Cyprus VAT bad-debt relief: section 27 claim checklist

Confirm that the original supply and VAT qualify

Start with the original transaction. Section 27(1)(a) applies where a person supplied goods or services and accounted for and paid VAT on that transaction. Identify the Cyprus VAT registration, supply date, tax point, invoice and return that included output tax, and evidence of payment to the Tax Department. If the invoice carried no Cyprus output VAT because the supply was outside scope, zero-rated or subject to a valid reverse charge, do not create a fictional VAT refund merely because the customer owes money. The claim follows tax actually chargeable and paid on the qualifying supply.

Check the amount and nature of the consideration. An invoice may combine taxable and exempt items, different rates, deposits, delivery charges or an earlier refund. The bad-debt calculation should trace the relevant unpaid gross consideration to the VAT that was originally accounted for. Section 27(4) also conditions relief on the supply value being no greater than its open-market value. Where the customer is related or the pricing is unusual, document the basis for value before claiming. Do not use the VAT relief process to correct an incorrect original rate or misclassified supply; that needs a separate invoice and return analysis.

Separate a genuinely unpaid valid invoice from a cancelled order, returned goods or later agreed discount. The latter may require a credit note and a different adjustment route. If the customer disputes performance, preserve evidence of delivery and the scope of the dispute rather than issuing a credit simply to remove the receivable. A debt can remain legally recoverable even after it is written off in accounting books for the relief claim. The VAT treatment, debt-collection position and income-tax deduction are distinct decisions with distinct evidence.

A cancelled sale or agreed price reduction instead calls for the VAT credit-note workflow.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ; Council Directive 2006/112/EC, Article 90 on reductions of the taxable amount

Calculate the twelve months from the transaction date

Section 27(1)(d) requires twelve months to have elapsed beginning on the date of the transaction. Section 27(9) sends the tax-point question to section 9 of the VAT Law. Do not count automatically from the customer's contractual due date, first reminder, insolvency announcement or date the finance team finally writes off the balance. Establish the supply or tax-point date for the particular transaction, including advance payments or continuous services where relevant. Record that date and the earliest eligible claim period in a receivables register.

Example: a qualifying supply has a tax point of 10 January 2025 and the customer has paid none of the EUR 1,190 gross invoice. A claim made in February 2025 would fail the statutory waiting period, even if the customer has announced that it will not pay. At 10 January 2026 the twelve-month condition may be met, but the supplier still needs the VAT-payment, write-off, collection and other conditions. Moving the due date forward or backward does not by itself move the statutory transaction date. A reviewer should confirm the dates from the invoice, contract, ledger and VAT return.

Do not confuse a twelve-month condition with a rule that the claim must be filed on the anniversary. It is the minimum elapsed period stated in section 27; the applicable regulations and return process determine how a claim is made. A late claim can raise record, return or limitation questions, so finance should not leave eligible debts unreviewed indefinitely. Keep a periodic aged-debt report with columns for tax point, due date, collection actions, write-off date and claim date. This prevents the common error of booking a tax credit as soon as an invoice is ninety days overdue.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ

Record an actual bad-debt write-off, not just a provision

Section 27(1)(b) requires all or part of the consideration to have been written off in the person's accounting books as a bad debt. A note that collection is doubtful, an aged-debt flag or a general provision is not the same as a traceable write-off of the particular receivable. The Tax Department's current FAQ also distinguishes a direct write-off in the profit-and-loss record from a mere provision for bad debts. Ask the accountant to identify the journal entry, customer account and amount written off, and retain the approval explaining the decision.

A write-off should not silently erase the customer relationship or evidence of the original sale. Keep the receivable history, invoice, payments, collection log and journal trail. If only part of an invoice is unlikely to be recovered, identify exactly which amount has been written off and how earlier payments have been allocated. An accounting estimate applied to a portfolio cannot by itself tell the Tax Department which supply and VAT amount support this claim. For a related-party balance or long-standing commercial dispute, document why the write-off is genuine and the steps the business still considers proportionate to collect.

