Indirect tax snapshot
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Value Added Tax (VAT) is the main type of indirect taxation in Ireland and in other European Union (EU) countries.
VAT is a tax on consumer spending. It is collected by VAT- registered traders on their supplies of goods and services affected within the state, for consideration, to their customers. Generally, each such trader in the chain of supply from manufacturer through to retailer charges VAT on his/her sales and is entitled to deduct from this amount the VAT paid on his/ her purchases.
A business registered for the tax will charge VAT (output tax) on its sales, and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.
A transaction is within the scope of Irish VAT if the following conditions are met:
- it is a supply of goods or Although the term ‘supply’ is not defined in the legislation, it has a broad interpretation.
- it takes place in Ireland
- it is made by a taxable For these purposes, a taxable person is a person or entity who is registered for VAT in Ireland, or has a liability to become registered
- it is made in the course or furtherance of any business carried on by that person or entity.
There are five rates of VAT that are applied to goods and services in Ireland; the standard rate (23%), the reduced rate (13.5%), the second reduced rate (9%), the rate for livestock (4.8%) and the zero rate. In addition, some goods and services are exempt from VAT.
Businesses that make exempt supplies are unable to claim all of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.
Most goods imported into Ireland from outside the EU are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).
It is also important to note the interaction between VAT and customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it. Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer. It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices.
It is therefore very important to ensure that the correct rate of duty is applied. VAT is charged on the value of the importation, including any custom duty.
Since June 2019 Ireland has offered a Two-Tier VAT registration system. Business must specify if they wish to apply for a ‘domestic only’ or ‘intra-EU’ VAT registration.
If a business does not intend to trade with businesses in other EU Member States, they should opt to register for VAT at a domestic only basis. Domestic VAT status is sufficient to trade within the State and to trade with non-EU countries.
If a business intents to trade with businesses in other EU Member States, they should opt to register for intra-EU VAT. This will ensure that the business can make intra-Community acquisitions. In order to register for an intra-EU status, the business must provide Revenue with the following:
- the customer type
- the due diligence measures and checks conducted for current and future suppliers in the EU
- details on how goods are supplies outside the State
- an estimate of the businesses annual and quarterly supply of goods/services
A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of business must register for VAT if the value of its taxable supplies in Ireland exceeds the annual registration limits, or is expected to exceed the annul limits in the near future.
A business must register for VAT as follows:
- the general turnover threshold for the supply of goods is €75,000; however persons supplying goods liable at the reduced or standard rates which they have manufactured or produced from zero-rated materials must register if their turnover is €37,500 or more
- the general turnover threshold for the supply of services is €37,500; however for persons supplying both goods and services where 90% or more of the turnover is derived from supplies of goods (other than of the kind referred to in the above paragraph) then the threshold for goods applies
- intra-community acquisitions of goods for business purposes by a person in the Member State exceed €41,000
- distance sales of goods by a foreign trader to non-registered customers in Ireland exceed €35,000
- persons not established in the Member State but supplying goods and services here must register regardless of the level of turnover
- persons receiving services from abroad for business purposes in Ireland must register regardless of the level of turnover
For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all of their business activities will be covered by the registration – even if the natures of some of those activities are very different.
A penalty may be imposed by the tax authority if a business fails to register at the correct time.
Businesses that are not established in Ireland cannot avail of the normal VAT registration thresholds. As soon as these businesses commence trading, they will need to register for VAT in Ireland, irrespective of the level of turnover.
Where a non-established EU based business is involved with distance selling, registration for VAT in Ireland may also be required. Distance selling occurs when a taxable supplier in one EU country supplies and delivers goods to a customer in another EU country who is not registered or liable to be registered for VAT. Such customers are known as non-taxable persons, and include private individuals and businesses and other organisations that are not registered for VAT (either because of their size, or the fact that they are exempt from having to register due to the nature of their activities). The common examples of distance sales are goods supplied by mail order and via the internet.
Each EU country has the option of applying a distance selling threshold of either €35,000 or €100,000 per calendar year, or the equivalent in its own currency. Ireland has adopted the minimum annual threshold of €35,000.
Distance sales from another EU country to non-taxable persons in Ireland will be subject to VAT at the appropriate rate in the supplier’s country. However, once the value of those distance sales to Ireland exceeds the €35,000 threshold:
- the supplier becomes liable to register for VAT in Ireland
- Ireland becomes the place of supply
- any further sales to customers in Ireland are subject to Irish VAT at the appropriate rate.
Suppliers can choose to register for VAT voluntarily in Ireland before the threshold is reached.
With effect 1 January, 2015, Article 58 of Directive 2006/112/ EC was amended. The rules determining the place of supply of electronically supplied services supplied to private consumers (B2C) changed from the Member State where the supplier belongs (ie where established) to the Member State of the consumer.
