VAT in Ireland

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VAT stands for VALUE ADDED TAX and it is due on every exchange made within the production and distribution chain. VAT applies to the supply of goods and services and rules vary depending on where the place of supply is and if your customer is VAT registered or not.

There are 6 rate categories of VAT in Ireland, 21%, 13.50%, 9%, 0% and exempt, and outside the scope of VAT. It is important to establish which rate of VAT applies to your good or service because you are responsible for collecting the correct amount of VAT as the supplier.

 

All businesses in Ireland are obliged to register for VAT in Ireland if their annual turnover exceeds  certain limits in a 12 month period:

• €37,500 in the case of persons supplying services only

• €75,000 for persons supplying goods

• €35,000 for taxable persons making mail-order or distance sales into the State

• €41,000 for persons making acquisitions from other European Union Member States.

• €75,000 for persons supplying both goods and services where 90% or more of the turnover is from the supplies of goods. However, while all goods and services are part of the turnover, the 90% does not necessarily include all goods sold.

      The 90% figure does not include goods which you:

      sold at the standard or reduced rates

       and

      manufactured or produced from zero rated materials.

• A person, while not established in the state, needs to register and account for VAT if that person supplies:

      taxable goods to ‘taxable customers’ in the State

      or

      services to ‘taxable customers’ in the State.

This applies irrespective of the level of turnover.

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How to account for VAT?

You can account for VAT on the Invoice or Cash receipts basis. Invoice basis of VAT, ensures that you include VAT on all invoices issued and received based on the date of the invoice. You are obliged to pay the sales VAT on your invoice regardless of whether you have been paid.

The Cash receipts basis of VAT allows you to only pay sales VAT once you have been paid by your customer.

You may apply to account for Value-Added Tax (VAT) in this way if you meet one of these conditions:

 

A VAT-registered person whose turnover does not exceed or is not likely to exceed €2,000,000 in any continuous period of 12 months.

A VAT-registered person whose supplies are almost exclusively (at least 90%) made to customers who are not registered for VAT, or not entitled to claim a full deduction of VAT.

You may apply to account for Value-Added Tax (VAT) in this way if you meet one of these conditions:

• A VAT-registered person whose turnover does not exceed or is not likely to exceed €2  million in any continuous period of 12 months.

• A VAT-registered person whose supplies are almost exclusively (at least 90%) made to customers who are not registered for VAT, or not entitled to claim a full deduction of VAT.

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Businesses can recover VAT relating to their business expenses, subject to some exceptions such a food, petrol, accommodation. The rate of VAT recovery depends on the level of taxable supplies you make and your rate of VAT.

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Cross Border Trade

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There is a common set of rules for VAT set out in EU law but each country can adapt these to its own needs. EU Countries can apply their own VAT rates above a minimum threshold to different groups of goods and services, this causes distortion of competition between different member states, so rules have evolved to harmonise VAT, so that inter-country trade is on a level playing field.

The current EU model for paying VAT on cross-border activities is that VAT arises on the good or service in the country where it is consumed. Goods or services purchased  and consumed in Irelandwould be subject to Irish VAT rates and likewise in other countries.

The VAT impact of intra-Community supplies of goods and services can become complicated when supplies are warehoused, transported, processed, installed or assembled, bought and resold between various member states, as each tax point becomes difficult to identify in a moving maze of transactions. EU VAT law simplification measures have not proved sufficient to cope with the practical VAT complexities of EU trading. 

By their very nature, cross border transactions expose a business to VAT in multiple jurisdictions. Since typically the rules are somewhat different on a per country basis, cross border transactions may trigger complex compliance obligations for businesses. Moreover, in absence of proper VAT planning for international activities, serious risks may arise in terms of cash flow costs, and forfeitment of VAT incurred on business procurement. Moreover, the VAT itself may become a direct business cost as the result of mistakes and omissions. Many issues need careful consideration when a business is involved in cross-border trade. Such as the qualification of the supply; tax jurisdiction; registration; applicable rate; administrative, bookkeeping and statistical information requirements; cash flow costs reduction; and deferment opportunities to mention a few.

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If you need VAT advice on Irish or international business transactions, please do get in touch. Email:  INFO@TAXTALK.IE