The timing of the write-off should be coordinated with the VAT return in which relief is claimed. The official FAQ describes a bad-debt account and recording the related amount in box 4 of the return for the period in which the amounts are entered there. Verify the current Tax For All form and instructions for the reporting period before submission; software labels can change. Keep a reconciliation from the bad-debt ledger to the VAT return and to the general ledger, signed by a reviewer who did not create the original invoice.

For the original invoice data that the claim must trace, consult the Cyprus VAT invoice checklist.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ

Keep evidence of collection steps appropriate to the debt

Section 27(1)(c) requires the supplier to have taken steps necessary in the circumstances to collect the consideration. That wording does not say every small invoice needs court proceedings, nor does it permit a claimant to do nothing. Save reminders, statements, calls, negotiated payment plans, demand letters and information about insolvency or ceased trading. Assess what was proportionate to the debt and likely recovery. For a major customer balance, more formal steps may be reasonable than for a small, clearly unrecoverable amount. Record the decision at the time rather than inventing a collection history after an audit notice.

A payment dispute is different from a debtor with no funds. If the customer claims the goods were defective, collect delivery, acceptance and defect correspondence and consider whether the invoiced consideration remains due. If a credit, return or contract variation has actually reduced the price, route that change through the proper adjustment process instead. If the claim remains valid, keep pursuing it where sensible; claiming VAT relief does not itself waive the commercial debt. The tax file should explain why the balance is unpaid and what remains recoverable under the contract.

Do not use aggressive collection actions simply to manufacture a relief record. The relevant test is what was necessary under the circumstances, not the number of threatening letters. Assess costs, debtor location, limitation risk and whether a settlement is realistic. If legal enforcement is contemplated, the commercial claim and interest calculation should be reviewed separately. Maintain one timeline so a tax reviewer can see the progression from supply, invoice and reminders to write-off and claim without confusing tax relief with a judgment for payment.

For the separate debt-enforcement analysis, see late B2B invoice recovery.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ

Calculate relief on the unpaid portion at the original VAT rate

Section 27(3) defines the amount owed by reference to the consideration written off and payments received. If no part of the written-off consideration has been paid, the amount is that written-off consideration; where payments have been made, the amount is reduced by their total, subject to the detailed rules that may apply. The relief is VAT attributable to that outstanding qualifying amount, not the entire gross receivable or a second deduction for the underlying net sale. Reconcile all receipts and credits before calculating the tax. Do not treat a customer deposit as if it never arrived.

Illustration: a single supply was invoiced at EUR 1,000 net plus EUR 190 VAT, making EUR 1,190 gross. The supplier accounted for and paid EUR 190 VAT. The customer later pays EUR 595 gross, and the remaining EUR 595 is directly written off after the statutory conditions are met. On a straightforward proportional allocation at the original 19% rate, the unpaid gross amount contains EUR 95 VAT. That EUR 95 is the illustrative VAT relief, not EUR 190 and not EUR 595. A mixed-rate invoice or specific payment allocation requires a transaction-level calculation rather than the simple fraction.

Section 27 and the implementing regulations also address partial payments and mutual debts. If the parties offset balances, receive a settlement or apply receipts to several invoices, determine exactly which consideration remains unpaid before claiming. Preserve a spreadsheet that starts with each invoice line's net, tax and gross amounts, then shows receipts, credits, write-off, VAT originally remitted and relief sought. A second reviewer should reproduce the number. The exact return entry and any customer input-tax adjustment must reconcile to that same figure.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ

Notify a VAT-registered customer and anticipate its input-tax correction

Section 27(5) says that when VAT is returned to a supplier and the same tax has been included in another person's input tax, that other person is treated from the time of the supplier's claim as not entitled to the related input-tax deduction. This prevents the supplier from recovering output VAT while the buyer keeps an input credit on the same unpaid consideration. The supplier needs to know whether the customer is a taxable person and maintain evidence of the notice process. The customer's separate correction should not be hidden in a routine credit note if the sale itself remains valid.

The Tax Department FAQ says that when the buyer is a taxable person, the claimant must notify that buyer in writing within seven days of submitting the claim, with information required by Regulation 92. Prepare the notification from the claim file and check its current required fields before sending. Retain proof of delivery. A customer that receives such a notice should reconcile the invoice, unpaid balance and prior input-tax claim promptly; it should not wait for the supplier's annual accounts to be finalised. The parties may disagree commercially about the debt while still needing to handle tax positions correctly.