The result of this is that local VAT is chargeable at the applicable rate in each of the Member States in which electronically supplied services are made (ie where the customer belongs). To ensure compliance with this, suppliers have the choice to either register for VAT in each Member State where their customers reside, or elect to register under the EU VAT MOSS (‘VAT Mini One Stop Shop’) simplification scheme in a single Member State (where they are established).
Businesses with multiple establishments in the EU can choose which Member State to operate MOSS (the Member State of Identification). However, the MOSS cannot be used to report local sales to customers in a Member State in which suppliers of electronically supplied services have a fixed establishment. Non-EU suppliers without an establishment in a Member State are free to select a Member State of their choosing to operate MOSS and become their Member State of Identification.
It is not necessary to appoint a VAT representative to act on behalf of a non-established business for VAT purposes but an option to do so is available.
Most businesses are required to submit VAT returns on a bi-monthly basis. However, the Irish Revenue may agree that returns can be submitted on a 4 monthly, 6 monthly or annual basis if the level of VAT payment is low. Businesses that are in a constant repayment position (because of the nature of their activities) can apply to submit returns on a monthly basis to improve cash flow.
All VAT returns have to be submitted by the 23rd of the following Month (e.g. the return for the January/February period must be filed by 23 March) together with payment of any tax due. All returns and payments have to be submitted electronically.
A penalty may be imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date. In practice, interest is generally charged (rather than a penalty).
Traders who sell goods or supply services to VAT registered traders in other EU Member States must complete VIES returns (on a monthly or quarterly basis) and submit them electronically. There are no minimum thresholds involved and all such supplies must be reported.
Traders that acquire goods from other EU member states exceeding €500,000 annually and/or dispatch goods to other EU Member States exceeding €635,000 annually must complete the detailed monthly Intrastat return. In addition, all traders involved with intra EU transactions must complete boxes E1 and E2 (goods) and boxes ES1 and ES2 (services) on their VAT 3 returns.
Annual Return of Trading Details (ARTD)
All VAT registered traders are required to submit a VAT Return of Trader Details (RTD) on an annual basis, following the end of the annual VAT accounting period. The ARTD is a statistical return showing the value of sales and purchases analysed between the various VAT rates. Since 2014, the Irish Revenue will withhold tax refunds and tax clearance certificates if the ARTDs have not been submitted.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Civil penalties and interest can be applied for errors and omissions made on tax returns (particularly when returns are being audited by the revenue commissioners, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or make repeated mistakes.
Criminal proceedings may be brought in the case of more serious matters.
Yes, it may be possible to reclaim the VAT incurred in certain circumstances.
Two schemes exist, one for businesses established in the EU, called European VAT Refund (EVR) and another for businesses established outside the EU (13th directive claims).
The EU cross border refund scheme (EVR) is available in all EU Member States, and enables a business established in an EU country to recover VAT incurred in another Member State. To be eligible to make a claim, the claimant must be a taxable person established in an EU Member State other than the one from which the claim is to be sought. In addition, the claimant:
- must not be registered or liable, or eligible to be registered in the Member State from which he is claiming the refund
- must have no fixed establishment, seat of economic activity, place of business or other residence there
- during the refund period he must not have supplied any goods or services in the Member State of refund, apart from certain limited exceptions.
The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically by the claimant to the tax authority in the claimant’s own country the tax authority transmits the claim to the VAT authority of the country from whom the repayment is being sought.
The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT was incurred.
A person who is engaged in business outside the EU (and who is not engaged in business in Ireland) may claim repayment of Irish VAT on most business purchases in Ireland using a 13th directive claim. Currently, the main conditions governing repayment are:
- where the claimant is carrying on business outside of the European Union s/he must provide written proof of economic activity issued by the competent authority of his/her own State
- the goods/services giving rise to the claim must be goods/ services in respect of which tax would be deductible if the claimant’s business was carried on in Ireland, and must not include goods for supply within the State or motor vehicles for hiring out for utilisation within the State
- the business for which the goods/services were purchased must be a business which would be taxable if carried on in Ireland
- the original supplier invoices must be submitted with the claim form
- the claim must be submitted by 30 June of the following year.
A VAT invoice must show:
- the invoice date
- an invoice number which is unique and sequential
- the seller’s name and address
- the seller’s VAT registration number
- the time of supply (also known as tax point) if this is different from the invoice date
- the customer’s name and address
- if the supply relates to a supply to a person registered for VAT in another EU Member State, the VAT identification number of the person to whom the supply was made and an indication that a reverse charge applies
- a description sufficient to identify the goods or services supplied to the customer
- any discounts or price reductions not included in the unit price
- the total amount of VAT charged expressed in Euro.
For each different type of item listed on the invoice, the following must be shown:
- the unit price or rate, excluding VAT
- the quantity of goods or the extent of the services
- the rate of VAT that applies to what’s being sold
- the total amount payable, excluding VAT.
Simplified invoices may be issued where the total value of the sale is €100 or less.
VAT invoices can be issued, received and stored in electronic format and there is no need to tell the tax authority. Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.
No, there are currently no similar electronic filing requirements in Ireland.
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