VAT in Republic of Ireland

Thresholds for Registration

In broad terms, under Irish law, a trader must register:

• Where he supplies goods in Ireland and the expected supplies in the first 12 months of trading exceeds €75,000
• The threshold for a supplier of services in Ireland is €37,500
• A foreign trader making supplies in Ireland must register for all such supplies – no threshold applies
• A foreign trader making supplies to Irish customers from abroad (e.g. over phone/internet) must register for Irish VAT when the value of the sales exceeds €35,000 – ‘distance selling’

Irish VAT rates

Operating within the EU Directive ranges, the Irish VAT rates are as follows:

• 21.5% standard ‘default’ rate:
  • Luxury items, rental of real estate
• 13.5% rate:
  • Sale of real estate, construction, fuel, vets, agricultural, art & antiques, entertainment
• 0% rate:
  • Medical equipment, basic food & drink excl. luxury items, children’s clothes & shServicesoes to age 10
• Exempt:4.8% rate:
  • Financial services, insurance, medical, dental, education, cultural
• Livestock, live greyhounds, hire of horses

Application of Rates
Mixed supplies for one consideration – what is the appropriate VAT rate ?

• Prior to 2006, the ‘package rule’ applied whereby the highest rate of VAT on any individual element applied to the entire supply.
• Since 2006, the rules have changed and we must review which of the following definitions/rules apply:
  • Multiple supply: can be separated from other elements but are supplied together – each element subject to its own VAT rate e.g. sale of food hampers/baskets.
  • Ancillary supply: cannot be separated from the principal supply and is secondary in importance – the VAT rate applicable to the principal supply will arise on all elements e.g. MP3 player with instruction booklet.

Practicalities of Registration & Compliance

• Registration typically takes about 2 weeks
• Application to relevant District in which trader will be located – otherwise, application goes to a central processing unit in Dublin District  (foreign traders)
• VAT returns may be filed on any of the following basis:Paper filing deadlines – 19th of month following the end of the VAT period
  • Bimonthly, quarterly, half-yearly, yearly
  • Typically, bimonthly until the first 12 months of trading has passed – the District may then decide that the returns can be filed less frequently
• Online filing deadlines – 23rd of month following
• Payment – with submission of return/monthly direct debit and balancing payment at year-end

Place of Supply rules – Goods

• Basic rule for goods which are transported – place from where transport begins
• Where goods are not being transported – location of goods at time of supply
• For goods requiring installation/assembly – place where the installation/assembly takes place
• ‘Distance selling’ to customers outside of trader location – location of customers
• Supply of goods to EU registered trader (Intra Community Supply) – trader charges VAT at 0% rate and purchaser self-charges VAT at the VAT rate applicable to that supply in his country

Place of Supply rules –

• Basic rule – place where supplier is located
• Services connected with real estate – place where real estate is located
• Work on movable goods or cultural/artistic/sport/entertainment services – place where physically performed
• Fourth Schedule services, e.g. professional, consultants, etc. – Where the customer is VAT registered, the place where the services are received (i.e. the customer self-charges) – Where the customer is not VAT registered, the location of the supplier
• E-commerce, i.e. supply of goods/services electronically – these are all treated as Fourth Schedule services
  • Non-EU traders can opt to register in one EU state for all supplies into all EU states so they are obliged to deal with one VAT authority only (2006)

VAT Inputs/Refunds

• General rule:Difficulties where a trader is incurring costs but has not yet commenced trading.
  • VAT on costs directly related to the VATable supplies being made by the trader are deductible by the trader. Traders engaging in exempt supplies may not recover VAT. Traders involved in a mix of VATable/exempt supplies will be entitled to a percentage of VAT deduction. This percentage must have regard to the trader’s total activities and must be agreed with the Revenue
• Trader should be entitled to register as soon as its clear that he will become an ‘accountable person,’ i.e. he intends to trade – Revenue will look for objective evidence of intention to trade, e.g. contracts, business plans, actively searching for premises/staff/customers, etc.
• ECJ cases (e.g. Rompleman and Gabalfrisa)

VAT Inputs/Refunds
Traders without Irish VAT registration who suffer Irish VAT on purchases of goods/services:

• Refund claim under Thirteenth Directive (non-EU businesses)
  • Proof from trader’s country that he is engaged in carrying on an ‘economic activity’
• Refund claim under Eighth Directive (EU businesses)Claim must be filed within 6 months of the calendar year in which the VAT was chargeable
  • Proof from trader’s country that he is subject to VAT in that country
• Time –consuming !
• Where a non-Irish established EU trader receives services regularly from an Irish business which is correctly charging Irish VAT, the trader may apply for the VAT60A authorisation procedure. This authorises the Irish trader to supply the services at the 0% VAT rate.

