Three cases, one name
Most of the muddle arises because three different situations run under “reverse charge”.
| Case | Direction | Who owes the tax |
|---|---|---|
| B2B service into the EU | you supply outward | the customer, in their country |
| Receipt from abroad | you buy in | you yourself, in Cyprus |
| Domestic reverse charge | within Cyprus | the recipient, in certain sectors |
The first two are the same rule from two directions. The third is something else and affects only certain sectors.
Case one: services to EU businesses
Where a Cyprus company supplies a service to a business in another EU state, the place of supply is at the recipient. The invoice goes out without Cyprus VAT, and the customer accounts for the tax in their country.
That sounds like a simplification and in one respect is the opposite:
With registration comes the monthly VIES filing, due on the 15th of the following month. See the guide to the VIES filing. Which other thresholds apply is in the guide to VAT registration.
What belongs on the invoice: both VAT identification numbers and a reference to the reversal of liability. The customer’s number should be checked, because without a valid number they do not count as a business, and then Cyprus VAT should have been charged. You owe the evidence, not the customer.
Case two: receipt from outside Cyprus
The same rule, the other side. Where a Cyprus business receives a service from a supplier not established in Cyprus, the place of supply is deemed to be Cyprus.
The receiving business:
- applies the VAT to itself
- deducts it as input VAT in the same move
Overall, usually nothing moves. The transaction still has to appear in the return. Leaving it out because nothing is payable anyway means filing an incomplete return, and in an audit that is a point of its own.
The items affected are the entirely everyday ones: software subscriptions, advertising, consulting, hosting.
Case three: the domestic reverse charge
Here the liability passes to the recipient even between two Cyprus businesses, but only in certain sectors.
Those named are:
- construction services, including demolition, repair and maintenance
- scrap and waste metal
- certain electronics, such as mobile phones and tablets
- gas and electricity
- emission allowances
The purpose is combating VAT fraud in sectors where chains of intermediaries occur. For those affected it means the usual invoicing does not apply in this one area.
What we could not substantiate
- The article numbers in the VAT Law. Here the sources contradict each other markedly. Several assign construction services to Article 11B, one to Article 11A, and the classification of the remaining cases differs by presentation. We therefore name the substance in this article and not the numbers. Anyone wanting to rely on a number should read it in the statutory text.
- The exact list of electronic goods. Mobile phones and tablets are named; a conclusive list we did not find.
- The level of sanction for incorrect application. One source quotes up to €200 per return with a cap of €4,000. We did not confirm it.
- Whether scrap falls under the same provision as construction services. One source describes it as a goods-based case and therefore possibly a separate provision.
If one of these classifications determines your invoicing, the question belongs with somebody who answers for it: Cyprus setup from one place.
Bookkeeping: the decision is made as you write
Whether an invoice goes out with or without VAT is decided at the moment of writing, and it then has to appear in two filings.
In Volk Accountant that hangs on the customer: if a checked VAT identification number from another member state sits there, the invoice goes out with the reverse charge note, and the same transaction appears in VAT 4 and VIES. The numbers sit with the clients, not in a list alongside.
Which rates otherwise exist is in the guide to VAT rates.