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20 January 2014

Cyprus’s VAT hike takes effect, with rate currently at 19%

As of January 13, 2014, Cyprus’s Value Added Tax (VAT) rate was increased from 18% to 19% and reduced rate from 8% to 9%, as part of an obligatory measure of the 10 m bailout, imposed by the troika of lenders IMF, EC and ECB. This is the second of two hikes which were agreed as part of the bailout in March 2013, with the first one taking effect in January 14, 2013.

The Ministry of Finance estimates that this second hike will increase VAT revenues by 0.6% or by 10 million euros over the revenues in 2013 (€1.648 million), estimated at 4.8% of the island’s Gross Domestic Product.

VAT Service senior official Nayia Symeonides, said that the 1% VAT increase to 19%, will cover approximately 80% of the goods and services, while the reduced VAT increase (from 8% to 9%) will cover restaurants, cafeterias, catering and transportation services. She also said that, the VAT Service Department fully acknowledges the difficult financial conditions facing the country, therefore, it is willing to work out settlements with companies whose VAT arrears have piled up and give them the opportunity for gradual repayment.

Despite this last VAT increase, Cyprus still remains a business investor’s ‘safe haven’ since apart from it’s geographic location and warm climate, it still has the third lowest VAT rate in the European Union, with Malta at second place with 18% and Luxembourg (government planning on raising the VAT rate soon) at the first place with 15%.

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