VAT on digital services from Cyprus: B2B, B2C and the One Stop Shop

A Cyprus company selling software, subscriptions or other digital services charges VAT according to who the customer is and where they belong. An EU business with a valid VAT number gets an invoice without Cyprus VAT and declares the tax itself in its own country, under the reverse charge. An EU consumer pays their own country's VAT once your cross-border consumer sales pass €10,000 a year. The One Stop Shop (OSS) is an EU scheme that lets you declare all of that in one quarterly return filed in Cyprus. A customer outside the EU pays no Cyprus VAT at all.

What counts as a digital service for VAT?

A service delivered over the internet in an essentially automated way, with little or no human involvement. The law calls it an electronically supplied service. The definition covers software-as-a-service (SaaS), app subscriptions, downloadable software, hosting and cloud storage, streamed media, e-books, online courses that run without a live teacher, and access to databases or marketplaces.

What sits outside it matters just as much. A consultancy report emailed as a PDF is not a digital service. Nor is a live online class taught by a person, custom development billed by the hour, or a physical product ordered on a website. Those follow their own place-of-supply rules, the rules that decide which country taxes a sale. The difference decides whether the consumer rules below apply at all. If you sell a mixture, say a subscription plus paid onboarding, classify each line of your price list once and record the classification against the product.

How do you invoice an EU business customer?

Without Cyprus VAT. For services sold business to business (B2B), the general rule is that the sale is taxed where the customer is established. So a digital service sold to a VAT-registered business in Germany is taxed in Germany, and the customer declares the tax. Your invoice shows your Cyprus VAT number, the customer's VAT number, no VAT on the line, and wording that says the customer accounts for the tax. Our guide to the reverse charge in Cyprus has the full mechanics.

That VAT-free invoice brings two obligations. First, check the customer's VAT number in VIES, the EU's VAT Information Exchange System, before you invoice, and keep a record of the check. If the number is invalid, the customer counts as a consumer, and you've priced a sale without the VAT that was due on it. Second, the sale goes on your monthly VIES statement, filed through Tax For All, the Tax Department's online portal, by the 15th of the following month. Its total also goes in box 8B of your VAT return. Our guide to VIES submissions walks through the filing. B2B digital sales never touch the One Stop Shop.

When does an EU consumer pay their own country's VAT?

Once your cross-border sales to consumers (B2C) pass the EU-wide threshold. While your combined distance sales of goods and digital services to consumers in other member states stay at or under €10,000, excluding VAT, in both the current and the previous calendar year, you can keep charging Cyprus VAT at the 19% standard rate on those sales. You report them in your ordinary Cyprus return.

Say your subscribers outside Cyprus bring in €700 a month. That's €8,400 a year, under the limit, so every EU consumer pays 19% Cyprus VAT and your prices are the same everywhere. The month those sales pass €10,000, the rules flip. A German subscriber owes German VAT, an Irish subscriber owes Irish VAT, and your checkout has to know the difference.

This threshold has nothing to do with the €15,600 Cyprus registration threshold in our guide to VAT registration in Cyprus. One measures your cross-border consumer sales, the other your taxable turnover in Cyprus. A company can be above one and below the other.

How does the One Stop Shop work?

It replaces a VAT registration in every consumer's country with one registration in Cyprus. You register for the OSS Union scheme with the Cyprus Tax Department, which makes Cyprus your member state of identification. Each quarter you file one electronic return. It lists your consumer sales country by country, with the VAT due at each country's rate. You pay the total to Cyprus in a single payment, and Cyprus passes each country's share on.

The OSS return is due by the end of the month after each quarter: 30 April, 31 July, 31 October and 31 January. It's separate from your ordinary Cyprus VAT return, with its own period and its own deadline. You must keep OSS records for 10 years from the end of the year of the sale, and produce them electronically when any member state asks.

What about customers outside the EU?

They pay no Cyprus VAT. A digital service supplied to a customer outside the EU is outside the scope of Cyprus VAT. The invoice carries no VAT, the sale goes in the out-of-scope box of the return, and you can still recover the input VAT on your own costs, meaning the VAT your suppliers charged you.

But Cyprus is only half the story. The United Kingdom, Norway, Switzerland, Australia, Canada and a growing list of other countries tax foreign suppliers of digital services to their consumers. They expect you to register locally once you cross their own threshold. That's their tax, collected under their rules, and the OSS doesn't cover it. If one non-EU country brings in a meaningful share of your consumer revenue, check its rules. In some markets, app stores and some payment platforms collect the tax for you, and the platform's terms say whether they do. Our explainer on Cyprus tax for software companies puts these VAT rules next to the corporate tax side of the same business, including the IP Box, Cyprus's tax relief for profit from qualifying intellectual property.

What evidence of customer location must you keep?

Two pieces of evidence that don't contradict each other. The customer's location sets the rate and decides which country gets the VAT, so EU law makes you prove it. Under Implementing Regulation 282/2011, acceptable evidence includes the billing address, the IP address of the device, the bank or payment-card country, the SIM country code, the location of a fixed landline, and other commercially relevant information. For a subscription product that usually means the billing country entered at checkout, plus the IP or card country your payment provider records.

Smaller sellers get a simplification. While your cross-border digital-service sales to consumers stay within €100,000 a year, one piece of evidence from a third party, such as your payment provider, is enough.

Capture the evidence automatically at the point of sale, because you can't rebuild it a year later. Store it against the transaction, so the country on the invoice, the country in the books and the evidence behind them always agree.

How should the books code each sale?

With three facts on every line, recorded when the sale happens. Is the customer a VAT-registered business or a consumer? Which country do they belong to? And which VAT treatment follows from those two? The filings then follow from the codes. Cyprus customers take Cyprus VAT, in the domestic boxes of the return. Validated EU business customers take the reverse-charge code, box 8B, and a line on the monthly VIES statement. EU consumers take Cyprus 19% below the €10,000 threshold and their own country's rate above it, totalled by country for the quarterly OSS return. Everyone else takes the out-of-scope code and appears on neither VIES nor OSS.

Code each sale when it happens, not at quarter-end, because the same product at the same price lands in a different return depending on who bought it. You can't split a month of revenue by looking at bank deposits. A payment provider's payout arrives net of fees and pooled across every country. The split lives in the invoices and the VAT code on each line. Our walk-through of how to file a Cyprus VAT return shows which boxes each group of sales reaches.

Where Sumly fits in

Sumly's invoicing puts a Cyprus VAT code on every line, and the codes cover everything in this article: domestic rates, reverse charge, EU sales, zero-rated, exempt and out-of-scope. Each code maps to the official boxes of the Cyprus VAT return, so the return fills itself in from the books, ready for you to review. Sumly prepares the monthly VIES statement from the same books and reminds you before the 15th. Because the AI books each sale against its document, the coding this guide asks for happens the moment a sale is recorded. When the quarter closes, the consumer sales an OSS return needs are already separate from everything else.

On Base you review what Sumly prepared and submit it through Tax For All yourself. On Plus, Sumly files your VAT and VIES returns for you. On Premium, your Sumly certified bookkeeper reviews and submits them for you. On every plan, nothing is filed until a person signs it off, and filed periods lock, so submitted numbers can't shift underneath you.

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