On 26 August 2026, the Cyprus Tax Department issued Circular 4/2026, providing consolidated guidance on the VAT treatment of transactions relating to medical care. The Circular clarifies the distinction between VAT-exempt medical care services, services subject to the reduced VAT rate of 5%, and services subject to the standard VAT rate of 19%.
The Circular withdraws and replaces all previously issued guidance on this matter, namely Circulars 4, 5, 6, 7, 103, 202 and 214, as well as paragraph 10 of Interpretative Circular 119, consolidating the relevant guidance into a single document. While the Circular does not introduce material changes to the application of the VAT exemption, it provides further clarifications aimed at promoting the consistent and uniform application of the VAT rules.
VAT treatment determined by the purpose of the service
The Circular confirms that, in line with the case law of the Court of Justice of the European Union (CJEU), the VAT exemptions must be interpreted strictly. However, such interpretation must not deprive the exemptions of their intended effect and, in the case of medical care, must have regard to the objective of reducing the cost of healthcare and facilitating access to medical care.
For VAT purposes, medical care covers services intended to prevent, diagnose, treat or otherwise address health conditions, including services aimed at the protection, rehabilitation or maintenance of human health, provided that the relevant legislative conditions are satisfied. The following services continue to qualify for the VAT exemption, subject to the applicable condition:
- Hospital and medical care provided by public or registered private hospitals;
- Medical care provided by recognized and appropriately registered healthcare professionals;
- The supply of human organs, blood and human milk;
- Services provided by registered dental technicians; and
- The transport of patients or injured people by ambulance.
The exemption may also extend to services closely connected with medical care, where such services are necessary for achieving the therapeutic or treatment objectives of medical care. The Circular clarifies that the close connection and necessity of the relevant service should be assessed in the context of the underlying medical care. The Circular further confirms that medicines and other goods supplied as part of an integrated inpatient treatment are covered by the VAT exemption.
Main clarifications
The Circular provides further guidance on the distinction between VAT-exempt medical care services and services subject to the reduced or standard VAT rates. In particular, the Tax Department reiterates that the VAT treatment should be determined by the purpose of the service, rather than solely by the status or professional qualification of the person providing the service. Accordingly, services intended to prevent, diagnose, treat or otherwise address health conditions will generally qualify for the VAT exemption, provided that the relevant legislative conditions are met. Conversely, certain services provided by healthcare professionals may fall outside the scope of the exemption where their purpose is administrative, legal, insurance-related or otherwise non-therapeutic.
These include, among others:
- medico-legal examinations and reports;
- DNA testing for paternity or maternity purposes;
- medical certificates issued for legal, insurance or licensing purposes;
- medical examinations undertaken in connection with liability, damages or potential compensation claims;
- psychological assessments undertaken for recruitment purposes; and
- the storage of biological material for potential future use.
Services falling within these categories may be subject to the reduced VAT rate of 5%, subject to the applicable conditions being satisfied.
The Circular further confirms that purely cosmetic or aesthetic procedures, including wrinkle removal, laser hair removal, liposuction, cosmetic implants and similar procedures performed solely for aesthetic enhancement, are subject to VAT at the standard rate of 19%. However, where such procedures are undertaken for therapeutic purposes in connection with a recognized illness or injury, and the relevant therapeutic purpose is supported by appropriate medical documentation, the VAT exemption may apply.
Key Takeaways for Businesses
The issuance of Circular 4/2026 highlights the importance for businesses operating in the healthcare sector, as well as eligible healthcare professionals, to review the consolidated guidance and assess its impact on the VAT treatment of the services they supply and receive. Businesses should also consider whether the relevant legislative, registration and documentation requirements for applying the VAT exemption or reduced VAT rate are satisfied.
A clear understanding and appropriate application of the clarifications provided by the Tax Department will assist affected persons in maintaining VAT compliance and reducing the risk of incorrect VAT treatment, potential assessments, interest and penalties.
