Reverse charge VAT in Cyprus: when it applies and how to book it

The reverse charge moves the job of accounting for VAT from the seller to the buyer. When your Cyprus company buys services from a supplier established abroad, the supplier invoices without VAT and you charge yourself the Cyprus VAT in your own return, declaring it as output VAT and reclaiming it as input VAT in the same period to the extent you are entitled to. For a fully taxable business the two entries cancel and no money changes hands. The entries are still compulsory, and leaving them out carries a penalty of its own.

What is the reverse charge and why does it exist?

It exists because the alternative, every foreign supplier registering for VAT in every country where it has a business customer, would collapse under its own paperwork. Under the general EU rule for business-to-business services, the place of supply is where the customer belongs. If your Cyprus company buys design work from Berlin, hosting from Dublin or consultancy from London, the service is treated as supplied in Cyprus and Cyprus VAT is due on it. Rather than make the foreign supplier collect it, article 11 of the VAT Law makes you account for the VAT as if you had supplied the service to yourself, and lets you deduct it as input VAT in the same return under the normal deduction rules.

The same logic runs in both directions. When you sell services to a VAT-registered business in another member state, you are the one leaving VAT off the invoice while your customer self-charges at home. That is why the reverse charge and VIES are two halves of one system: each country's tax authority can see what was declared on the other side.

When does the reverse charge apply?

The reverse charge shows up in three situations, and the first catches nearly every small Cyprus company.

Services received from suppliers abroad. Any business-to-business service whose place of supply is Cyprus under the general rule is reverse-charged when the supplier is established outside Cyprus, whether in the EU or beyond. In practice that means software subscriptions, advertising platforms, foreign freelancers and agencies, legal and consulting fees, hosting and licences. Services tied to a specific place, such as land, live events, restaurant meals and short-term vehicle hire, follow their own place-of-supply rules and need checking individually.

Intra-EU acquisitions of goods. When your VAT-registered company buys goods from a VAT-registered supplier in another member state and the goods move to Cyprus, the supplier zero-rates the sale and you account for acquisition VAT in your return, in its own set of boxes. Acquisitions also have their own registration trigger, set at €10,251.61 per calendar year, well below the domestic threshold.

Certain domestic supplies. Cyprus also reverses the charge inside the country for a list of sectors: construction, conversion, demolition, repair and maintenance services under article 11B, used and scrap metal under 11C, property transfers from borrower to lender in loan restructurings under 11D, mobile phones, integrated-circuit devices, games consoles, tablets and laptops under 11E, and raw or semi-processed precious metals under article 11F. If you trade in any of these, the treatment is worth confirming before the first invoice, because the buyer books the VAT even though both parties are in Cyprus.

The point founders miss most often sits in the first case. The obligation has nothing to do with your sales: services received from abroad count toward the €15,600 registration threshold, so a company that has invoiced nothing can be pushed into compulsory VAT registration purely by what it buys. Our guide to VAT registration in Cyprus walks through the tests.

How do you book a reverse-charge purchase?

When the foreign invoice is booked, the net amount is recorded as a purchase in the usual way, and VAT is computed on it at the rate the same service would carry if bought in Cyprus, normally the 19% standard rate. That VAT then goes into the return twice.

• As output VAT, in the box for VAT due on reverse-charge purchases and acquisitions, alongside the VAT you charged your own customers.
• As input VAT, in the box for VAT reclaimed on purchases, to the extent your company is entitled to recover it.

The net value of the purchase is also reported in the purchase and acquisition boxes, which is how the Tax Department sees the volume of foreign services you consumed even though no cash moved. Our walk-through of how to file a Cyprus VAT return maps each box; a single reverse-charge entry touches four of them.

For a company that recovers all of its input VAT, the two figures are equal and the bottom line of the return does not change. That makes skipping the entries tempting, and it is still wrong: the return is incomplete and the purchase boxes understate your activity, which an inspection comparing books to returns picks up quickly.

When is the reverse charge not neutral?

Whenever the buyer cannot recover all of its input VAT. The output side of the reverse charge is always due in full; the input side follows your normal right of recovery, and any restriction on that right turns the difference into a cost.

The textbook case is the partially exempt business. A company whose income mixes taxable and exempt supplies, say a consultancy that also arranges insurance or a training business with exempt education income, recovers input VAT only in proportion to its taxable activity. A foreign subscription that is fully recoverable for a software company becomes, for a partially exempt one, an invoice where part of the self-charged VAT stays with the Tax Department. A fully exempt business recovers nothing and bears the whole 19%. The same asymmetry applies to purchases where input VAT is blocked outright, business entertainment being the familiar example: the output entry is still required, and the input entry is simply not available.

The recovery proportion depends on your actual mix of supplies, so it is one of the few VAT questions we recommend settling with a professional. Good bookkeeping's job is narrower and just as important: make sure the output side is never missed.

What should the invoice say?

As the buyer, you cannot control what a foreign supplier prints, but you can check it: your company's VAT number, no Cyprus VAT, and usually a statement that the reverse charge applies. A non-EU supplier may simply show no tax at all. Either way, the absence of VAT on the invoice is the signal to book it under the reverse-charge code, never as VAT-free.

