Executive summary

Further to the publication of a recent Circular (Circular 221) by the Cyprus Tax Department (CTD) on 12 January 2018, the scope of applicability of the favorable Value Added Tax (VAT) Grouping regime has been further extended to include companies with an establishment in Cyprus. Such CTD guidance permits entities not incorporated in Cyprus but possessing a business establishment or fixed place of business in the Republic to join a VAT Group and benefit from both a cash-flow and administrative perspective.

Detailed discussion

Circular overview

Circular 221 provides that entities with an establishment in Cyprus bound by financial, economic and organizational links are in a position to form a VAT Group.

Legal incorporation in Cyprus is not a pre-requisite and companies with the aforementioned links along with physical presence and performance of economic activities in Cyprus can be part of a VAT group.

It is apparent that entities incorporated in other jurisdictions other than Cyprus with either management and control (business establishment) or an establishment (fixed place of business) with permanently available technical and human resources for the supply or receipt of services in Cyprus can form a VAT Group with other entities with which economic, financial and organizational links exist.

Considerations for businesses

Circular 221 establishes an important extension of the scope of VAT Grouping and expands the categories of entities eligible to join such a group.

Companies incorporated abroad with a branch or establishment in Cyprus can now utilize the various advantages of VAT Grouping such as:

• No VAT needs to be accounted for on supplies between group members (disregarded supplies)
• Reduction of administration burdens

Next steps

Entities should consider the following issues and actions related to the expanded VAT Grouping application, including:

1. The potential gains from entering a VAT Grouping arrangement
2. Eligibility to form a VAT Group
3. Registration along with other connected companies in a VAT Group
4. VAT Group discussions with the Cyprus Tax Department for addressing pre- and post – Grouping VAT implications

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Cyprus Limited, Nicosia

• Philippos Raptopoulos, Head of Tax & Legal Services
  philippos.raptopoulos@cy.ey.com
• George Liasis, Head of Indirect Tax Services
  george.liasis@cy.ey.com
• Maria P. Raspa
  maria.raspa@cy.ey.com
• George Pitsillis
  georgios.pitsillis@cy.ey.com
• Simos Simou
  simos.simou@cy.ey.com
• Elpida Papachristodoulou
  elpida.papachristodoulou@cy.ey.com

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ATTACHMENT

PDF version of this Tax Alert