the VAT Law N. 95(I)/2000-2020 (as amended) covers, following the change, only provisions applicable to taxable persons with establishment in Cyprus;
- In this respect, a definition of a ‘person established in the Republic’ was added. Please see section 2.2 above for the new definition.
- New Part IA added immediately after Part I of Schedule 1 of the VAT Law
A new Part IA was added (after Part I) to Schedule 1 of the VAT Law N. 95(I)/2000-2020 (as amended), covering provisions applicable only to taxable persons not established in Cyprus.
In particular, the new provisions govern the VAT registration and de-register obligations and rights of non-established taxable persons, as well as the relevant notifications and VAT registration exemptions.
Prior to the change, established and non-established taxable persons were governed by the same provisions effectively allowing for the VAT registration threshold to apply equally to non-established persons. That was contrary to the Principal EU VAT Directive, which does not permit for VAT registration threshold in respect of non-established taxable persons.
- Correcting omissions and inaccuracies
- Restoring sub-paragraph (e) of paragraph 5 of Schedule 6
Sub-paragraph (e) of paragraph 5 was added (back) to Schedule 6 of the VAT Law N.95(I)/2000-2020 (as amended).
The amendment restores the provision which zero-rates international passenger transport services to the extent they occur in Cyprus, which was deleted unintentionally in 2011.
- Correcting the text of point (vi) of sub-paragraph (a) of paragraph 1 of Schedule 8
Point (vi) of sub-paragraph (a) of paragraph 1 of Schedule 8 of the VAT Law N.95(I)/2000-2020 (as amended) deals with the imposition of VAT in respect of leases of immovable property to taxable businesses.
The amendment corrects inaccuracy in the previous text of the provision, which made reference to buildings in two instances, whereas the term ‘immovable property’ should have been used throughout the text of the provision.
- Further changes
- Right of the Tax Commissioner to issue a new assessment
Sub-paragraph (b) of paragraph 4 of Article 50 of the VAT Law N.95(I)/2000-2020 (as amended) was changed, extending the Tax Commissioner’s right to re-examine and issue a new assessment within six (6) months from the date of the Hight Court declaring an assessment issued under Article 49 (various, including failure to submit VAT returns) or Article 49A (assessments in case of acquisitions of goods subjects to excise duties or new means of transport by non-taxable persons) wholly or partly invalid.
- Time limit for objecting to the Tax Commissioner
Paragraph 2 was added to Article 52A of the VAT N.95(I)/2000-2020 (as amended).
The change provides for a deadline of sixty (60) days, from the date of notification of the Tax Commissioner’s decision, for taxable persons to object on the various matters listed in the same Article.
- Interest due by the Tax Commission upon decision of the High Court
Article 54 of the VAT Law N.95(I)/2000-2020 (as amended) was changed, extending the Tax Commissioner’s obligation to pay interest in case of a decision by the High Court resulting in the Commissioner having to pay back VAT amounts to the affected taxpayer.
- Right of the Tax Commissioner to submit views to the Tax Tribunal
Paragraph 2 of Article 54A of the VAT Law N.95(I)/2000-2020 (as amended) was changed giving the Tax Commissioner rights to submit his views before the Tax Tribunal on an appeal from a taxpayer.