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Cyprus is a beautiful island located in the eastern Mediterranean, known for its stunning beaches, ancient ruins, and picturesque villages. However, for businesses operating within the country, it is essential to understand the tax laws and regulations that exist, particularly with regards to Value Added Tax (VAT). In this article, we will discuss the requirements of VAT compliance in Cyprus and some important considerations for businesses with operations in the country.

Value Added Tax (VAT) is an indirect tax charged on the provision of goods and services in Cyprus. The standard rate of VAT in Cyprus is 19%, with a reduced rate of 5% applied to specific goods and services. VAT is generally levied on the final sale price of goods or services, with the amount due calculated as the difference between the VAT charged on sales and the VAT paid on purchases.

One of the essential requirements of VAT compliance in Cyprus is to register for VAT. Any business engaged in the supply of goods or services in Cyprus must register for VAT if their taxable goods or services exceed a certain threshold. The current threshold for mandatory registration is an annual turnover of €15,600, with voluntary registration possible for businesses with a turnover of less than this. Once registered, businesses are required to submit periodic VAT returns, which provide details of all transactions during the return period, including VAT paid and charged on sales and purchases, as well as any VAT liabilities.

Another important consideration for VAT compliance in Cyprus is the requirement for proper documentation. Businesses are required to keep accurate records of all VAT transactions, including invoices, credit notes, and receipts. VAT invoices must include specific information, including the name and address of the supplier and customer, the VAT registration number of the supplier, the date of the transaction, a description of the goods or services supplied, the VAT rate applied, and the total amount charged. Failure to maintain proper documentation can result in penalties or fines, so it is crucial to keep all records up to date and accurate.

Additionally, it is crucial to understand the rules surrounding VAT compliance when dealing with international transactions. Cyprus is a member of the European Union (EU), which means that special rules apply when dealing with other EU countries. For transactions with EU member states, businesses must ensure they have obtained the correct VAT registration numbers and comply with EU VAT rules, which often entail the reverse charge mechanism. The reverse charge mechanism means that the buyer, rather than the seller, is responsible for accounting for VAT on the transaction. For transactions outside the EU, businesses must ensure they comply with the appropriate VAT rules for the country in question.

One of the benefits of VAT compliance in Cyprus is the ability to reclaim VAT on eligible purchases. VAT paid on certain goods and services can be recovered by registered businesses, provided they are used in the course of their business activities. However, there are some restrictions surrounding the recovery of VAT, particularly with regards to expenses related to business entertainment, such as meals and drinks. It is important to understand the rules surrounding the recovery of VAT and to keep accurate records of all business expenses.

In recent years, the Cyprus Tax Department has increased its focus on VAT compliance, particularly with regards to industries considered high-risk, such as construction, real estate, and hospitality. The Tax Department has implemented various measures to tackle non-compliance, including audits, inspections, and investigations. Therefore, businesses operating in these industries must ensure they comply with all VAT regulations and maintain accurate records of their transactions.

To facilitate VAT compliance in Cyprus, there are several software packages available that are specifically designed to assist businesses in managing their VAT obligations. These packages can help businesses stay up to date with VAT rules and regulations, monitor transactions, produce VAT invoices, and generate VAT returns. The use of VAT compliance software can streamline the VAT process and reduce the risk of errors or omissions.

In conclusion, VAT compliance is an essential component of doing business in Cyprus. Failure to comply with VAT regulations can result in penalties or fines, and may damage a company’s reputation. Therefore, businesses operating in Cyprus should ensure they understand the VAT rules and regulations that apply to their operations, maintain accurate records, and use any available software or professional services to manage their VAT obligations effectively. By doing so, businesses can ensure they remain compliant with VAT laws, while also benefiting from the ability to reclaim VAT on eligible purchases.

The above article is provided only for information purposes. It should not be consider as a professional advice. We recommend you to ask for a professional advice before acting on any information provided.  Should you require a professional advice please contact us at or call us at (+357 99 832578).

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