On Thursday, the Plenary of the House of Representatives unanimously approved an amendment to the VAT Law, aligning it with a European Union directive on the special scheme for small enterprises and administrative cooperation for monitoring its correct application.

The previous VAT scheme only allowed tax exemptions for businesses established in the member state where VAT was due. However, this created competitive disadvantages within the internal market for businesses not established in that specific member state.

To address this distortion, the EU issued a directive amending the special scheme. Under the new provisions, small enterprises established in member states other than where the VAT is owed can also benefit from VAT exemption.

In Cyprus, the exemption will now apply to businesses not established in the Republic, provided their turnover does not exceed €15,600 within Cyprus and €100,000 across the entire European Union.

Similarly, small businesses based in Cyprus that operate in other EU member states will be eligible for VAT exemption on a cross-border basis, as long as they meet the national exemption thresholds of the relevant countries and the EU-wide threshold of €100,000.

The Ministry of Finance estimates that this amendment will reduce the administrative burden for small businesses established in Cyprus that conduct activities in other EU states.

Christiana Erotokritou, Chair of the House Finance Committee, explained that the bill aims to support small and medium-sized enterprises (SMEs) by facilitating VAT exemptions in cross-border operations.

“This measure,” she stated, “ensures a level playing field in cross-border transactions, which is crucial for SMEs as it gives them the advantage of equal treatment.”