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Indirect Tax Update - New provisions in relation to the tax treatment of vouchers

Indirect Tax Update - New provisions

On 21/05/2019 the Cyprus House of Representatives voted the Value Added Tax (Amendment) (No. 2) Law of 2019 N. 70(I)/2019, which introduces certain amendments in relation to the tax treatment of vouchers in order to align with Council Directive (EU) 2016/1065 of 27 June 2016 amending Directive 2006/112/EC as regards the treatment of vouchers, whose provisions are applicable since 1st January 2019.



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What is the purpose and effects arising from these new amendments?

The purpose of the amendment is to clarify and harmonize the tax treatment of transactions involving vouchers which due to ununiformed handling between the Member States of the European Union results in either non-taxation or double taxation.

On the basis of the amending Bill, a new Article 42E is added referring to the new Schedule 14 of the VAT Act, which deals exclusively with the tax treatment of vouchers.

In general, Schedule 14 gives the interpretation of the various types of vouchers, their time of supply and their taxable values.

Significant interpretations contained in the new Schedule 14

"Voucher" means an instrument for which there is an obligation to accept it as a consideration or part consideration for the supply of goods or services and where the goods to be delivered or the services to be provided or the identities of the potential suppliers are indicated either on the instrument itself or in the relevant documentation, including the terms and conditions of use of this instrument.

A special purpose voucher (hereinafter referred to "SPV") means a voucher when the place of delivery of the goods or services relating to the voucher and the VAT payable on the goods or services in question are known at the time the voucher is issued *.

* It is noted that for a voucher to fall within the definition of SPV, it is essential that the vendor must be identifiable

Multi-Purpose Voucher (hereinafter MPV) is the voucher other than the specific purpose coupon.

Time of transaction

The time of transaction associated with a SPV is created at the time the voucher is issued/transferred

The time of transaction associated with a MPV is created at the time of actual delivery of goods or services, i.e. at the time the voucher is redeemed.

Taxable value

The taxable value of a MPV is equal to the consideration paid for the voucher by the last buyer or the monetary value shown on the coupon reduced by the amount of VAT attributable to the goods or services.

Difference between discount vouchers (hereinafter referred to as "DV") and SPV or MPV

With a DV, the supplier has no obligation to deliver goods or services but to give a discount after a buyer decides to buy the DV. Discount vouchers are not covered by the above amendment to the Legislation.

Vouchers which are given free of charge

When a SPV is given for free, the new rules will not apply unless

  • a person receives the voucher as a reward or as part of his remuneration and
  • the voucher was previously acquired from another party.


Example 1 (Single Purpose Voucher - SPV)

Company A issues a voucher of €100, which on redemption gives its holder the opportunity to buy goods from A’s stores in Cyprus. All goods supplied by A are subject to the standard rate of 19%.

The voucher is SPV

(a)    The supplier is identifiable

(b)    The place of redemption is known

(c)    The VAT rate is known

Tax treatment

(a)    At the time of sale of voucher, VAT is accounted by Company A

(b)    The taxable value is €84,03 (€100 - €15,97)

(c)    No VAT is payable at the time of redemption

Example 2 (Multi-Purpose Voucher – MPV)

A hotel chain in Member State 1 (hereinafter "MS1") sells a voucher to a customer for €100. The voucher can be used to purchase any services offered by any of the chain hotels in MS1. In MS1, accommodation in hotels, meals and other services attracts different VAT rates.

The voucher is of multiple purpose

(a)    The supplier is identifiable

(b)    The place of redemption is known

(c)    The applicable VAT rate is not known

Tax treatment

(a)    The MPV criteria are not satisfied

(b)    The voucher does not lead to a price discount or refund of funds

(c)    The supply of the voucher and subsequent supply of goods and services is treated as a single supply

(d)    The time of supply is created at the time of redemption

(e)    When a payment is received, the transaction is outside the scope of VAT (however look at example 3 below)

(f)     In case of partial redemption, VAT is accounted gradually (i.e. at every redemption)

Example 3

A, buys a MPV from a hotel for €100 and sells it to B for €150 (difficult to book at this hotel)

Tax treatment

(a)    The voucher’s nominal value remains at €100

(b)    The sale between A and B does not affect the nominal value

(c)    If A is a taxable person, must account for VAT on the difference of €50 which constitutes consideration for the supply of services

(d)    The time of supply of goods and services of nominal value is when the voucher is redeemed and not earlier 

Example 4

As part of a promotional campaign, a merchant house distributes free vouchers to customers giving them the right to a specific item in all its stores operated by the house in all Cyprus cities.

Although the voucher is SPV, it does not fall under the rules of SPVs because there is no consideration.

Example 5

The same data as in example 4 except that the voucher was purchased from a third party and is given free of charge to an employee as a reward for overtime work.

In this case, the voucher falls under the SPV rules and therefore, both the issuer and the merchant will have to account for VAT at the time the SPV is issued / transferred. The VAT amount charged by the issuer to the merchant house is claimable as a credit

The Department of Taxation is in the process of drafting and issuing a relevant Circular for further analysis and explanation as to the tax treatment of vouchers.

How can KPMG help?

If you would like to further discuss the content and possible impact of the above amending Law on your business, contact one of our expert consultants in KPMG’s Indirect Tax Department.

KPMG's Indirect Taxation Department provides advice and assistance both on Cypriot and international level. We shape our efforts to combine your business needs and strategy.  Our primary purpose is to offer added value and meaningful advice and not just a list of recommendations.

Our tax advisers are able to review your company's current tax status and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise duties (such as tax audits, reorganizations, acquisitions etc.). In addition, we can help your company with its administrative obligations and contacts with the relevant Authorities.

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