he Cyprus Parliament approved last December the increase of the VAT rate by 2%, i.e. from 15% to 17%, and this new 17% VAT rate will be implemented on 1 March 2012.

The VAT Service has clarified that the increase does not affect the products and services that fall under the reduced VAT rates of 5% or 8% or zero VAT rate, according to the VAT legislation. So, a number of transactions will be still zero-rated, among which exports from Cyprus out of the EU, transport of goods and passengers from Cyprus to a country outside the EU or vice versa, services relating to the importation of goods into Cyprus, intra-community supplies of goods, financial transactions, etc.

Despite the above increase of the VAT rate by 2%, Cyprus still enjoys one of the lowest rates in the EU, and combined with its very low indeed corporate tax rate (10%), Cyprus will still be a favorable jurisdiction for establishment of trading and other types of companies.

For more information on this topic and discussion on the above development please contact Mr. Soteris Flourentzos, Director at SOTERIS PITTAS & CO LLC, by telephone (+357 25 028460) or by fax (+357 25 028461) or by e-mail (sflourentzos@pittaslegal.com).