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