Cyprus Clarifies VAT Treatment of Medical Services Under Circular 4/2026

Cyprus has clarified how VAT applies to medical and related services through Circular 4/2026. The guidance explains when healthcare is VAT-exempt, when the reduced 5% rate applies, and when services are subject to normal VAT treatment.

The Cyprus Tax Department issued Circular 4/2026 on 26 August 2026, providing updated guidance on the VAT treatment of medical care and related services under Cyprus VAT legislation. The Circular brings together and replaces a number of earlier VAT circulars and clarifications concerning medical services.

The main principle is that VAT treatment depends on the nature, purpose and circumstances of the service. Simply being a doctor, dentist or another healthcare professional does not automatically mean that every service provided by that professional is exempt from VAT.

Healthcare providers therefore need to determine whether a service has a genuine medical purpose and whether the conditions for VAT exemption are satisfied.

Which medical services are VAT-exempt?

Under Cyprus VAT legislation, medical care may be exempt from VAT when it is provided for purposes related to human health.

The Tax Department explains that medical care includes services aimed at the prevention, diagnosis, protection, restoration, maintenance or treatment of human health. This approach is also consistent with relevant Court of Justice of the European Union case law.

The exemption covers, among other things:

•  hospital and medical care provided by public or private hospitals;
•  goods and services closely connected with hospital and medical care;
•   medical care supplied by appropriately recognized and registered healthcare professionals;
•  services provided by dentists;
•  supplies of human organs, blood and human milk; and
•  transportation of sick or injured persons by ambulance.

Medicines and other goods supplied as part of a single inpatient medical-care service may also fall within the VAT exemption.

Not every hospital-related service is exempt. An important clarification concerns services supplied in a healthcare environment. A service is not automatically exempt simply because it is provided by a hospital or while a patient is receiving treatment. To qualify as a service closely connected with medical care, it must be necessary for providing the main medical service and for achieving its therapeutic or nursing objectives.

For example, telephone services provided to patients, television rental, and beds or meals supplied to visitors or companions are not regarded as closely connected with medical treatment. These services are therefore subject to VAT under the normal rules.

On the other hand, collecting a medical sample and transferring it to a specialized laboratory for analysis may form part of the medical-care process and can qualify as a closely connected service.

A medical examination or procedure carried out to diagnose, prevent or treat illness may qualify for exemption. However, a similar service carried out for a different purpose may be taxable. This is particularly relevant for cosmetic, employment, insurance, administrative and legal services.

Cosmetic and aesthetic procedures whose main purpose is improving a person's appearance rather than treating or preventing a medical condition do not qualify for the medical-care exemption.

Examples include cellulite treatment, wrinkle reduction or removal, liposuction or lipolysis, hair transplantation and other cosmetic or aesthetic interventions involving parts of the body.

The appropriate VAT treatment must therefore be determined separately rather than assuming that such procedures are exempt because they are performed by a healthcare professional.

The same principle applies when doctors and other medical professionals provide examinations or reports that do not have a therapeutic purpose.

Examples identified by the Circular include:

•   medical examinations and reports required for recruitment or employment;
•  psychological assessments performed for recruitment or management purposes;
•  medico-legal examinations and reports;
•  DNA tests used to establish paternity or maternity;
•  certificates required for insurance, pensions, disability, compensation or driving-licence purposes; and
•  medical examinations and reports connected with liability, damages or possible medical-negligence claims.

Although these services may require medical expertise, their main purpose is not the protection, maintenance or restoration of a patient's health. They therefore fall outside the general medical-care exemption.

When does the reduced 5% VAT rate apply?

A service that does not qualify for the medical-care exemption is not necessarily subject to the standard VAT rate.

Cyprus VAT legislation provides a reduced 5% rate for certain medical, dental and thermal-treatment services that do not qualify for the medical-care exemption. The Circular confirms this treatment.

Examples can include medico-legal examinations and reports, DNA testing for paternity or maternity purposes, certain medical certificates relating to insurance, pension or disability matters, examinations connected with liability or damages claims, and psychological tests carried out for recruitment purposes.

Healthcare providers should therefore apply a two-stage assessment. First, they should determine whether the service qualifies for the medical-care exemption. If it does not, they should then check whether it qualifies for the 5% reduced VAT rate before applying the standard rate.

The Circular also provides clarification regarding physiotherapy.Where physiotherapy falls within the category subject to the reduced 5% VAT rate, the patient should have a referral or other supporting document from a doctor confirming that the treatment is required. This means that healthcare businesses providing physiotherapy should ensure that appropriate supporting documentation is available when relying on the relevant VAT treatment.

Which healthcare professionals may benefit from the exemption?

Provided that the necessary conditions are met, the VAT exemption may apply to medical care supplied by appropriately registered professionals.

The Circular covers professionals such as doctors, dentists, nurses and midwives, chiropractors, physiotherapists, clinical laboratories, dietitians or clinical dietitians and psychologists.

It also refers to other recognized medical and paramedical professions, including registered speech therapists or logopedists and occupational therapists.

Registration alone, however, is not enough. The actual service must still fall within the definition of medical care. The Tax Department specifically emphasizes that where the service does not constitute medical care, or the relevant professional requirements are not satisfied, the VAT exemption does not apply.

Implementation impact

Healthcare providers should review their service lists and determine whether each service is VAT-exempt, subject to the reduced 5% rate or taxable under the normal VAT rules.

Businesses should pay particular attention to cosmetic services, medical reports and certificates, employment and insurance examinations, psychological testing, medico-legal services and physiotherapy. Billing, accounting and POS/ERP systems should be configured so that the correct VAT treatment is applied to each type of service.

Providers should also retain appropriate supporting documentation, especially where the VAT treatment depends on the medical purpose of a service or, in the case of relevant physiotherapy services, on a doctor's referral.

The text above is based on the article published by VATupdate. Source

Nikolina Basić, Senior Legal Consultant at Fiscal Solutions

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