The amendments cover a wide range of issues aiming at improving compliance, combat VAT fraud and reducing the administrative burden on both businesses and authorities.

Main points

1. Amendment of Article 2 of the main Act

The definition of a legal person is clarified, which includes, in addition to normal limited companies and partnerships, clubs, associations, organizations and any other associations of persons, regardless of whether they have been established or not in accordance with the provisions of any law or regulation.

2. Amendment of Article 11B of the VAT Act (reverse charge for certain supplies of services or services together with goods in the construction industry or in the context of civil engineering work).

The amendment concerns subparagraph 4 (a) (replacement of the phrase 'taxable person' with the phrase ‘any person΄) of 11B and is intended to oblige recipients of services falling under Article 11B to apply the reverse charge in cases where the providers are not VAT registered persons.


A painter, non-registered person because he has not exceeded the registration limit, provides painting services to a construction contractor. The construction contractor is obliged based on the amendment of Article 11B to account for VAT under the  reverse charge procedure.

3. Addition of Article 11E

The purpose of adding Article 11E is to extend the method of reverse charge to cover certain categories of goods for which, according to audits carried out by the Tax Department of Cyprus and other Member States, a tax evasion was observed.

The goods for which the recipient instead of the supplier should account for VAT are the following:

I.  Mobile phones
II. Integrated circuit mechanisms such as microprocessors before incorporation into other end products 
III. Game consoles, PC tablets and laptops*

The person who buys goods falling under Article 11E must keep a record of all his purchases and sales for 6 years.

*  Personal computers are not included (with tower)


An importer of electronic appliances imports mobile phones from the USA. After clearing the mobiles from customs and paying import duties and VAT, he sells them to a chain store based in Nicosia. The invoice issued to the buyer is not subject to VAT and the buyer accounts for VAT under the reverse charge procedure.

4. Amendment of Article 20 by adding paragraph 5A

The new paragraph 5A aims at forcing taxpayers to comply with the timely submission of their income tax returns. In case the taxpayer submits an application for VAT refund, the credit balance will not be refunded until the taxpayer submits all the income tax returns that he had to submit by the time of submitting the application for VAT refund.

Paragraph 5A also stipulates that no interest will be paid to the taxpayer due to the delay in refunding VAT due to late submission of income tax returns.

5. Addition of new paragraph 6A after paragraph 6 of Article 20

The new paragraph 6A, restricts the taxpayer’s claim of VAT credit balance, if the taxpayer fails to submit such a requirement within 6 years from the time the credit balance was created.

However, such a claim may be possible if the Commissioner of Taxation considers it just and reasonable.


As part of its business activities, in February 2012, a fruit trading company purchased a fruit packaging machine worth €200,000 plus €30,000 VAT (15%). The company buys fruit from local and foreign fruit producers and supplies them on to domestic and foreign customers.

The company included input tax paid at importation of the machine in the VAT return covering the period 1/1/12 - 31/3/12. Because the company considered that its sales in the domestic market would be much higher than its exports, it decided not to submit Form 4B for immediate refund of VAT on the purchase of the machine so that its input tax would be offset against output tax.

During the next 6 years after the end of the tax period in which the credit amount of €38.000 was created (1/4/12 - 31/3/18), only €25.000 was offset from the €30.000 since the domestic sales were quite lower than exports with the result that on 31/3/18 a credit balance of €5.000 remained unclaimed.

Based on the above facts and according to paragraph 6A of A20, if a refund claim is not submitted for the credit balance of €5.000 through form 4B until 31/3/18, the said amount will not be refunded unless the Commissioner of Taxation deems the company's claim is reasonable.

6. Amendment of paragraph 2 of Article 45

The charge for late submission of the tax return increases from £30 (€51) to €100.

7. Amendment of Article 45 with the addition of paragraph 7B

The addition of paragraph 7B introduces for the first-time penalties for not applying the reverse charge procedure, regardless of the taxpayer’s right to recover the self-calculated output tax.

The non-compliance with the application of the reverse charge procedure results in a penalty of €200 for each quarter in which the application of the reverse charge is not complied with, regardless of the number of transactions that fall under this procedure during the quarter. The maximum penalty for non-compliance with the application of the reverse charge is set at €4.000.

The penalty applies to all cases where the reverse charge applies regardless of whether it is goods or services or are either supplied/provided by Cypriot or non-Cypriot suppliers. Indicatively, the reverse charge procedure applies for the acquisitions of goods or services that fall into the following categories:

I.   Acquisitions of taxable services by persons not established in the Republic (A11)

II.  Acquisition of Gas and electricity supplies by persons not established in the Republic (A11A)

III.  Acquisition of services or services together with goods in the context of construction, conversion, demolition, repair or maintenance of a building or any civil engineering project (A11B)

IV.   Purchase of goods to persons whose economic activity falls within Combined Nomenclature code 46771 and consisting of second-hand metals (A11C)

V.  Transfer of a building or part thereof as well as non developed buildable land from the borrower to the lender in the context of a loan restructuring (A11D)

VI.  Purchase of mobile phones, PC tablets, integrated circuits, laptops and game consoles (A11E)

VII.  Acquisition of goods from other member states (MS) (A12A)


A person registered in the VAT register occasionally buys services or goods from traders established in the EU. The taxable person underwent an audit for the tax years starting from 1/4/15 - 31/3/21. The examining officer concluded that in none of the VAT quarters falling within the audit period the reverse charge mechanism was correctly applied.

