Cyprus as a member of the European Union is affected by the EU directive and many of the issued in regards to VAT system within EU.

The basic rules are as follow:

If a supplier provides goods or services to a customer based in an EU country and who is not registered for VAT, then the place of supply is the supplier's home country and invoices should include the same VAT rate as the supply considers to be in country. These transaction are so called Business to Customer or B2C The other case in B2C is that the customer is based outside EU and again the above method applies except for products since the product is exported outside EU

BUSINESS TO BUSINESS TRANSACTIONS B2B

PRODUCTS:

In case of business to business transaction the place of supply is always the member state which the product will be delivered. No VAT amount is payable as long as valid VAT numbers are used between supplier and customer. This also includes triangular transactions which mean that a product is departed from member A, the supplier issues invoice to member B but the product is delivered to member C. In this scenario the customer may be liable to register in member C if the registration threshold limit is exceeded.

SERVICES:

The main rule between business transactions is that the place of customer is the jurisdiction where the supply take place. For example: A UK company provides accounting service to a company registered in Bermuda. Since Bermuda is outside EU, no VAT is charged on those services. Another example would be the UK company provides services to Cypriot company. In that case if the Cypriot co is registered for VAT, then the company should apply the reverse charge mechanism.

TRIANGULAR TRANSACTION EXAMPLE

A company registered in BVI registers a Branch in Cyprus. The Branch is registered for VAT and sell products to business customers within EU. The supplier of the Branch is a company based in Netherlands and the final customer is based in Spain.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.