VAT TREATMENT OF VOUCHERS
Further to the amending VAT Law 70(I) of 2019 which transposes the provisions of the Principal EU VAT Directive on the VAT treatment of vouchers to national law, the Cyprus Tax Department has released the circular 235, providing further clarifications and guidance as to the VAT treatment of vouchers.
More specifically, the circular explains amongst others, the definitions and distinctions of the VAT treatment of Single Purpose Vouchers (“SPV”) and Multiple Purposes Vouchers (“MPV”), as well as, the VAT implications on the intermediaries involved in transactions with SPV and MPV.
Overview of the amending law
The law applies on vouchers issued after the 1st of January 2019
The term voucher includes gifts cards, electronic vouchers, but not discount vouchers, transportation tickets, cinema tickets, museum entrance tickets and postage stamps.
One of the main characteristics of vouchers is that they give the right to the holder to receive specific goods or services upon their redemption, and likewise the issuer or another person is obliged to accept them as a consideration or partial consideration for the supply of goods or services.
“Voucher”, is an instrument either in physical or electronic form, which an obligation to accept it as consideration or partial consideration for a supply of goods or services is attached to.
The goods or services which the voucher can be exchanged for or the potential suppliers, are either indicated on the instrument itself, or in any other related documentation, including the terms and conditions of its use.
“SPV”, is a voucher where:
the place of supply (i.e. the country where the VAT is due to) of goods or services that the voucher relates
the VAT due on those goods or services
are known at the time of issue of the voucher.
“MPV”, is a voucher other than a SPV.
The circular specifies that vouchers that are issued or transferred for free, are outside the scope of the subject law.
However, they will be within the scope of the legislation if:
A person receives the voucher as a reward, or as part of the remuneration package;
A person who provides the voucher, had previously purchased the voucher from another party.
VAT Treatment of SPV and MPV
SPV – “Each transfer of a SPV made by a taxable person acting on his own name for consideration shall be regarded as a supply of the goods or services that the voucher relates.”
The actual handing over of the goods or the actual provision of services in return for a SPV accepted as consideration or partial consideration by the supplier shall not be considered as an independent transaction.
The goods or services that a SPV relates to, are subject to only one VAT rate (5% or 9% or 19%).
The VAT is due at the time of the issue of the voucher, or at the time of its subsequent transfer for a consideration.
SPV not issued by the supplier of the goods or services
Where the supplier of the goods or services is not the taxable person who issued the SPV, that supplier shall be deemed to have made the supply of the goods or services related to that voucher to that taxable person (issuer) and thus a VAT invoice should be issued from the person redeeming the voucher to the issuer.
MPV – “the VAT is due only at the time the voucher is redeemed for goods or services”
Any consideration paid at the time of the issue or any subsequent transfer of the voucher is not subject to VAT.
It is noted that intermediaries who buy and sell MPV, have no obligation to charge any VAT.
The taxable value of the supply of goods or services provided in respect of a SPV shall be equal to the consideration paid for the voucher less the VAT. The same applies to any subsequent transfer of the voucher.
If the voucher is exchanged for goods or services of lower value the VAT amount is not adjusted accordingly.
The taxable value of the supply of goods or services provided in respect of a MPV, shall be:
equal to the consideration paid for the voucher by the last buyer,
in absence of such information, equal to the amount indicated on the MPV, less the VAT relating to the goods or services supplied,
if additional consideration is required, the taxable amount will be the total consideration paid (i.e. the value of the voucher + cash paid) less the VAT relating to the goods or services supplied.
Any relevant expenses related to the transfer of the voucher (i.e. delivery, packaging) are subject to VAT as a separate supply.
VAT Treatment of intermediaries
A person dealing with the purchase and sale of SPV, is in essence involved in the purchase and sale of goods or services, and should account for VAT if such supply is subject to VAT, being also eligible to claim any relevant input VAT back.
It is specified that if the intermediary only acts as a mere representative, VAT is only due on the commission received.
As mentioned above, the issue or transfer of such vouchers is not subject to VAT. Therefore, neither the purchase nor the sale of a MPV by an intermediary will be subject to VAT and as such, they will not give the right to the intermediary to claim any input VAT on any related expenses incurred.
If the person acts as a mere representative, VAT is due only on the commission received.
The Impact of the amending law
The transposition of the provisions of the EU VAT Directive to National Law will definitely align in a great extend the VAT treatment of vouchers throughout the EU Member States, mitigating the inconsistencies and contributing to the avoidance of double or non-taxation, hoping to reduce the risk of tax evasion.
Although, from our analysis of the new rules, it is clear that some issues still need to be clarified.
The companies involved in the issuance, redemption and resale of vouchers, should carefully consider the VAT implications arising due to the new requirements of the VAT legislation. Therefore, each transaction should be examined and individually assessed, in order to ascertain that the VAT treatment of SPV or MPV is in line with the law as amended.
How Kinanis LLC can assist
Provide detailed advice on the VAT treatment of vouchers issued after the 1st of January 2019
Liaise with VAT authorities and prepare VAT Rulings, in order to ensure the appropriate VAT treatment
Provide ongoing consultation on digital vouchers and their VAT treatment (i.e. vouchers issued using the Blockchain Technology)
Partner - Accounting & VAT Department
This publication has been prepared as a general guide and for information purposes only. It is not a substitution for professional advice. One must not rely on it without receiving independent advice based on the particular facts of his/her own case. No responsibility can be accepted by the authors or the publishers for any loss occasioned by acting or refraining from acting on the basis of this publication.
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