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Cyprus Publishes Amendments to VAT Law

According to recent reports, Cyprus published amendments to the VAT Law in the Official Gazette on 20 August 2020. The main amendments are summarized as follows:

  • A new definition of "legal person" for VAT purposes is provided to align it with the definition for income tax purposes, including that a "legal person" includes a company, partnership, association, or club regardless of whether it is established in accordance with the provisions of any law or regulation;
  • The reverse charge rules regarding services and related goods for construction, demolition, repair, or maintenance of any civil engineering project are amended, which includes that customers must apply the reverse charge (account for VAT themselves) when such services and related goods are provided by any person, and not only when the provider is taxable for VAT purposes as previously required;
  • A new Article 11E is introduced to provide that where persons registered for VAT acquire the following types of high-value goods for business purposes, they must apply the reverse charge:
    • mobile phones;
    • integrated circuit mechanisms, such as microprocessors and central processing units, prior to their integration into end-user products; and
    • game consoles, computer tablets, and laptops;
  • With respect to the reverse charge for high-value goods above, it is provided that the purchase of such goods by persons not registered for VAT will count towards determining if the registration threshold for VAT purposes is met;
  • Rules regarding VAT refunds are amended, including:
    • refunds will be suspended, without interest, where income tax returns have not been submitted by the time a VAT refund claim is submitted; and
    • the time limit for submitting refund claims is set to 6 years from the end of the relevant tax period, unless the Tax Commissioner approves an exception;
  • Certain administrative rules are amended including:
    • the penalty for failing to timely submit a VAT return is increased from EUR 51 to EUR 100, and a penalty of EUR 200 per return is introduced for cases where reverse charge rules are not correctly applied, subject to a penalty cap of EUR 4,000;
    • the deadline for lodging an objection to an assessment of other decision or acts of the Tax Commissioner is formally set at 60 days; and
    • new rules are introduced regarding registration and deregistration of non-established persons carrying out taxable activities in Cyprus, which are persons that do not have a business establishment or any other fixed establishment in Cyprus related to the activities being carried out; and
  • It is provided that the part of international passenger transport that takes place in Cyprus is zero-rated for VAT purposes.

The amendments generally apply from 20 August 2020, although the new reverse charge rules for high-value goods are effective from 1 October 2020 and the new penalties for incorrectly applying reverse charge rules are effective from 1 July 2021.

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