Effective from 01 October 2020, where the purchaser of certain types of electronic devices is a taxable person, and provided the devices will be used for business purposes, the purchaser must self-account for VAT under the reverse charge provisions. These electronic devices include:
i. Mobile phones;
ii. Integrated circus devices (such as microprocessors) and central processing units;
iii. Gaming consoles, computer tablets and laptops.
The above amendment, introduced by Article 11E, is widely anticipated to improve VAT collection and tackle the growing concern of tax evasion. Below we examine the VAT implications, resulting from the sale of the aforementioned goods, by focusing on the VAT-status of both the customer and the supplier.
Scenario-1: Both the customer and the supplier are VAT-registered
Where a VAT-registered company purchases, for business purposes, a mobile phone from a Cypriot VAT-registered supplier, the seller will not impose VAT on the invoice and instead the buyer will account for VAT, at the applicable standard VAT rate (currently at 19%), based on the reverse charge provisions. In addition, the supplier should state on the invoice, using the wording "Reverse Charge Article 11E, that the transaction is subject to VAT under the reverse charge provisions of the Cypriot VAT law.
Scenario-2: The customer is VAT-registered but the supplier is not
The responsibility of the buyer to self-account for VAT does not change in cases where the supplier is not VAT-registered. The customer must, just like in Scenario-1, self-account for VAT by applying the reverse charge provisions of the Cypriot VAT law, while the supplier must examine his/her potential obligation for VAT registration.
Scenario-3: The customer is not VAT-registered but the supplier is
In cases where the customer is not VAT-registered, purchases of the above-mentioned devices will be taken into consideration when determining whether the customer has exceeded the statutory VAT-registration threshold (currently €15,600). The supplier must issue an invoice imposing the relevant VAT on the transaction. It is important to note that the imposition of VAT by the seller will not lift the purchaser's obligation to self-charge VAT, if he ought to have registered.
Scenario-4: Neither the customer nor the supplier is VAT-registered
In cases where neither is registered then the supplier will not charge VAT on the invoice and the buyer will not have the responsibility to apply the reverse-charge provisions to self-account for VAT (since anyone not registered for VAT does not have any VAT obligations). Nevertheless, the sale will count towards the VAT-registration threshold of both the customer and the supplier.
It is noteworthy that effective from 01 July 2021, failure to comply with the reverse charge provisions of the Cypriot VAT law, such as the ones described above, will result in the imposition of a one-off penalty of €200 per VAT return (subject to a maximum penalty charge of €4,000).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.