VAT exempt services in Cyprus.
Exempt vs zero-rated — the critical difference. Not all VAT-free supplies are the same. Zero-rated supplies let you reclaim input VAT. Exempt supplies do not — which significantly affects your VAT recovery position.
The short answer
Exempt supplies carry no VAT, but you cannot reclaim the input VAT on the costs that relate to them. Zero-rated supplies also carry no VAT, and you can reclaim that input VAT. Everything else is taxed at 19% or a reduced rate.
- Standard rate
- 19%
- Reduced rates
- 9% / 5%
- Registration threshold
- €15,600
| Aspect | Exempt | Zero-rated |
|---|---|---|
| VAT charged to customer | None | None (technically 0%) |
| Input VAT on purchases | Cannot recover | Can recover fully |
| Registration still required? | If turnover over €15,600 | If turnover over €15,600 |
| VAT return required? | Yes (if registered) | Yes |
| Best for | Purely exempt businesses — no input VAT to recover anyway | Exporters, international businesses — recover VAT on Cyprus/UK costs |
The input VAT problem for exempt businesses
Businesses making only exempt supplies face a fundamental VAT problem: they cannot register for VAT (or if they do, they cannot reclaim input VAT on their purchases). This means the VAT they pay on business expenses — accountancy, equipment, premises — becomes a real cost rather than a tax they can recover.
Mixed businesses — those making both exempt and taxable supplies — must use a pro-rata calculation to determine how much input VAT they can recover. This is typically calculated as the proportion of taxable turnover to total turnover. Getting this right is important as TASS (Tax and Customs Authority) actively reviews partial exemption calculations on VAT audits.
Cyprus landlords of commercial property can elect to charge VAT on their rents — the 'option to tax'. This allows them to recover input VAT on property-related costs (renovation, maintenance, fit-out). Tenants who are VAT-registered can recover the VAT charged, making it neutral for them. The option once made is generally irrevocable for the property.
Questions about VAT exemptions in Cyprus?
Ask Taxerly about partial exemption calculations, option to tax elections and input VAT recovery strategies.
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