As you may know, in Cyprus there are 3 types of rates of VAT (Value Added Tax), charged on every supply of goods or services:
- The Standard Rate
- Reduced Rate 1 &
- Reduced Rate 2.
As per the amendment in the VAT law passed by the House of Parliament on 6 December 2012 the applicable rates of VAT will change as follows:
- The Standard Rate of VAT increases from 17% to 18% for the period 14 January 2013 to 12 January 2014 and to 19% as of 13 January 2014.
- The Reduced Rate 1 increases from 8% to 9% as of 13 January 2014.
- The Reduced Rates of VAT 5% and 0% remain the same.
According to Cyprus Ministry of Finance, the Standard Rate (until recently 17%) applies to most of the supplies of goods or services.
At the Reduced Rate 1 (previously 8%) are taxable:
- supply of coffins
- services supplied by undertakers
- hair salon services
- services of writers & artists
- supply of fertilizers
- foodstuff for animal & live animals
- water & juices
- newspapers, books & periodicals
- certain products for persons with special need
- ice cream & confectionary products
- certain types of nuts (salted etc)
- transport of passengers and their accompanying luggage with urban and rural buses
- letting of camping sites and caravan parks
- repair and maintenance of private households (based on specific condition)
- pharmaceutical products that were previously taxed at the standard rate
- entry fees to theaters, cinemas at sports events, luna parks and similar cultural events
At the Reduced Rate 2 (5%) are taxable:
- services of restaurants and the supply of food in the course of catering except the supply of alcoholic beverages wine and beer, which is chargeable at the standard rate
- provision of accommodation in the hotel sector or in sectors with a similar character
- transport of passengers and their accompanying luggage by sea, within Cyprus
Certain supplies of goods or services are Zero-Rated:
- supply, hiring and repair of sea-going vessels and aircrafts
- supply of services to meet the direct needs of sea-going vessels
- supply of goods entered into customs regime
- supply of medicines and food, except the supply of food in the course of catering
- if the goods have been exported or supplied to a registered person in another member state
- supplies of goods or services which are exempted under the VAT legislation
- leasing or letting of immovable property
- financial services, lotteries, medical care, social welfare, education, sports, cultural services, insurance transactions etc.
Please note that under certain conditions, taxable persons may have the right to choose which VAT rate to impose on the supply of goods/ services affected by the changes in the VAT rate.
For goods the right to choose which VAT rate to apply exists in the case where the basic tax point of the supply occurred prior to the VAT rate change and the real tax point occurred after the change in the VAT rate or vice versus. In such cases, the taxable person may have the right of choosing between the old (17%) and the new (18%) VAT rate.
For services which are ongoing at the time of change of the VAT rate, the taxable person may (under certain conditions) impose VAT at the old rate (17%) in relation to the part of the work which has been carried out by the 13th January 2013 and impose the new rate (18%) for the part of the work which will be carried out after 14 January 2013.