If we assume that the addition of paragraph 7B of article 45 came into force on 1/7/20 the taxpayer will be charged 3 returns X 200 = € 600 (1/7-30/9/20, 1/10/20- 31/12/20, 1/1/21 -31/3/21).

Assuming that, the non-compliance concerned 24 periods (6 years X 4 returns per year), the charge would be €4.000 instead of €4.800 (24 X € 200) because the maximum penalty applicable is €4.000.

8. Amendment of last paragraph of paragraph 4 of Article 50

The phrase ‘..or High Court on appeal…’ has been added after the phrase ‘..Administrative Court…’.

Paragraph 50 (4) provided that in the event of cancellation of an assessment issued under Article 49* or 49A** or as a result of a tax committee’s decision regarding an objection against an assessment issued under A49 or 49A, by the Administrative Court and there was a need for reexamination, the Commissioner of Taxation can issue a new assessment within six months from the day the decision is issued.

The amendment gives the right to the Commissioner of Taxation to issue another assessment in the event of a decision by the High Court on appeal.

*Article 49 = Estimated assessment

**Article 49A = Assessment for acquisition of goods subject to excise duty or new means of transport

9. Amendment of Article 52A by the addition of paragraph 2

Article 52A gives the right to a taxable person to submit an objection to the Commissioner of Taxation for various issues, except the objection against a tax assessment which is submitted within 60 days under Article 51A.

No deadline was set for submitting an objection to the matters of Article 52A. The addition of paragraph 2 sets a deadline of 60 days from the date of notification of the Commissioner’s decision.

10. Amendment of Article 54

Article 54 obliged the Commissioner of Taxation to pay interest in case the decision of the Administrative Court forces him to pay tax amounts back to the taxpayer.

The amendment obliges the Commissioner of Taxation to pay interest in the event the decision is issued by the High Court.

11. Amendment of Paragraph 2 of Article 54A

Paragraph 2 of A54A gives the taxpayer the opportunity, after written notice, to appear before the Tax Council and state his views on his case.

With the amendment, the Commissioner of Taxation or his representative is also given the opportunity to present and submit his own views before the Tax Council.

12. Amendment of Schedule One of the VAT Act

a)  Addition of Articles 11D and 11E under the Title (previously reference was made only to 11B and 11C).

b)  Addition to paragraph 1 (1) (a) after the word ‘if’ of the phrase ‘..the person is established in the Republic and…’. By adding this phrase, in substance, persons who are not established in the Republic are excluded from the provisions of Part I of Schedule One. The provisions concerning non-established persons are set out in the new Part 1A of Schedule One.

c)  Addition of a new sub-paragraph 7 which gives the definition of a person established in the Republic which makes reference to the existence of a business or fixed establishment in relation to the business he carries out.

d)  Addition of Part 1A

e)  The new Part 1 A of Schedule One refers to the cases where a non established person in the Republic has the obligation to register for Cyprus Vat purposes when he carries out taxable transactions in the Republic.

Part 1A is divided into the following sections:

  • Obligation to register

          If the following 4 conditions are met:

  1.  Makes or intends to make taxable transactions within 30 days
  2. Transactions are within the context of a business it carries out
  3. It has no any permanent or fixed establishment in the Republic
  4. Is not registered under the VAT act
  • Notification for obligation for registration: The Commissioner of Taxation must be notified within 30 days from the day the first transaction was made. There is no registration threshold.
  • Notification for cancellation of registration: If the non-established ceaces to carry on taxable transactions, must notify the Commissioner of Taxation within 60 days.
  • Cancellation of registration: If the Commissioner of Taxation decides or if requested by the non-established.
  • Exemption from registration: If all the transactions are subject to the zero VAT rate or are such which could have the same treatment, and the the non-established. It could e.g. not to request the registration of the non-established if the person to whom the supply is made is registered for VAT and will account for VAT under the reverse charge procedure.
  •  Supplementary provisions: Any notice that must be made (e.g. for registration, cancellation) is made in the form and contains such information as specified in regulations of the Council of Ministers.

13. Amendment of paragraph 11 of Table B of Schedule Five

The amendment concerns the replacement of the definition of 'renovation'. The difference with the previous definition is that the new definition includes additions to a private home.

Therefore, if someone adds (eg a new bedroom or terrace) to an existing home, subject to the other conditions, the reduced rate of 5% applies.

14. Amendment of paragraph 5 of Schedule Six

In essence the amendment restores to zero the international passenger transport that was removed on 1/1/11.

With the restoration of international passenger transport to the zero rate, the ambiguity that was created in relation to the services of intermediaries of paragraph 9 of the same Schedule is also corrected.

15. Amendment of paragraph 1(a)(vi) of Schedule Eight

The purpose of the amendments is to include the undeveloped buildable land in the taxable leases and not only the buildings.

Effective Date

The amendments will come into force from the date they are published in the Official Government Gazette with the exception of the following:

a) Article 11E (reverse charge for mobile telephones, integrated circuit devices. PC tablets, laptops and game consoles). Effective as of 1 September 2020

b) The addition to Article 45 of paragraph 7B which provides penalties for non- compliance with the reverse charge procedure provided in Articles 11, 11Α, 11Β, 11C, 11D, 11 Ε και 12Α. Effective as of 1 July 2021

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.