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. You then charge yourself the Cyprus VAT in your own return. You declare it as output VAT, the side of the return for VAT you owe. In the same period you reclaim it as input VAT, the VAT on your costs, as far as you're 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 has a penalty of its own.

What is the reverse charge and why does it exist?

It's the rule that makes the business buyer, not the foreign seller, account for the VAT. Without it, every foreign supplier would have to register for VAT in every country where it has a business customer. Nobody could keep up with that paperwork.

The place of supply is the country whose VAT applies. For business-to-business services, the general EU rule puts it where the customer belongs. Say your Cyprus company buys design work from Berlin, hosting from Dublin or consultancy from London. Each service counts as supplied in Cyprus, so 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. It then lets you deduct it as input VAT in the same return, under the normal deduction rules.

It works the same way in the other direction. When you sell services to a VAT-registered business in another member state, you leave VAT off the invoice and your customer self-charges at home. That's why the reverse charge and VIES, the EU's VAT Information Exchange System, 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?

In three situations, and the first catches nearly every small Cyprus company.

Services received from suppliers abroad. A business-to-business service whose place of supply is Cyprus under the general rule is reverse-charged when the supplier is established outside Cyprus, 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 follow their own place-of-supply rules, so check each one. These include land, live events, restaurant meals and short-term vehicle hire.

Intra-EU acquisitions of goods. Say 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 of €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
• raw or semi-processed precious metals, under article 11F

If you trade in any of these, confirm the treatment before your first invoice. The buyer books the VAT even though both sides are in Cyprus.

Founders miss the first case most often. The obligation has nothing to do with your sales. Services received from abroad count towards the €15,600 registration threshold. So a company that has invoiced nothing can be forced to register for VAT purely by what it buys. Our guide to VAT registration in Cyprus walks through the tests.

How do you book a reverse-charge purchase?

Book the net amount as a purchase in the usual way. Then work out VAT on it at the rate the same service would carry if you bought it in Cyprus, normally the 19% standard rate. That VAT goes into the return twice.

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

You also report the purchase's net value in the purchase and acquisition boxes. That's how the Tax Department sees how much you spent on foreign services, 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 its input VAT, the two figures are equal and the bottom line of the return doesn't change. That makes skipping the entries tempting. It's still wrong. The return is incomplete and the purchase boxes understate your activity. An inspection that compares your books to your returns picks this up quickly.

When is the reverse charge not neutral?

When the buyer can't recover all its input VAT. The output side is always due in full. The input side follows your normal right of recovery, and any limit on that right turns the difference into a cost.

The textbook case is the partially exempt business. That's a company whose income mixes taxable and exempt supplies, say a consultancy that also arranges insurance, or a training business with exempt education income. It recovers input VAT only in proportion to its taxable activity. A foreign subscription is fully recoverable for a software company. For a partially exempt one, part of the self-charged VAT on the same invoice stays with the Tax Department. A fully exempt business recovers nothing and bears the whole 19%.

The same imbalance applies to purchases where input VAT is blocked outright. Business entertainment is the familiar example. You still need the output entry, but the input entry isn't available.

The recovery proportion depends on your actual mix of supplies. It's one of the few VAT questions we recommend settling with a professional. Good bookkeeping has a narrower job that matters just as much. It makes sure the output side is never missed.

What should the invoice say?

As the buyer, you can't control what a foreign supplier prints, but you can check it. Look for 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, no VAT on the invoice is your signal to book it under the reverse-charge code. Never book it as VAT-free.

As the seller to a VAT-registered business in another member state, the obligations are yours. Your invoice shows your own VAT number and the customer's valid EU VAT number, and no Cyprus VAT. It also 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, check the customer's number in VIES-on-the-Web and keep proof that you did. If the number turns out to be invalid, the zero rating falls away. You're then liable 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. You file it through Tax For All, the Tax Department's online portal, by the 15th of the following month. The tax authorities on both sides then compare what you said you sold with what your customer said they bought. A mismatch triggers questions. That cross-check is why 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 didn't matter. Nothing goes in the output box, nothing in the input box, and the purchase boxes are understated. A company with even a modest stack of foreign subscriptions repeats the mistake every quarter. For a business that isn't 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's 19%. But the reduced rates in our guide to Cyprus VAT rates exist, and a few services are exempt, so check before you assume.

Forgetting the mirror image. Selling to EU businesses without VAT is only correct if you check their VAT number, word the invoice properly and file VIES on time. Each of those can fail on its own.

How does Sumly book the reverse charge?

With its own VAT code. Sumly's bookkeeping runs on the full set of Cyprus VAT codes. Reverse charge is one of them, 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. 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, you forward a foreign supplier's invoice to your company's Sumly inbox. The AI reads it and picks up the supplier, date, currency, line items and the missing VAT. It then books both sides double-entry, with the document linked to the entry for the audit trail. When the period closes, the return has built itself from the books and is ready to review. On Base, you submit it through Tax For All yourself. On Plus, Sumly files it for you. On Premium, your Sumly certified bookkeeper reviews and submits it. Once a period is filed it locks, so the numbers behind a submitted return can't drift afterwards.

Sumly doesn't decide a partial-exemption recovery proportion. That depends on your mix of supplies and belongs with your adviser. The books make sure the output side is always there.

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