TaxLegi 30.12.2025

This is a reminder of our previous VAT alert regarding VAT Circular 2/2025 issued by the Cyprus Tax Department.

Lessors who have not previously submitted Form TD 1220 and wish to opt out of charging VAT on commercial lease/rental arrangements have only a few days remaining to exercise this option. The deadline for submission is by 31st December 2025.

This opportunity is subject to the conditions set out in the Circular, including that:

• The opt-out form was not filed in the past,
• VAT has not been charged on the lease/rental, and
• The lessor is compliant with direct tax obligations.

Please note that from 1 January 2026, the submission of Form TD 1220 will again be required within 30 days of signing the lease/rental agreement.

Therefore lessors who wish to exercise this option for existing leases should take immediate action to ensure that Form TD 1220 is submitted by end of year end.

We remain at your disposal to assist you with any further information or support you may require regarding the matter.

By:

George Liasis Partner, Indirect Tax, George.Liasis@cy.ey.com

Georgios Pitsillis Director, Indirect Tax, Georgios.Pitsillis@cy.ey.com

Maria P. Raspa Director, Indirect Tax, Maria.Raspa@cy.ey.com

Elpida Papachristodoulou Director, Indirect Tax, Elpida.Papachristodoulou@cy.ey.com

Iacovos Kefalas Director, Indirect Tax, Iacovos.Kefalas@cy.ey.com

Ioanna Drousioti Manager, Indirect Tax, Ioanna.Drousioti@cy.ey.com

According to an announcement issued by the Tax Department (Παράταση Δήλωσης για Εργοδότες 2024.pdf), a further extension is granted for the electronic submission of the Annual Withholding Taxes & Contributions of Employers Returns (Form T.D.7) for the tax year 2024. The submission deadline for the 2024 annual Form T.D.7 has been extended until 31st March, 2026.

EY Cyprus is at your disposal for any information and/or clarifications required.

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Παράταση της προθεσμίας υποβολής της Ετήσιας Δήλωσης Παρακράτησης Φόρου Εισοδήματος από Εργοδότες (‘Εντυπο Τ.Φ.7) για το έτος 2024

Με βάση ανακοίνωση του Τμήματος Φορολογίας (Παράταση Δήλωσης για Εργοδότες 2024.pdf) παρατείνεται η προθεσμία για την ηλεκτρονική υποβολή της Ετήσιας Δήλωσης Παρακράτησης Φόρου Εισοδήματος από Εργοδότες (‘Εντυπο Τ.Φ.7) για το έτος 2024. Η προθεσμία υποβολής για την ετήσια Δήλωση Τ.Φ.7 του έτους 2024 είναι η 31η Μαρτίου 2026.

Η ΕΥ Κύπρου είναι στη διάθεσή σας για οποιεσδήποτε περαιτέρω πληροφορίες ή διευκρινήσεις πιθανό να χρειαστείτε.

By:

Petros Liassides Partner, Direct Tax Services, Petros.Liassides@cy.ey.com

Herodotos Hadjipavlou Senior Manager, People Advisory Services Tax, Herodotos.Hadjipavlou@cy.ey.com

Michalis Karatzis Director, People Advisory Services Tax, Michalis.Karatzis@cy.ey.com

Maria Varvatsi Assistant, People Advisory Services Tax, Maria.Varvatsi@cy.ey.com

The Council of Ministers has approved the extension of the application of the zero (0%) VAT rate for another year. On Friday, 21 November 2025, a Decree (R.A.A. 337/2025) was published in the Official Government Gazette amending the fifth and sixth Schedules of the Cyprus VAT Law 95(I)/2000.

Following this amendment, the temporary zero VAT rate (0%) on certain goods has been further extended until 31 December 2026.

PRODUCTS SUBJECT TO THE 0% VAT RATE

• Infant milk
• Baby diapers
• Adult diapers
• Products for feminine hygiene protection
• Fresh or chilled vegetables. Specifically:
  • Potatoes (classified under CN code ex 0701)
  • Tomatoes (classified under CN code 0702)
  • Onions, shallots, garlic, leeks and other alliaceous vegetables (classified under CN code 0703)
  • Cabbages, cauliflowers and broccoli, kohlrabi, kale (classified under CN code ex 0704)
  • Lettuce (Lactuca sativa) and chicory (Cichorium spp.) (classified under CN code 0705)
  • Carrots, turnips, salad beetroot, salsify, celeriac, radishes and similar edible roots (classified under CN code 0706)
  • Cucumbers and gherkins (classified under CN code 0707)
  • Leguminous vegetables, shelled or unshelled (classified under CN code 0708)
  • Aubergines (eggplant), celery, mushrooms, peppers, spinach, artichokes, olives, pumpkins, zucchini, salad vegetables other than lettuce (coriander, parsley, rocket, cabbages), capers and fennel (classified under CN code ex 0709)
• Fresh fruits. Specifically: 
• Bananas (classified under CN code ex 0803) 
• Figs and avocados (classified under CN code ex 0804) 
• Citrus fruits (classified under CN code ex 0805) Grapes (classified under CN code ex 0806) 
• Melons and watermelons (classified under CN code ex 0807) 
• Apples and pears (classified under CN code ex 0808) 
• Apricots, peaches, cherries, nectarines and plums (classified under CN code ex 0809) 
• Strawberries and kiwifruit (classified under CN code ex 0810) 

NEXT STEPS FOR AFFECTED BUSINESS: Ensure that the zero (0%) VAT rate is correctly applied in line with the updated timeframe.

