Date: 07 October 2020 

The Tax Department (TD) posted on its website the implementing guidelines (IG) 01/2020 referring to Article 11E which was entered into force on 1/10/20 and concerns supplies of certain categories of goods.

In general terms, Article 11E provides that when taxable persons (t.p.) make supplies to other t.p. of any of the goods referred to in this Article, the obligation to account for VAT is transferred from the supplier to the customer by applying the reverse charge procedure. It is noted that by applying the reverse charge procedure not always results in the recovery of the self-calculated VAT e.g. purchase of the relevant goods by an exempt business.

Because there was some confusion as to the type of goods falling into the categories referred to in Article 11E, the TD proceeded to post the IG on its website explaining what each category includes and what it does not.

A. What is included in the category - Mobile Phones

Any device that has as its main feature the making and receiving of calls, sending and receiving text messages, regardless of whether it has other functions or not. In addition to conventional mobile phones, the category also includes smart phones, tablets and phablets (smaller than tablets and larger than conventional mobile phones).

In addition to the value of the main device, the reverse charge also applies to the value of the accessories delivered with it as a single package for a single price. Accessories may include, charger, battery cover or hands-free kit.

The reverse charge also applies to

(a)  prepaid mobile phones (pay as you go) regardless of whether the selling price includes the cost of their future use and are not provided by a contract for talk time and

(b)  smartwatches with mobile phone functions not connected to a mobile phone

A1. What is not included in the category - Mobile Phones

- Mobile phones, as described above provided under a contract for a fixed talk time

- Accessories that are not included in a single package under one price

- Wireless (walkie - talkies)

- Wi-Fi phones other than those connected to mobile networks

- Phones where the base is connected to a landline, but the handset is not connected to the base

- Smart watches without mobile phone function

It is pointed out that in cases where a package of mobile telephony services is sold together with a device that falls into category A above but the charge for the device is made separately, Article 11E will apply only to the value of the device.

B. Integrated circuit mechanisms, such as microprocessors and central processing units

This category covers integrated circuit mechanisms such as:

- small integrated circuits (e.g. central processing units (CPUs))

- discrete integrated circuit devices, e.g. microprocessors or microprocessor modules (MPUs) and microcontrollers or microcontroller units (MCUs) and chipsets, a special integrated circuit supporting MPUs and

- general items when they are in a condition before being included in end-user products or where they are sold separately and not as part of an assembled item, for example a motherboard

B1. Not included in integrated circuit mechanisms

- desktops

- cash register systems

- peripheral devices such as printers, external memory cards, chargers, etc.

C. Game consoles, tablets and laptops

This category includes

- game consoles

- laptops

- all tablets that can operate autonomously as such with an internet connection even if they have other uses such as connection to systems for receiving orders

C1. Not included

- other devices that, even if they look like tablets, may not work as such on their own

What should a taxable person pay attention to when being involved in the supply of goods covered by Article 11E

(a)  Assuming that the purchaser is a taxable person, the obligation to account for VAT under the reverse charge method is mandatory. If the seller incorrectly imposes VAT, the buyer is still obliged to account for VAT under the reverse charge procedure without having the right to claim the VAT imposed by the seller. It is also noted that from 1 July 2021, failure to apply the reverse charge procedure will result in paying additional charge of €200 for each VAT return with a maximum of € 4.000.

(b)  The buyer's obligation to apply the reverse charge is not affected by whether or not the seller is registered for VAT. This means that regardless of where the goods are purchased from, the buyer must always apply the reverse charge procedure.

(c)  If the supplier is a registered person, he must issue a VAT invoice to the buyer and write on the invoice the description "Reverse Charge Article 11E" after first confirming the buyer's registration number. Confirmation can be done through the website:

Recommendation: If the relevant goods are delivered to an individual on behalf of his employer or any other taxable person, it is suggested to the supplier to confirm with the employer or the other taxable person that the individual acts under their orders in order to confirm that the goods are not purchased by the individual for private purposes.

How can KPMG assist?

Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.