As the seller to a VAT-registered business in another member state, the obligations are yours. Your invoice carries your own VAT number and the customer's valid EU VAT number, shows no Cyprus VAT, and names the mechanism, with a line such as "Reverse charge, VAT to be accounted for by the recipient", often citing the relevant article of the EU VAT Directive. Before you issue it, validate the customer's number in VIES-on-the-Web and keep evidence that you did. If the number turns out to be invalid, the zero-rating falls away and you are exposed for Cyprus VAT on a sale you priced without it.

How does the reverse charge connect to VIES when you are the seller?

Every reverse-charged sale of services to an EU business is a line on your VIES statement. Your VAT return shows the sale in box 8B; your VIES statement lists it customer by customer, with each VAT number and the value supplied that month. The statement is monthly, filed through Tax For All by the 15th of the following month, and the tax authorities on both sides compare what you declared you sold with what your customer declared they bought. A mismatch is what triggers questions, and that cross-check is the reason the reverse charge can run on trust at all.

Late VIES statements carry a €50 penalty per statement, and a continuing failure to file is a criminal offence with a fine of up to €850. Our guide to VIES submissions covers what goes on the statement and how corrections work.

What are the common reverse-charge mistakes?

Treating a foreign SaaS invoice as zero-VAT. The invoice from the cloud provider or advertising platform shows no VAT, so it gets booked as if VAT were irrelevant: nothing in the output box, nothing in the input box, purchase boxes understated. A company with even a modest stack of foreign subscriptions repeats the omission every quarter, and for a business that is not fully taxable, VAT that should have been paid never is.

Applying the wrong rate. The self-charged VAT follows the rate the service would carry if bought in Cyprus. For most services that is 19%, but the reduced rates in our guide to Cyprus VAT rates exist and a few services are exempt, so check before assuming.

Forgetting the mirror image. Selling to EU businesses without VAT is only correct if you validate their VAT number, word the invoice properly and file VIES on time. Each of those fails independently of the other two.

How does Sumly book the reverse charge?

Sumly's bookkeeping runs on the full set of Cyprus VAT codes, and reverse charge is one of them, sitting alongside the domestic rates, EU acquisitions and sales, zero-rated, exempt and out-of-scope. Each code maps to the official boxes of the Cyprus VAT return, so booking an invoice against the reverse-charge code fills the output box, the input box and the purchase boxes together, with no manual journal.

In practice, a foreign supplier's invoice forwarded to your company's Sumly inbox is read by the AI, which picks up the supplier, date, currency, line items and the absence of VAT, and books both sides double-entry with the document linked to the entry for the audit trail. When the period closes, the return has assembled itself from the books and is ready to review. On Base you submit it through Tax For All yourself; on Premium your Sumly certified bookkeeper reviews and submits it, and once a period is filed it locks, so the numbers behind a submitted return cannot drift afterwards. What Sumly does not decide is a partial-exemption recovery proportion; that depends on your mix of supplies and belongs with your advisor, while the books make sure the output side is always there.

Questions people ask

Frequently asked

Does the reverse charge apply to a foreign software subscription?

Usually yes. A subscription supplied to your business by a company established outside Cyprus falls under the general B2B rule, so the place of supply is Cyprus and Cyprus VAT is due on it. The supplier's invoice carries no Cyprus VAT. Your company accounts for it by entering output VAT at the Cyprus rate in its own return and, to the extent it can recover it, the same amount as input VAT. An invoice with no VAT on it still belongs in the return.

Is the reverse charge always cash-neutral?

Only when the buying company can recover all of its input VAT. A fully taxable business books the output and input entries in the same return and the two cancel. A business with exempt income, common in finance, insurance, healthcare, education and certain property activity, recovers only part of the input side, so part of the self-charged VAT stays with the Tax Department and becomes a real cost.

Can a company that is not VAT-registered ignore the reverse charge?

No. Services received from suppliers abroad count toward the €15,600 VAT registration threshold in Cyprus, so a company that has invoiced nothing can still be pushed into compulsory registration by what it buys. A pre-revenue company paying foreign contractors, software subscriptions and advertising platforms should add those purchases up before assuming it is too small to register.

What should my own invoice say when I sell services to an EU business?

Your Cyprus VAT number, the customer's valid EU VAT number, no Cyprus VAT on the line, and wording that names the mechanism, typically a reference to the reverse charge and to the place-of-supply article of the EU VAT Directive. Validate the customer's VAT number in the EU's VIES database before you invoice and keep evidence that you did. The same sale then goes on your monthly VIES statement.

Does the reverse charge apply to goods as well as services?

A parallel mechanism covers intra-EU acquisitions of goods: your EU supplier zero-rates the sale and you account for acquisition VAT in your Cyprus return, in its own boxes. Intra-EU acquisitions also carry their own registration threshold of €10,251.61 per calendar year. Cyprus also applies a domestic reverse charge to specific sectors, including construction services, scrap metal, certain property transfers to lenders, mobile phones, laptops, tablets and games consoles, and raw or semi-processed precious metals.

How does Sumly handle reverse-charge invoices?

Reverse charge is one of the Cyprus VAT codes in Sumly, and every code maps to the official boxes of the Cyprus VAT return. When a foreign supplier's invoice reaches your company's Sumly inbox, the AI reads it and books both the output and input sides double-entry, with the document linked to the entry. The return assembles itself from the books, ready to review. On Base you submit it through Tax For All yourself; on Premium your Sumly certified bookkeeper reviews and submits it.