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Indirect Tax Update - Services provided by retirement homes

Services provided by retirement homes

On 23 April 2018, the Tax Department released Circular no. 226, referring to and clarifying the VAT treatment of services provided by retirement homes.

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In particular, the circular refers to the provisions of paragraph 7 of Table A of Schedule Seven of the Cyprus VAT Act which exempts from VAT, the supply of goods and services which are closely linked to social welfare and social security work, including those supplied by old people’s homes that are operated by non-profit making organizations.

It is clarified that old people’s homes, private healthcare facilities and other similar establishments which are dealing with the care of elderly people are NOT exempt from VAT, if are profit making organizations.

Non-profit making organizations must meet the following conditions in order for the exemption to apply:

  • No profit distribution to members is allowed
  • The administration and management of the organization must be made by persons receiving no salary and who have no direct or indirect relationship with the activity of the organization
  • The exemption does not create a risk of distortion of competition to other taxable persons.

In addition, it is emphasized that organizations which are not exempted in accordance with the provisions of paragraph 7 of Table A of Schedule Seven of the VAT Act, have to impose the standard VAT rate (19%) on the total value of the services that they provide. Under no circumstances the various elements comprising a single service should be separated e.g. physiotherapy, accommodation, nutrition, medical care, medicines, etc., on the invoice issued, imposing different VAT rates for each separate element.

Exemption from the above rule applies only to medical care services falling under paragraph 3 of Schedule Seven of the VAT Act in cases where such services are provided and invoiced directly to a person/patient who is staying in an old people’s home or other similar establishment. In all other circumstances, the charge for medical services should be part of a single charge of the establishment to its tenant and the standard VAT rate (19%) should be imposed on the total value of the provided services. 

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