How to Reduce Your VAT Payments: Basic Guide for Beginners

Simple steps to reduce your VAT liabilities

Understanding VAT Returns
VAT returns are prepared based on the sales, purchases, and expense transactions of the current period. Here's a simple breakdown of how it works:

1. Sales Invoices: Every time you raise a sales invoice, you must charge VAT.

2. Purchases and Expenses: Whenever you make purchases or incur expenses (e.g., office rent, telephone bills), you pay VAT.

3. VAT Calculation: The difference between the VAT on your sales and the VAT on your purchases and expenses is the amount you owe to the VAT authorities at the end of the quarter.

Strategies to Minimize VAT Payments

 VAT Tax Point: According to Cyprus VAT law, the tax point is created the when:
o The sales invoice is issued,
o The funds are received in your bank account, or
o The service is provided.

Raise your sales invoices once any of these three criteria are met to avoid prepaying VAT.

1. Timing of Sales Invoices
Ensure that you only raise sales invoices when you are confident that your services or products will be paid for. Raising invoices prematurely can result in paying VAT on amounts you have not yet received. To be fully compliant with the VAT law the sales invoice should be raised as soon as the service is completed; in practise though especially if you are offering services to new clients, businesses tend to raise a request for payment notification as soon as the service is provided and as soon as they are paid they issue the sales invoice. Having said that, the VAT law requires you to raise invoices the soonest of the three tax points mentioned above. Therefore, a practical approach would be to be very strict with the VAT law with existing ongoing clients and depending on the value of the service decide if you will also apply the request for payment approach.

2. Efficient Management of Purchases and Expenses
Keeping accurate and timely records of your purchases and expenses is vital. Here's how to stay organized:

 Be Tidy: Ensure all expense invoices, overhead invoices, and purchase receipts are well - documented and stored.

 Provide Complete Records: Submit all relevant documents to your accountant promptly, including sales invoices, expense invoices, purchase invoices, bank statements, cheque books, Visa receipts, and any other relevant documentation.

 Regular Reviews: Conduct regular reviews with your accountant to ensure no invoices are missed and all transactions are accurately recorded.

 Up to Date Accounting Records - Help of a Regulated Accountant: It is essential to have the accounting function outsourced to a regulated audit & assurance firm which will ensure not only that the right amount of VAT is paid on time, but it will also report to you on profitability, cash flow and deadlines.

CYAUSE Audit Services: If you are struggling with your VAT returns or accounting information feel free to contact us at kt@cyprusaccountants.com.cy and we will be more than happy to assist you. 

3. Specific Tips for Reducing VAT Liability

 Raise Credit Notes: If you raise a sales invoice but later realize the funds won't be received for a very long time, it is worth considering raising a credit note (which translates to a cancellation invoice) promptly.

 Accurate Record-Keeping: Maintain meticulous records and provide your accountant with all necessary documentation on time to avoid any missed deductions.

Conclusion
To summarize:
1. Sales Invoices: Be thoughtful when you raise them especially if you are providing services to new clients
2. Organized Documentation: Keep your records tidy and ensure your accountant receives all necessary documentation on time.
3. Regular Communication: Stay in regular contact with your accountant to ensure all transactions are accounted for and accurately processed.

We hope you found this information useful. If you have any questions or need further assistance, feel free to email us at info@cyprusaccountants.com.cy or visit our website at cyprusaccountants.com.cy for more detailed information and resources.

CYAUSE AUDIT SERVICES

About Us

CYAUSE Audit Services Ltd is a regulated audit and assurance firm performing statutory compliance services to its local and international clients. VAT declarations are part of our routine sercvices offered to local and international corporations using a Cyprus company as vehicle to trade in Europe. 

CYAUSE Audit Services is an Audit & Assurance firm with offices in Nicosia and Limassol. During 2015 we have been awarded by I.C.P.A.C and the A.C.C.A (local and international association of Chartered Certified Accountants) for the Quality of our Audit Services and our Office's Procedures.

Being a Truly International Audit & Assurance firm, we have associates from all over the world and we are constantly looking for new associates to expand our network further. At present, CYAUSE Audit Services operates internationally as Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience.

ACCACE network covers almost 40 jurisdictions with over 2,000 professionals, it supports more than 10,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and processes at least 170,000 payslips globally.

CYAUSE Audit Services Ltd is also a member of BKR International an American International Network and the 3E Accounting Network, an international accounting network which originates from Hong Kong and has more than 80 members from all over the world.

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If you would like us to assist you with your investment firm or fund please contact us at kt@cyprusaccountants.com.cy or call us at +357 22 336 321.

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Information about CYAUSE Audit Services and the Cyprus Corporate & Tax System can be obtained from our Website or our YouTube channel which provides valuable information about the Corporate & Tax Environment of Cyprus.