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Indirect Tax Update - Temporary reduction

Indirect Tax Update Temporary reduction

Date: 23/06/20

We would like to inform you that as per the Decree Κ.Δ.Π. 268 / 2020 published on 23 June 2020, the VAT rate for accommodation, restaurant/catering and passenger transport services will be reduced from 9% to 5% for the period from 1 July 2020 to 10 January 2021. We would also like to clarify some matters that may arise with regards to this amendment.

Specifically, the reduced VAT rate (5%) will be applicable to the following services which are  listed in Schedule 12 of the CY VAT Act:

—   Restaurant and catering services

—   Accommodation in hotels, tourist accommodation and similar establishments including supplies of holiday apartments, villas etc.

—   transport of passengers and their accompanying luggage within the Republic by urban, intercity and rural taxis as regulated by the current Road Traffic and Transport legislation and by tourist and intercity buses.

With the exemption of the above listed services, any other transactions concerning the supply of goods or provision services that fall either under the standard rate of 19%, or reduced rate of 5%, and or the zero rate (such as those included in Schedules Five and Six of the VAT Act) will remain unaffected by the temporary reduction.

Special rules regarding the change of the VAT rate

Reduction in the VAT rate

According to Article 55 of the Cyprus VAT Act, when a VAT rate is reduced (e.g. from 9% to 5%), the service provider may choose to impose the new reduced rate (5%) as long as the services were actually provided to the recipient after the reduction date (1st July), even if payment was made or a VAT invoice was issued before that date.

Therefore, for a taxable person to benefit from the reduction of the VAT rate, it is important to determine the time the service was delivered/completed.

Increase of VAT rate

Although from 11 January 2021 onwards the VAT rate will return to 9%, taxable persons will still have the right to impose 5% VAT (instead of 9%) on services provided before the date of the increase, even if an invoice is issued at a later date (i.e. after 11 Jan 2020).

Payments received and VAT invoices issued before the amendment 

If a full or partial payment (i.e. prepayment) has been received, or a VAT invoice has been issued before the service is completed (i.e. before the chargeable event), taxable persons are liable to account for VAT at the rate applicable on the date of payment or issue of a VAT invoice. However, if a prepayment is received after the amendment and the service will be provided after 1 July 2020 then the reduced VAT rate (5%) can be applied. 

How can KPMG assist?

Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.