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New legislative amendments have been voted in the meeting of the House of Representatives of the Republic of Cyprus held on 31/07/2020 to improve tax collection and address VAT fraud. As published in Cyprus’ official Gazette on 20 August 2020, the following are the main changes to the Cyprus VAT law N. 122(I)/2020 which take effect from the publication apart from two aspects as noted below.

 

1. Extension on Article 11B – Domestic reverse charge on construction services expands to include C2B.

Article 11B shifts the obligation to account for VAT on construction, demolition, repair, or maintenance of any civil engineering project (and in some cases goods provided with the services) from the supplier to the recipient of the services (B2B).
 
Under the amendment, “taxable person” has been replaced with “any person”.
As a result of the amendment, the recipient (being a taxable person) has the obligation to self-account for VAT on the services (or services together with goods) even if the supplier is not a taxable person registered for VAT purposes (B2B and C2B).


2. New Article 11E – Domestic reverse charge on electronic devices

Similar to the Intra-community supplies and Article 11B, the new Article 11E shifts the obligation to account for VAT from the supplier to the recipient of the products under the reverse charge provisions when these are acquired in the course of business activity.
The reverse charge is applied for the below products:

• Mobile Phones,
• Integrated circuit mechanisms, such as microprocessors and central processing units, and
• Game consoles, computer tablets and laptops.

The seller therefore will issue invoices without VAT and the purchaser will be responsible to self-account for the output VAT under reverse charge provisions. Provided such goods are acquired in the course of business activity, the purchaser of the goods has the right for immediate input VAT recovery.

The new provisions are effective from the 1^st of October 2020 (as per Article 15(2) of the amendment law) and relate to all transactions made to taxable persons within Cyprus. Reverse charge should be applied from the recipient of the products (provided that is a taxable person) regardless if the supplier is registered to VAT or not (B2B and C2B).


3. Amendment of Article 20 – VAT refund on credit balance

The amendments in Article 20, intrudes the following changes in relation to VAT refunds:

• The Tax Commissioner reserves the right to suspend the refund of a VAT credit balance and its applicable interest if the taxpayer has failed to comply with the obligation to submit income tax returns.
• The right to request a VAT refund will be limited to six years from the end of the VAT period in which it arose. Any requests submitted after the six-year deadline has elapsed will be examined at the discretion of the Tax Commissioner.

4. Amendment of Article 45 – Penalties

The amendments in Article 45 include the following changes in relation to VAT penalties:

• The penalty for late submission of a VAT return increases from €51 to €100 for each late submitted VAT return.
• With effect from 1^st of July 2021, failure to apply the reverse charge provisions as per Articles 11, 11A, 11B, 11C, 11D, 11Eor 12A, will result in the imposition of a €200 penalty per VAT return, but will not exceed a total penalty of €4.000.

5. Amendment of Article 52A – Deadline for submitting an objection to the Tax Commissioner

The deadline for submitting an objection to the Tax Commissioner following the issuance of a VAT assessment is set at 60 days from the date the taxable person is notified of the Tax Commissioner’s decision.


6. Amendment of First Schedule – Non-resident taxable persons

Taxable persons, the obligation to register with the Cyprus VAT authorities without a prerequisite VAT registration threshold.
We will provide more information with a separate e-mail.


7. Amendment of Fifth Schedule – Definition of "renovation"

As per the VAT law, 5% VAT is applicable for all renovations of old private residences.The term “renovation” included only improvements and repairs. With the amendment the term ‘’renovation’’ also includes any additions.
 
For a residence to be considered old, at least three years must have passed since its first occupation.


8. Amendment of Sixth Schedule – Zero rate for international transport

The sixth schedule of the VAT law is amended to provide that the part of the international passenger transport that takes place within Cyprus is subject to a zero VAT rate.


Effective Date of application of the Law amendments

The Law will become effective from the date of its Publication in the Official Government Gazette (i.e. 20 August 2020), with the exception of the following:

• Reverse charge (article 11 E) will become effective as of 1 October 2020.
• The penalties in relation to the non-application of the reverse charge mechanism will apply as of 1st July 2021.

Affected businesses should seek immediate guidance to ensure compliance and implementation of potential benefits.

We are at your disposal to discuss and assist you to meet your tax obligations.

Contact persons

Head of Accounting                                    Head of Audit