By:

George Liasis Partner, Indirect Tax, George.Liasis@cy.ey.com

Iacovos Kefalas Director, Indirect Tax, Iacovos.Kefalas@cy.ey.com

Maria Raspa Director, Indirect Tax, Maria.Raspa@cy.ey.com

Iliana Panayotova Manager, Indirect Tax, Iliana.Panayotova@cy.ey.com

The Council of Ministers has approved the reduction of the applicable VAT rate from 19% to 5% on the construction and renovation of buildings intended for educational institutions, through a Decree (Κ.Δ.Π 364/2025) published on Friday 05/12/2025  in the Official Government Gazette. The decree amends Table B of the fifth Annex of the Cyprus VAT legislation (95(I)/2000).

The 5% reduced VAT rate applies to the construction and renovation, of buildings that will be used by institutions providing VAT-exempt educational services.

ELIGIBLE EDUCATIONAL INSTITUTIONS

The reduced rate is available for buildings used by:

• Public schools of all levels;
• Private schools registered under the Private Schools and Tutorial Centres Law of 1971.
• Private tertiary education institutions registered under the Tertiary Education Institutions Law of 1996.
• Organisations, foundations, or institutions recognised by the Registrar, upon the submission of application provided they are directly linked to exempt educational services.

Tutorial centres are expressly excluded.

VAT IMPACT

From a Cypriot VAT perspective, the measure delivers substantial VAT cost savings for qualifying educational institutions ensuring that capital projects essential to the education sector carry a significantly reduced VAT burden.

FURTHER CLARITY REQUIRED

While the introduction of the reduced 5% VAT rate is a positive development, some practical and interpretative points need to be clarified including:

• For institutions carrying out both exempt educational activities and VATable activities (i.e licences to use, school cafeterias, equipment leasing, bookshops, summerschools or other commercial uses), it remains unclear whether construction and renovation costs will need to be apportioned between a 5% and 19% VAT rate, or whether a predominant use approach will apply.
• Since the 5% reduced VAT rate applies only to the provision of construction and renovation services (and not to the supply of goods), the purchase of a ready -built educational buildings or the long- term lease of such buildings does not appear to qualify for the 5% rate. An open question remains as to whether such cases can also benefit.

It also appears that, in determining the applicable VAT treatment, the general transitional provisions and time of supply rules must be taken into account (i.e., for contracts concluded before the law’s enactment and intended to continue thereafter).

We anticipate that the Cyprus Tax Department will shortly issue a circular clarifying  any open VAT matters.

By:

George Liasis Partner, Indirect Tax, George.Liasis@cy.ey.com

Iacovos Kefalas Director, Indirect Tax, Iacovos.Kefalas@cy.ey.com

Maria Raspa Director, Indirect Tax, Maria.Raspa@cy.ey.com

Georgios Pitsillis Director, Indirect Tax Services, Georgios.Pitsillis@cy.ey.com

Ioanna Drousioti Manager, Indirect Tax Services, Ioanna.Drousioti@cy.ey.com

On 23 October 2025, the Court of Justice of the European Union (CJEU) issued its judgment in C-232/24, Kosmiro, clarifying that factoring services, including trade factoring and invoice factoring fall within the scope of VAT as a single supply of taxable debt collection service. The CJEU reached this conclusion by applying a broad interpretation of the term “debt collection”, which is expressly excluded from the list of VAT exempt financial services under Article 135(1)(d) of the EU VAT Directive.

The CJEU stressed that debt collection is to be interpreted as encompassing various forms of factoring irrespective of their form, given that the essential purpose of factoring is the recovery and collection of debts owed by a third party and not the granting of finance. As a result, the commissions and arrangement fees typically charged in factoring arrangements shall fall within the VAT scope forming a single supply of debt collection services.

