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LAST UPDATED 11/01/2024
Value-added tax (VAT) is a tax charged on the supply of goods and services in Cyprus, as well as on the acquisition of goods from the European Union and the importation of goods into Cyprus. Businesses that are VAT-registered charge VAT on their taxable supplies (output tax) and are charged with VAT on goods or services they receive (input tax).
The standard VAT rate in Cyprus is 19%, and there are also two reduced VAT rates: a 9% rate and a 5% rate. The 9% rate applies to accommodation, restaurant, and catering services, as well as certain local passenger transport services and the supplies of goods and services by old people’s homes. The 5% rate applies to foodstuffs, pharmaceutical products, books, newspapers, and a variety of other goods and services.
Certain supplies in the public interest, such as postal services, education services, medical services, and supplies of charities, are exempt from Cyprus VAT, as are the supply of financial services and certain supplies of buildings.
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VAT registration is compulsory for businesses with a turnover in excess of EUR 15,600 during the 12 preceding months or with an expected turnover in excess of EUR 15,600 within the next 30 days. Businesses with a turnover of less than EUR 15,600 or with supplies that are outside the scope of VAT but for which the right to claim the amount of the related input VAT is granted may register on a voluntary basis.
VAT returns must be electronically submitted on a quarterly basis, and the payment of VAT must be made by the tenth day of the second month that follows the month in which the VAT period ends. Businesses may request a different filing period with the approval of the Commissioner of Taxation. If input VAT is higher than output VAT in a quarter, the difference may be refunded or transferred for set-off against the VAT payable of the next VAT returns, subject to certain conditions.
Taxpayers who make a claim for VAT refund will be entitled to repayment of the principal amounts together with interest in the event that the repayment is delayed for a period exceeding four months from the date of the submission of the claim.
As of 20 August 2020, taxpayers who are not established in Cyprus but are engaged or expect to be engaged in taxable activities in Cyprus in the course of their business also have the obligation to register for VAT purposes without a VAT registration threshold.
Payroll taxes are what employers must pay on their employees’ salaries. Employers are also responsible for withholding from their employees’ earnings certain contributions, such as social insurance, General Healthcare System (GHS), and personal income tax (PIT), through the pay-as-you-earn (PAYE) system.
Employed people in Cyprus are required to contribute to a state-administered social insurance fund. Both employees and employers must contribute to this fund, and the employer’s contributions are calculated as a percentage of the employee’s earnings. The employer also contributes to other funds, such as the Redundancy Fund, Training Development Fund, and Social Cohesion Fund.
It’s important to note that the employer’s contribution rate is 8.3% for the social insurance fund, and will increase to 10.3% by 1 January 2039. The employee must also contribute at the same rate as the employer to the social insurance fund and the GHS fund, which is currently at 2.65%. GHS contributions are capped at a maximum of EUR 180,000 of annual income. The employee contribution is withheld by the employer upon payment of the employee’s earnings.
In addition, there is a maximum amount of monthly earnings, which is EUR 5,005 for 2023 (EUR 4,840 for 2022), on which the contributions are paid. This maximum amount is usually adjusted for inflation annually at the beginning of each calendar year.
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