Input VAT vs Output VAT: Plain English Guide

What is output VAT?

Output VAT is the VAT you charge on your taxable sales and supplies. When you issue an invoice to a customer for a VAT-taxable service or product you add VAT at the appropriate rate — 19%, 9% or 5% in Cyprus. That VAT is output VAT. It belongs to the Tax Department — you are collecting it on their behalf. Every quarter when you file your VAT return you declare all the output VAT you have collected. This is your VAT liability before any deductions.

What is input VAT?

Input VAT is the VAT you pay on your business purchases and expenses. When a VAT-registered supplier charges you VAT on goods or services you buy for your business that VAT is input VAT. You can reclaim input VAT against your output VAT liability — reducing what you owe to the Tax Department. Input VAT is your right to recover the VAT embedded in your business costs. This is one of the core reasons why VAT registration is beneficial for B2B businesses — it allows you to strip out the VAT cost from your purchases.

Output VAT vs Input VAT — the key differences

How the two interact on your VAT return

On your quarterly Cyprus VAT return you declare your total output VAT and your total input VAT for the period. If output VAT exceeds input VAT you pay the difference to the Tax Department. If input VAT exceeds output VAT you are in a repayment position and can claim a refund — though in practice refunds are processed slowly and many businesses in a regular repayment position restructure their affairs to minimise the timing gap.

What input VAT can you reclaim?

• Purchases of goods and services used exclusively for taxable business activities
• Professional fees — accountants, lawyers, consultants — if for business purposes
• Software, subscriptions and digital tools used in the business
• Office rent, utilities and supplies — if the property is used for taxable activities
• Equipment and machinery used in producing taxable supplies
• Travel and accommodation for business purposes — with limitations

Blocked input VAT — what you cannot reclaim

• Business entertainment — taking clients to dinner, events, hospitality
• Cars used privately — input VAT on car purchase or lease is blocked unless the car is used exclusively for business
• Goods or services used for private or non-business purposes
• Costs directly related to exempt supplies — residential rental, financial services
• Club memberships, gym fees and similar personal benefits

Partial exemption — when you have both taxable and exempt supplies

If your business makes both taxable supplies (where you charge and reclaim VAT) and exempt supplies (where no VAT is charged and input VAT cannot be recovered) you are partially exempt. In this case you cannot reclaim all of your input VAT — only the portion attributable to taxable activities. The calculation uses the standard method which apportions input VAT based on the ratio of taxable to total turnover. Partial exemption adds significant complexity to VAT returns and an advisor review is recommended.

Input VAT on fixed assets and capital goods

When you purchase capital assets — equipment, machinery, property — you can reclaim the input VAT in the period of purchase subject to the normal rules. For immovable property the Capital Goods Scheme requires you to track the input VAT claimed over a 10-year adjustment period. If the taxable use of the asset changes during that period you may need to repay some of the input VAT originally reclaimed — or claim additional VAT back if taxable use increases.