THE KOSMIRO CASE IN BRIEF
The taxpayer was a Finnish company providing factoring services to business clients through two distinct models: (a) trade factoring, where it purchased the client’s receivables and assumed the associated default risk, and (b) invoice factoring, where it granted financing secured by the client’s invoices, with legal ownership and default risk remaining with the client. In return, it charged the clients various fees and commissions including:

• A factoring commission, calculated as a percentage of the debt, which depended on the risk profile of the creditor and payment term of the debt; and

The Finnish tax authority considered that parts of the fees reflected a VAT‑exempt credit service, while the taxpayer argued that all fees should be subject to VAT as debt collection services.  The Finnish court sought clarification on how both types of factoring should be treated for VAT purposes. For trade factoring, it questioned whether the factoring commission and arrangement fee constitutes adjustments to the purchase price of the debts placing the transaction outside the VAT scope, or whether they remunerate a separate taxable service. It also asked whether, if a service exists, it should be viewed as VAT exempt credit or VAT taxable debt collection.

The CJEU held that:

• Factoring commissions and arrangement fees reflect the consideration for a service that relieves the client of debt recovery operations and the risk of non-payment.
• In trade factoring, these fees linked to payment-term duration and the debtor’s risk profile rather than the economic value of the debts, clearly correspond to a taxable debt collection service.
• In invoice factoring, the core purpose of the service remains debt collection, with any financing provided being incidental and inseparable from the debt recovery service.
• Both forms of factoring constitute a single, indivisible economic supply, fully subject to VAT as a debt collection service.
• The exemption for debt collection under Article 135(1)(d) of the EU VAT Directive is unconditional, sufficiently precise, and directly effective, enabling taxpayers to challenge conflicting national rules in domestic courts.

IMPACT OF THE DECISION 

From a Cypriot VAT perspective, the Kosmiro judgment confirms that factoring services involving debt management/ collection are subject to VAT as debt collection services, even when a form of financing is provided alongside the service. For Cypriot businesses, this clarifies interpretation while highlighting that the VAT treatment depends on the primary nature of the service supplied.

NEXT STEPS

Businesses engaged in factoring or any arrangements involving the administration or recovery of debts are encouraged to:

• Review factoring agreements, fee structures and invoicing to ensure the VAT treatment applied (taxable vs. exempt) aligns with the Kosmiro judgment.
• Where required substantiate and support positions with technical argumentation and supporting evidence.
• Assess whether services previously treated as financial/credit related may now fall within taxable debt collection, particularly where the factor undertakes recovery or management of debts.
• Evaluate the impact on input VAT recovery.
• Seek advice on any borderline or mixed arrangements where both debt collection and credit elements may coexist.

EY is at your disposal to assess the implications of the case for your business and ensuring that your VAT treatment is fully aligned with the CJEU’s guidance.

By:

George Liasis Partner, Indirect Tax, George.Liasis@cy.ey.com

Georgios Pitsillis, Director, Indirect Tax Services, Georgios.Pitsillis@cy.ey.com

Ioanna Drousioti Manager, Indirect Tax Services Ioanna.Drousioti@cy.ey.com

On 28 November 2025, based on a Decree of the Council of Ministers it was announced that the deadline for the submission of the Income Tax Return (TD4) for taxpayers with, and without, an obligation to submit a Summary Information Table of intercompany transactions (“SIT”), has been extended as per the below: 

• The deadline for submitting the tax return for the tax year 2023, of a company, as well as a natural person whose turnover exceeds the amount of €70,000, and is obliged to prepare audited or reviewed accounts, whether they are obliged to submit a Summary Table of Information based on the provisions of article 33(10) of the Income Tax Laws of 2003 to (No. 2) 2025, or not, is extended until March 31, 2026.
• The deadline for submitting the tax return for the tax year 2024, of a company, as well as a natural person whose turnover exceeds the amount of €70,000, and is obliged to prepare audited or reviewed accounts, whether they are obliged to submit a Summary Table of Information based on the provisions of article 33(10) of the Income Tax Laws of 2003 to (No. 2) 2025, or not, is extended until November 30, 2026.

For any submissions after the deadlines, the following penalties shall apply:

• EUR 500 for each late submission of the SIT for the tax years 2023 & 2024.
• EUR 100 for each late submission of the Income Tax Return (TD4) for the tax years 2023 & 2024.

By:

Philippos Raptopoulos Partner, Head of Tax and Legal Services, Phone: +357 25 209 740 Philippos.Raptopoulos@cy.ey.com

Petros Liassides Partner, Direct Tax Services, Phone: +357 22 209 797 Petros.Liassides@cy.ey.com

Charalambos Palaontas Partner, Transfer Pricing Services, Phone: +357 25 209 709 Charalambos.Palaontas@cy.ey.com

Myria Saparilla Partner, Direct Tax Services, Phone: +357 25 209 737 Myria.Saparilla@cy.ey.com

Anna Papamichael Partner, Direct Tax Services, Phone: +357 25 209 747 Anna.Papamichael@cy.ey.com

Eleni Sofocleous Partner, Direct Tax Services, Phone: +357 25 209 827 Eleni.Sofocleous@cy.ey.com