Cyprus Ends Temporary Zero VAT Rate on Goods: VAT Policy Changes in 2024

October 11, 2024

In previous years, we have all witnessed a trend of either reducing VAT rates or applying different VAT rates to specific products, mainly those related to food products and energy.

Earlier this year, the government of Cyprus extended the previously introduced application for zero VAT rate on listed goods until September 30, 2024. However, the Cyprus Tax Department announced that this temporary measure no longer applies.

Impact of the Abolishment

The Cyprus Tax Department announced that from October 1, all goods subject to a temporary zero VAT rate, including foodstuffs and drinks such as bread, milk, eggs, specific meats and vegetables, sugar, and coffee, will again be subject to the VAT rates applicable before the introduction of the temporary measure.

In addition to food and beverage products, the zero VAT rate will no longer apply to baby food, diapers, and certain hygiene products.

Most of the products subject to temporary measures fall in the category of goods previously subject to a 5% VAT rate. This means all those products will again be taxed at this reduced VAT rate.

The government's decision to revert VAT rates may result from its estimation that inflation is stable and that a temporary measure is no longer necessary. However, this decision did not meet with the public's approval, as it increased the prices of essential goods.

In addition to this change in VAT rate policy, the Cyprus Tax Department announced that taxpayers must submit all their VAT-related objections electronically through the government portal Tax For All.

Conclusion

This decision's economic and political effects will be seen in the upcoming months. Nevertheless, businesses operating in Cyprus must adjust their systems to new VAT rates and display all prices of in-scope products with an applied 5% VAT rate.

This change in VAT rate also affects VAT returns and how the amounts are calculated, shown, and presented to the Tax Administration.

Source: Cyprus Tax Department Announcement, Deloitte, Cyprus Mail

What changes occurred to the VAT rates in Cyprus as of October 1, 2024?

Effective October 1, 2024, Cyprus concluded its temporary application of a zero VAT rate on essential goods. Items such as bread, milk, eggs, specific meats, vegetables, sugar, coffee, baby food, diapers, and certain hygiene products reverted to their previous VAT rates, primarily the reduced rate of 5%.

Why did the Cyprus government decide to end the zero VAT rate?

The government assessed that inflation had stabilized, rendering the temporary zero VAT rate unnecessary. Consequently, they reinstated the standard VAT rates to align with fiscal policies.

How does this change impact consumers?

Consumers experienced price increases on essential goods as the VAT rates returned to their standard levels. This adjustment led to public dissatisfaction due to the higher costs of basic necessities.

What should businesses do in response to this VAT rate change?

Businesses must update their pricing structures and accounting systems to reflect the reinstated VAT rates. They are also required to display prices inclusive of the applicable 5% VAT rate for relevant products and ensure accurate VAT reporting in their returns.

Were there any administrative changes accompanying the VAT rate adjustment?

Yes, the Cyprus Tax Department mandated that all VAT-related objections be submitted electronically through the government portal "Tax For All," streamlining the process and enhancing efficiency.

Is there a possibility of future adjustments to VAT rates on essential goods?

While the government has not announced plans for future changes, VAT rates are subject to periodic review based on economic conditions and fiscal policies. Stakeholders should stay informed about official communications from the Cyprus Tax Department for any updates.

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