Changes to VAT laws may cause a loss for Cyprus

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The House finance committee was discussing a bill on taxation of services, which Cyprus needs to enact to comply with the EU’s VAT Directive.
The House finance committee was discussing a bill on taxation of services, which Cyprus needs to enact to comply with the EU’s VAT Directive. The amendments are designed to target the provision of prospecting and exploitation of natural resources operations within the EEZ (Exclusive Economic Zone based at sea).

Cyprus may lose up to €100m in tax revenue a year from a pending revision to VAT laws, Greens MP George Perdikis said on Monday. Cyprus currently has the second lowest VAT in the EU (19%)while Malta has the lowest standard rate, at 18%. The concern, according to Perdikis, relates to that part of the EU directive which states that the taxation of services will better accrue to the country of consumption. ‘This presents a daunting dilemma for the political leadership if, under the current economic hardship, Cyprus is forced to give €100m away to the VAT funds of other European countries.’

Earlier this summer, lawmakers were told that as of December 31, 2013 the VAT service was owed €421m due to businesses who avoid tax by charging for good and services in countries which fall outside the EU tax laws.

The finance committee discussed the scope of the VAT proposal which will be expanded to incorporate the islands EEZ. Since the EEZ falls within the sovereign territory of the Republic, the provision of goods and services must be considered as taking place within the sovereign territory and therefore subject to applicable VAT laws.