The parliament has unanimously approved changes to the country’s VAT law on Thursday, bringing it into line with EU directive that extends VAT exemptions to small businesses operating across member state borders.
The new legislation allows small businesses not established in Cyprus to claim VAT exemptions if their turnover does not exceed €15,600 in Cyprus and €100,000 across the European Union. Previously, only businesses established in the member state where VAT was due could benefit from such exemptions.
The changes also enable small Cypriot businesses operating in other EU member states to opt for cross-border VAT exemptions, provided they meet the national exemption thresholds of those countries and the European limit of €100,000.
Background to the changes
The previous special scheme created competitive disadvantages in the internal market for businesses not established in the member state where VAT was owed. This market distortion prompted the European Union to issue a directive modifying the special scheme to ensure fairer treatment.
The Ministry of Finance estimates the regulation will reduce administrative burdens on small businesses established in Cyprus that conduct business in other member states.
Christiana Erotokritou, chair of parliament’s Finance Committee, explained that the bill ensures small and medium enterprises conducting cross-border transactions can operate on equal terms. “This gives SMEs the advantage of equal treatment,” she said, emphasising the importance of level playing field conditions for smaller businesses.
The law implements administrative cooperation and information exchange mechanisms to monitor proper application of the special scheme across EU member states.
