On Thursday, June 12, the Cyprus Parliament passed significant changes to the value-added tax (VAT) legislation.
These amendments were adopted to align national legislation with an updated European Union directive that aims to harmonize tax conditions for small businesses operating in multiple EU countries.
The new legislation eliminates the previous disparity in which tax relief was granted only to companies registered in the country where VAT was paid. This disparity created challenges for cross-border small businesses, and the reform aims to expand the range of companies eligible for VAT exemption.
The exemption will now apply to foreign small businesses, in addition to local ones, provided they meet certain criteria. Specifically, companies with an annual turnover in Cyprus not exceeding €15,600 and a total income across all EU countries not exceeding €100,000 will be exempt from the registration requirement as a VAT payer.
This is particularly relevant for start-ups, online stores, and digital servi ce providers that work with customers in different EU countries.
It is important to note that the new rule works both ways: small Cypriot companies operating in other EU countries can also benefit from a similar exemption if they meet the limits set in their country of business and their total turnover within the European Union does not exceed €100,000.
These changes create a level playing field by removing barriers that previously hindered the international expansion of small businesses.
The Cypriot Ministry of Finance has stated that the new rules will significantly simplify tax administration, reduce reporting requirements, and cut overhead costs for micro-enterprises. These new measures will enable companies to concentrate on developing and expanding their businesses without allocating resources to complex tax procedures in each country in which they operate. During the discussion, Christiana Erotokritou, Chair of the Parliament's Finance Committee, emphasized that the adopted measures are intended to create a level playing field for both local and foreign companies.
According to Erotokritou, the reform will open up more opportunities for cross-border trade and support entrepreneurs who have faced barriers in foreign markets thus far. Small businesses will gain access to the European market without facing excessive taxes or bureaucracy.
In this way, Cyprus is confidently taking a step towards a more transparent, flexible, and inclusive tax system. This will create a more favorable environment for business growth and strengthen Cyprus's position as one of the most attractive centers for business registration in Europe.