Do not send a generic 'you owe us VAT' message that misstates the debt or implies the supplier's claim has settled the dispute. State the transaction, invoice, amount written off and relief claimed as required by current guidance, and keep commercial collection correspondence distinct. If the buyer is not VAT registered or did not deduct input tax, that factual difference should be documented rather than assumed. For a cross-border customer, check which VAT system governed the original supply before applying the domestic claim process.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ

Reverse the relevant relief if money is recovered later

A bad-debt claim is not a permanent windfall if the customer pays later. Section 27(6) allows regulations requiring repayment of all or a proportional part of relief when subsequent payment arrives. The Tax Department FAQ directs suppliers to make the corresponding VAT correction when any written-off amount is recovered, using the rate that applied to the original transaction. Design the receivables system so an old bad-debt claim is visible when cash is posted. Otherwise a later settlement can be recorded as miscellaneous income while the related VAT adjustment is missed.

Take the earlier example: after claiming EUR 95 relief on an unpaid EUR 595 gross balance, the supplier recovers EUR 238 gross from the customer. If that payment is attributable to the same original 19%-rated supply, the tax component is EUR 38 on a straightforward allocation. Review the actual regulatory calculation and reporting period, then repay the appropriate relief. The unrecovered balance and remaining relief must be adjusted consistently. A settlement with a discount, offset or several invoices needs a transaction-by-transaction analysis rather than multiplying an undifferentiated bank receipt by a tax rate.

Keep the payment advice, allocation decision, return correction and buyer correspondence with the original claim file. The supplier's recovery may also affect the buyer's input-tax position. If the debtor enters a payment plan, set a trigger for every instalment rather than waiting for the plan to complete. Where a partial payment preceded the relief claim, it should have been included in the original section 27(3) calculation; where it follows, it can require a later reversal. Date and allocation matter as much as the gross amount.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ

Submit a traceable return claim and retain the evidence

Create one file per debtor or invoice group with the contract, invoice, supply and VAT evidence, original output-tax return, payment ledger, collection actions, write-off journal, twelve-month calculation, relief arithmetic, return workpaper and any buyer notice. Section 27(6) permits regulations to set claim form, timing, records and retention requirements. The Tax Department FAQ describes the box 4 return treatment and a bad-debt account; it also refers to four years' retention of relevant documents from the claim date under Regulation 95(1), unless otherwise permitted. Verify current reporting guidance and preserve records for any longer applicable duty.

Use a control to prevent duplicate relief. An invoice may be partly credited, partly written off and later settled. Match each claim to its invoice and tax-point identifier, and flag subsequent receipts automatically. If the original output VAT was never paid, stop: section 27(1)(a) is not met. If only a provision was booked, stop: the write-off condition needs attention. If collection steps cannot be evidenced, document the gap before claiming. If twelve months have not elapsed from the correct transaction date, diarise a future review instead of backdating the claim.

Before filing, ask an independent reviewer to check law and current Tax Department instructions, because return fields, portal processes and implementing guidance can change. Record the applicable tax period, sign-off and any clarification requested from the Department. After submission, reconcile the relief to the VAT account, the debtor ledger and any future recovery. A successful claim should leave an auditable story: the supplier paid tax on a real supply, did not collect the corresponding consideration, met each statutory condition, claimed only the correct VAT and will adjust if the money later arrives.

For the regular return framework, see Cyprus VAT return filing; the bad-debt claim still needs its own section 27 workpaper.

Basis and guidance: Cyprus VAT Law 95(I)/2000, section 27 on bad debts; Cyprus Tax Department: Bad Debt Relief FAQ; Council Directive 2006/112/EC, Article 90 on reductions of the taxable amount

Primary sources and scope

Sources checked: October 8, 2026. This guide concerns the Republic of Cyprus. Examples are hypothetical, not client case studies. Check current official requirements before making a filing.

• Cyprus VAT Law 95(I)/2000, section 27 on bad debts
• Cyprus Tax Department: Bad Debt Relief FAQ
• Council Directive 2006/112/EC, Article 90 on reductions of the taxable amount