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15 October 2020

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Cyprus Tax Department Issues Implementing Directive on Reverse Charge for Certain High-Value Goods

The Cyprus Tax Department has announced the issuance of Implementing Directive 01/2020 of 29 September 2020 for the new Article 11E of the VAT Law. Article 11E was introduced through amendments published 20 August 2020, and provides 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; and
  • Game consoles, computer tablets, and laptops.

In particular, Implementing Directive 01/2020 clarifies the type of goods subject to reverse charge as follows:

Mobile phones

Mobile phone means any device that has a mobile phone function (i.e., sending and receiving voice messages via a mobile network), regardless of whether the device has other functions, including smartphones and hybrid phone/tablets (phablets).

The reverse charge also covers:

  • Mobile phones provided with accessories (such as charger, battery, cover, or hands-free kit) as a single package (one price);
  • Prepaid (or "pay as you go") mobile phones; and
  • Smartwatches with a mobile phone function that is not connected to a mobile phone.

The reverse charge does not cover:

  • Mobile phones provided with a contract for talk time;
  • Mobile phone accessories supplied separately from a mobile phone
  • Walkie talkies;
  • Wi-Fi phones, unless also intended for use with mobile networks telephony;
  • Phones where the base unit is connected to a landline, but the handset is not connected to the base unit; and
  • Smartwatches with or without mobile phone function that must be paired with a mobile phone and 3G data cards and Wi-Fi cards.

Integrated circuit mechanisms, such as microprocessors, and central processing units

This category covers integrated circuit mechanisms such as:

  • Small integrated circuits (e.g., central processing units or CPUs);
  • Separate integrated circuit devices, e.g., microprocessors or microprocessor units (MPUs) and microcontrollers or microcontroller units (MCUs) and chipsets, a special set of integrated circuits that support MPUs; and
  • General items prior to their integration into end-user products or where they are sold separately and not as part of an assembled item, for example, a motherboard.

This category does not, in any case, include desktops, cash register systems, or peripherals such as printers, external memory cards, chargers, etc.

Game consoles, computer tablets, and laptops

This category includes gaming consoles, laptops, and all tablets that can operate autonomously with an internet connection, even if they have other uses, such as connecting to ordering systems. This category does not include other devices that cannot function autonomously, even if they look like tablets.

Implementing Directive 01/2020 further notes that the obligation for the buyer to apply the revers change applies regardless of whether the supplier is registered for VAT (a (taxable person). It is also provided that when a supplier issues a VAT invoice to which the provisions of article 11E apply, the supplier has the obligation to confirm that the VAT number submitted by the customer is valid. VAT numbers can be validated on the VIES VAT number validation website.

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