VAT on Prepayments and Deposits in Cyprus
Receiving a deposit or prepayment before supplying goods or services creates a VAT point — VAT is due when you receive the money, not when you deliver.
In this guide
How VAT applies to prepayments and deposits in Cyprus. When VAT becomes due on advance payments, how to invoice and what happens if the deal falls through.
- Months per return
- 3
- Late VAT return
- €100
- Late payment, additional tax
- 10%
- Interest on late VAT, a year
- 3.5%
Tax point
On receipt
Of prepayment
Invoice required
Within 30 days
Of receipt
True deposit
No VAT point
If refundable security
Part payment
VAT due
On amount received
When does VAT apply to advance payments?
In Cyprus VAT becomes due at the earlier of the invoice date or the date of supply. For advance payments — deposits, prepayments and stage payments received before the goods are delivered or the service is performed — a tax point is created when the payment is received. VAT is due on the amount received at the time of receipt — not when the goods are delivered or the service completed. A contractor receiving a 30% deposit on a €100,000 job must account for VAT on €30,000 in the period the deposit is received.
The difference between a deposit and a prepayment
Not all advance payments create a VAT tax point. A true security deposit — a refundable amount held as security against potential damage or non-performance — is not consideration for a supply and does not create a VAT point at the time it is received. VAT only arises when the deposit is applied — either against the final invoice or forfeited by the payer. A prepayment or stage payment that is part of the purchase price — even if described as a deposit — does create a VAT point when received.
Invoicing advance payments
When you receive an advance payment that creates a VAT tax point you should issue a VAT invoice within 30 days showing the payment received, the VAT rate and the VAT amount. This invoice covers the advance payment and forms part of the VAT chain for the transaction. When the balance is paid and the supply is completed a further invoice for the balance is issued. The total VAT across all invoices for the transaction must equal the total VAT on the full contract value.
What if the deal falls through after a deposit is paid?
If an advance payment creates a VAT point and VAT is declared on the return but the underlying supply subsequently does not take place the VAT position must be corrected. A credit note should be issued to the customer cancelling the original invoice. The output VAT previously declared is recovered on the next VAT return. If the deposit is forfeit — the customer loses it — the nature of the forfeited amount determines the VAT treatment. A forfeited security deposit may be outside scope. A forfeited prepayment may still be treated as consideration for a supply even if no supply takes place.
Key takeaways
- ●Advance payments that are part of the purchase price create a VAT tax point when received
- ●True refundable security deposits do not create a VAT point until applied
- ●Issue a VAT invoice within 30 days of receiving an advance payment that creates a tax point
- ●If a supply does not proceed issue a credit note and recover the VAT on the next return
- ●Stage payments in construction contracts each create a VAT point when received
Frequently asked questions
Next deadline
VAT return for Q3 2026
10 November 2026
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