Demetra Constantinou
Partner – Accounting & VAT Department

Important clarifications were given by the Cyprus Tax Department on the VAT treatment of Restaurant and catering services, as well as, the supply of food and beverage with their circular 11/2022 dated 6/12/2022.

As per the Cyprus VAT Law, the following apply:

1. Restaurant and catering services are subject to the reduced VAT rate of 9%

(Paragraph 2, of the Twelfth Schedule of the VAT Law of 2000, as amended).

"Restaurant and catering services” are defined as services that consist in the supply of prepared or unprepared food or beverages or both, for human consumption, accompanied by adequate support services that enable their immediate consumption. The provision of food or drink or both is only one element of the whole transaction in which services greatly excel. Restaurant services cover the provision of such services on the provider's premises and catering services cover the provision of such services outside the provider's premises.”

2. The supply of food, including beverages, for human consumption other than alcoholic beverages, beer, wine and soft drinks, is subject to the reduced VAT rate of 5%

(Paragraph 7, of Table A, of the Fifth Schedule of the VAT Law of 2000, as amended)

The term food includes the supply of prepared or unprepared food or drinks or both, with or without delivery, which is not accompanied by other support services.

Consequently, as per the law it is important to define what the support services include in order to be able to identify whether a transaction is within the scope of the provisions of “Restaurant and catering services” or “The supply of food and beverages”.

That was clarified with the decision of the Administrative Court dated 10/9/19 "Lamane Ltd vs Republic of Cyprus, which defined that "support services" include any combination of the following elements: kitchen operation, order taking services, preparation and serving of the order and provision of a designed and furnished space for the immediate consumption of food or drinks.

Further to the decision taken by the Administrative Court mentioned above, the Tax Department clarifies the following:

a) For all services provided by businesses that are able to offer food, the reduced VAT rate of 9% should be imposed to all customers, regardless of:

a. whether they only order food, or drinks (alcoholic and/or non-alcoholic) or both (food and drink) and

b. whether at some point the kitchen closes but the business continues to operate.

b) Businesses such as beer halls, bars, discos, cafes or other entertainment venues which serve only drinks and which may not be able to provide meals, but offer adequate support services, which enable the immediate consumption of drinks on their premises, are considered to be within the scope of the provision of Restaurant and catering services and therefore subject to the reduced VAT rate of 9%.

c) The supply of food or drinks by a business for consumption outside its premises, and without being accompanied by adequate support services, are subject to the reduced VAT rate of 5%.

d) Supplies of soft drinks and alcoholic beverages for consumption outside the provisions of Restaurant and catering services (Paragraph 2, of the Twelfth Schedule of the law) (e.g. take away, delivery) are subject to the standard VAT rate of Cyprus, currently at 19%.

Finally, please note that the above applies from 6/12/2022. Additionally, it is noted that Interpretative Circular 146A has been withdrawn.

Author

Demetra Constantinou
Partner – Accounting & VAT Department
accounting@kinanis.com