Is voluntary registration in the VAT Register of Cyprus a blessing or a curse?
VAT registration can be a confusing area for many businesses. Some are legally required to register for and pay VAT, whilst for other businesses it is a voluntary matter determined by certain advantages and disadvantages. If you are not obliged to register it is still worth considering whether it could be beneficial for you and your business.
For small businesses that do not expect to reach or exceed this threshold, voluntary VAT registration can be very important and could actually offer a number of benefits:
- It allows VAT to be charged on goods and services sold (known as output tax).
- A business can reclaim any VAT charged on goods and services purchased from other businesses (known as input tax). This is particularly advantageous if you sell a zero-rated product and purchase a standard rated product because you may be eligible for VAT refunds from the tax department. Similarly, If you build a commercial real estate that will produce output tax in the future, you may recover input tax of the construction cost.
- It can make a small business appear larger and more established – this could be more impressive and appealing to other businesses and clients. If your business is not registered for VAT, competitors and other firms will know that your turnover is below the €15.600 threshold.
- VAT registration comes with a VAT number that a business will display on its website, correspondence and invoices. This often makes other firms more willing to do business with smaller companies – many large firms and companies, particularly those in the finance sector, will not even consider doing business with another firm if it has no VAT number. It can also be advantageous to be able to produce a VAT invoice if requested by a client or customer.
Businesses can apply to the tax department to backdate voluntary registration if certain requirements are fulfilled.
Voluntary VAT registration also has a few drawbacks, namely potentially higher costs and additional paperwork.
- Charging VAT on products may be unappealing to some potential or existing customers, particularly if they themselves are not VAT registered. It is important to ensure VAT registration does not impact the desirability of your service or product by making it appear over-priced and unreasonable.
- If output tax exceeds input tax, a business will be required to pay the difference to the tax department. This could cause potential problems if a business is faced with a large, unexpected VAT bill.
- VAT registration comes with the added burden of extra administration and paperwork – businesses will have to maintain accurate VAT accounting records and invoices and submit a quarterly VAT return. Although this can be a disadvantage for some, voluntary registration is worth the extra work for many businesses.
- If voluntary registration turns out to be the wrong decision or VAT is no longer applicable, you may be able to de-register if your taxable supplies are mainly zero-rated, or turnover has not exceeded or is unlikely to exceed the VAT threshold over a 12-month period. The Tax Department should be informed of the date your business would like VAT registration to stop and you should continue to charge and account for VAT until confirmation is received from The Tax Department.
Examples and thresholds for VAT Registration
Acquisitions and registration in the VAT Register
Every person who:
(a) at the end of any month, the total value of its acquisitions by all other Member States during the period of one year beginning on 1 January of the year in which that month falls has exceeded the limit of € 10,251.61
(b) there are good reasons to believe that during thirty days from any point in time the value of the acquisitions of this person will exceed € 10,251.61.
In case the value of the acquisitions of any person does not exceed the above limits, he has the right to voluntary registration.
Remote sales and registration in the VAT Register
If any person makes long-distance sales in Cyprus (sales from a person in another Member State to individuals in Cyprus), he is obliged to register in the Cyprus VAT Registry and to pay VAT in Cyprus, if during the period starting from 1 January year the value of his distance sales exceeds € 35,000. Failure to notify the obligation to register for Remote Sales results in a charge of € 85 for each month that the refusal or omission or delay lasts.
There is also a right to voluntary registration when the limit of € 35,000 does not apply.
Provision of services to taxable persons in another Member State of the European Union
Every person who provides services to taxable persons in another Member State of the European Union must be registered in the VAT Register, provided that for these services, VAT is levied. it must be paid to that Member State by the recipient.
VAT registration is a complex subject. The above information is provided for general information purposes only. The specific circumstances of each case need to be analysed and assessed before a specific action is provided. Therefore, readers are strongly advised to seek the advice of a local expert before a decision is made.