Cyprus Company Formation, Holding Cyprus, Cyprus Investment Firm, Offshore Company Formation

Company Formation Cyprus: VAT Tax & Compliance Requirements

Company Formation Cyprus: VAT Tax & Compliance Requirements

Value added Tax (V.A.T.) is a pan European indirect tax on purchases, payable by consumers (end users). Businesses (V.A.T. registered companies) are required to act as government agents, i.e. collect V.A.T. from their customers and pass it (Pay) to the government, even though Businesses are not V.A.T. taxable themselves. Moreover, it is the legal responsibility of the agent to maintain accurate transaction records and provide V.A.T. data to the government.

Currently the Standard V.A.T. rate in the republic is 19%. Companies invoicing (Selling) to individuals or other companies within the republic are required to inflate their products / Services by 19%.

Some transactions have a 0% V.A.T. rate, for example basic food staff, or payments for rent. Other transactions, such as restaurants have a reduced rate (8%).

Every three months the difference between V.A.T. charged on Sales, and the V.A.T. incurred on purchases within the republic is payable to the government.

For EU Sales (Sales from a company based in one EU member to a customer based in another EU member state) the standard rate of the supplier applies if the customer is an individual. If the customer is a V.A.T. registered company then the V.A.T. rate is zero.

Sales to Customers whom reside in a non-member state (foreign Sales) are exempt from V.A.T.

In the V.A.T. declaration form, submitted every three months to the Cyprus V.A.T. authorities, registered entities are obliged to declare the following:

  • V.A.T. charged on Sales
  • V.A.T. charged on Sales to EU Customers
  • Total V.A.T. charged on Sales
  • V.A.T. incurred on Purchases
  • V.A.T. Payable or Receivable (difference between sales V.A.T. and Purchases V.A.T).
  • Total Sales (net of V.A.T.)
  • Total Purchases (net of V.A.T.)
  • Total EU Sales (net of V.A.T.
  • Total foreign Sales
  • Total EU Purchases.

VIES Reporting Requirements

VAT Information Exchange System (VIES) was introduced by the E.U. in order to prevent and deter the abuse of the 0% V.A.T. rate on intra-community transactions (sales from a company based in one EU member state to a company based in another EU member state).

Any V.A.T. registered entity who sells goods or services to a V.A.T. registered entity in another member state is required to declare all the intra-community sales made during a calendar month. It is therefore the responsibility of the agent to maintain records of V.A.T. registered customers’ V.A.T. numbers.

Company Formation Cyprus:

Double Taxation Agreements (DTA)Yes, with most countries
Corporate tax12,5%
Tax free receipt of foreign dividendsYes
EU Parent-Subsidiary Directive applicableYes
Holding company privilegesYes
Banking secrecyHigh
Nominee relationships allowedYes
Cyprus has double taxation agreements = DTA with most countries. Freedom of establishment in the European Union is applicable. From a European point of view, NO commercially equipped business operation is required for approval of a permanent establishment regarding the tax legislation in Cyprus, and neither is the proof of active business in Cyprus. The profit tax in Cyprus amounts to only 10%, irrespective of the amount of profits. Distributions of profits are not taxed.