Reverse Charge VAT in Cyprus: Complete Guide

What is the reverse charge mechanism?

Under the normal VAT rules the supplier charges VAT on their invoice and pays it to the Tax Department. Under the reverse charge the supplier issues an invoice with no VAT and the customer accounts for the VAT themselves on their own VAT return. The customer declares both the output VAT (as if they had made the supply) and the input VAT (as a purchase). For a fully VAT-registered business making only taxable supplies the net effect is zero — the output and input cancel each other out. The reverse charge exists to prevent VAT fraud and simplify cross-border VAT obligations.

When does reverse charge apply in Cyprus?

The reverse charge applies in two main scenarios in Cyprus. First — cross-border B2B services where the place of supply is Cyprus and the supplier is not established in Cyprus. Second — certain domestic supplies under the domestic reverse charge provisions, primarily construction services under Article 11b of the Cyprus VAT Law.

Cross-border reverse charge — key scenarios

• You receive consultancy or professional services from a UK firm — reverse charge applies
• You pay a US company for software or SaaS licences — reverse charge applies
• You use a German marketing agency — reverse charge applies
• You receive legal advice from an Irish law firm — reverse charge applies
• Any B2B service from a non-Cyprus supplier where the place of supply is Cyprus under the general rule

How to account for reverse charge on your VAT return

When you receive a reverse charge supply you need to record both sides of the transaction on your Cyprus VAT return. Add the VAT amount to your output VAT total as if you charged it. Simultaneously add the same amount to your input VAT total as a purchase. If you are fully taxable these two entries cancel out and your net VAT position is unchanged. If you have partial exemption restrictions you may not be able to claim back all of the input VAT — which creates a real VAT cost on the reverse charge supply.

Article 11b — domestic reverse charge for construction

Cyprus applies a domestic reverse charge to construction, installation and related services supplied between VAT-registered contractors and subcontractors. Under Article 11b of the Cyprus VAT Law when a subcontractor provides construction services to a main contractor both parties must be VAT registered and the main contractor accounts for the VAT rather than the subcontractor charging it. This prevents missing trader fraud in construction supply chains where subcontractors charged VAT but disappeared before remitting it to the Tax Department.

Services covered by Article 11b domestic reverse charge

• Construction of buildings and structures
• Demolition works
• Civil engineering — roads, bridges, drainage
• Installation of systems — electrical, plumbing, heating, air conditioning
• Finishing works — plastering, tiling, painting carried out by subcontractors
• Hire of construction equipment with an operator
• Supply and installation of materials as part of a construction contract

Article 11b — who charges what

What to put on the invoice under reverse charge

When you are the supplier under reverse charge your invoice should show the net amount, zero VAT, and a note stating that the reverse charge applies — for example 'VAT reverse charged under Article 11b of the Cyprus VAT Law' for domestic construction supplies, or 'Reverse charge: VAT Act Section 14 — customer to account for VAT' for cross-border supplies. Never add VAT to a reverse charge invoice. If you do the customer will pay VAT twice — once to you and once on their own return — and recovering the overpaid VAT is a protracted process.