Registration of Foreign Trader in Ireland

• A ‘foreign trader’ is one which is not established in Ireland and is selling to Irish customers from abroad.
• If ‘distance selling’ – the €35,000 threshold applies.
• In any other circumstance, no threshold applies and registration is automatically required.
• Practicalities – Revenue will require evidence of trading, e.g.
  • Customer contract
  • Details of contract to be performed
  • Identity of customer, location of supplies

Foreign Business in Ireland

• Foreign business establishing in Ireland, through Irish company, branch or sole trade, and looking for Irish VAT registration by reference to a supply within the State of taxable goods or services.
• Difficulty with Irish company, branch or sole trade which is largely managed from abroad. The ‘virtual office’ (‘name on the door’) is not sufficient and the business must demonstrate substance in Ireland, e.g. office space, books & records in Ireland, Irish bank account, employees (?), etc.
• The relevant ECJ cases in this area talk about demonstrating sufficient ‘human and technical resources’ to carry out the business in Ireland.
• (Test of establishment for VAT purposes not as stringent as that for 12.5% corporation tax purposes. Irish 12.5% corporation tax rate applies only where the company is regarded as ‘trading in Ireland’ otherwise the 25% corporation tax rate applies.)

Purchase of Real Estate

• General rule:If the sale is not subject to VAT, it is still possible to charge VAT on the sale if both the landlord and the tenant agree to exercise the ‘option to tax’
  • Sale of real estate is subject to VAT if the real estate is regarded as ‘new’
  • ‘New’ is defined as:
    • Developed/redeveloped within the previous 5 years
    • However, if this is the second sale of the real estate and the real estate has been occupied for at least 2 years after the first sale, then the real estate will not be regarded as ‘new.’
  • Where VAT applies, the appropriate rate is 13.5%
• ‘Option to tax’ may cause difficulties in negotiating the transaction

Letting of Real Estate

• General rule:However, it is still possible to charge VAT where the landlord, at his discretion, exercises his ‘option to tax’ – the tenant’s permission is not required
  • A lease of any length/duration is exempt from VAT
• Where the landlord exercises his ‘option to’ tax and the lease is VATable, then the VAT charge will be 21.5% on the rental payments as they arise
• ‘Option to tax’ may cause difficulties in negotiating the transaction

Capital Goods Scheme – CGS

• General concept:
  • The ‘VAT life’ of newly developed real estate is 20 years long.
  • In general, where a VAT registered trader or real estate purchaser has reclaimed VAT on purchase/development of asset, than he must charge VAT on the next supply of that asset. If not, he will have to refund all/portion of the VAT he has reclaimed.
• Application to sale of real estate:
  • Vendor has reclaimed VAT on purchase – 5 years has elapsed so the property is no longer regarded as ‘new’ so the sale is not subject to VAT. If the vendor does not exercise ‘option to tax,’ under the CGS, he must refund anything up to 15/20 of his VAT reclaim when he purchased.
• Application to lease of real estate:
  • Vendor has reclaimed VAT on purchase – lets the property, which is a VAT exempt activity. If the vendor does not exercise the ‘option to tax,’ under the CGS, he must refund 1/20 of the VAT reclaim for every year of exempt use.

Capital Goods Scheme (CGS)

• Where the sale of real estate or letting of real estate is subject to VAT, will the purchaser/tenant be entitled to reclaim the VAT on purchase/letting ?
  • If the purchaser/tenant is using the real estate for generating VATable supplies, than he may reclaim all VAT arising.
  • Where the property is being used to generate exempt supplies, no VAT may be reclaimed.
  • If the purchaser/tenant carries out a mix of VATable/exempt supplies, than partial recovery may be available.

Change of Real Estate regime

• New regime took effect from 1 July 2008 – this brings us more in line with the EU Sixth Directive
• Irish system completely different before that time
• In relation to certain types of transactions, a ‘transitional system’ is in place and covers:Quite complex issues – ask the experts !!
  • Property developed/redeveloped before 1 July 2008 and first sold or let after 1 July 2008
  • Long leases (i.e. leases of 10 years length or more) which commenced before 1 July 2008 and are now being assigned to a new tenant.