Value Added Tax (VAT) is a tax that is paid on most goods and services at every stage of production and distribution. As a business owner, you may need to register for VAT and therefore charge VAT on your goods/services.
When to register for VAT?
- Turnover threshold. The two main sale thresholds for VAT are €37,500 for the sale of services and €75,000 for the sale of goods.
- In receipt of goods from the other EU Member States over the value of €41,000, also known as Intra-Community Acquisitions (ICA)
- In receipt of services from outside of Ireland. There is no threshold for VAT. If you receive services from outside Ireland, and the place of supply of the service is in Ireland, your business may need to register for VAT in order to account for VAT on that supply.
Should the nature of your business go over the designated threshold, then there will be a legal requirement to register for VAT.
Domestic or Intra-EU VAT registration
- Domestic VAT registration: if you do not intend to trade with businesses elsewhere in the EU, you should apply for ‘domestic only’ status.
- Intra-EU VAT registration: if you intend to trade with businesses elsewhere in the European Union (EU), you should apply for ‘Intra-EU’ status.
Invoice or Cash basis registration
There are 2 main types of registrations a company can apply for.
- Invoice basis for accounting: a trader accounts for VAT when they issue the invoice to the customer. This is irrelevant of whether they receive payment from the customer at this time or not.
- Cash (money received) basis of accounting: a trader accounts for VAT when payment is actually received from the customer.
Here are current VAT rates in Ireland:
- 23% (Reduced to 21%) is the standard rate of VAT.
A temporary reduction to the standard rate of VAT is in place from September 1st 2020 until the end of February 2021.
All goods and services that do not fall into the reduced rate categories are charged at this rate.
- 5% is the reduced rate of VAT.
This rate covers tourism-related activities including restaurants, hotels, cinemas, and hairdressing. Building services and photography also fit into the bracket for this rate.
The VAT rate for the tourism and hospitality sector will be reduced from 13.5% to 9%. This was announced in Budget 2021. The reduced rate will be in place until December 2021. The 9% VAT rate will apply to: – catering and restaurant services, tourist accommodation, cinemas, theatres, museums, historic houses, open farms, amusement parks, certain printed matter, and hairdressing.
- 9% is a second reduced rate of VAT.
It is a special rate for newspapers and sporting facilities. This also includes e-books and electronically supplied newspapers.
- 8% is the livestock rate of VAT.
Special rate for agriculture. It applies to livestock (excluding chickens), greyhounds and the hire of horses.
On all exports, tea, coffee, milk, bread, books, children’s clothes and children’s shoes, oral medicine for humans and animal. Please note, providers charge a 0% VAT rate and are entitled to claim VAT on their purchases.
There is no VAT on certain financial, medical or educational providers.
How to charge VAT
Selling goods to private consumers in Ireland and other EU countries: Usually VAT charged on top of your usual sale price. Your customer pays the VAT to you and you are responsible for reporting and paying this VAT to Revenue.
If you are selling goods to private consumers in the other EU Member States, you must register for VAT if you exceed the VAT distance selling thresholds in that Member State.
Selling goods to other businesses in Ireland and other EU countries: If you sell goods to other businesses in Ireland, you must charge VAT and account for it in your VAT Return to Revenue. All the VAT you charge must be paid over to Revenue in a VAT Return – usually every two months (bi-monthly).
Selling goods to businesses within the EU is also called “Intra-Community Supply (ICS)”. If your business customers have a VAT number, you can apply a zero-rate (0% VAT) on that supply. To apply zero-rate the following conditions must be met:
- The business customer is VAT registered in a different EU Member State
- You have your business customers’ VAT number (including country prefix)
- Your VAT number and the business customers’ VAT number is visible on the sales invoice
- The goods are being dispatched or transported to another EU Member State; and
- The correct VIES Returns are made (an Intrastat Return may also be required depending on the volume of sales). VIES (VAT Information Exchange System) is an EU system that allows a supplier to apply 0% to the supply of goods.
Selling goods to private consumers outside the EU: you do not charge VAT.
Selling goods to businesses outside the EU: you do not charge VAT.
There is no VIES system for non-EU businesses. It is your responsibility to ensure that there is enough evidence to prove that your customer is established outside the EU and is a business. You also need proof that the export has taken place.
Selling services to private consumers in Ireland and other EU countries: in this case the place of supply is (generally) the place where the supplier is established. This means that you will account for VAT on any services that are being sold to private consumers in Ireland and other EU member states. The consumer will pay the VAT over to you and you will then account for this VAT and pay the VAT charge to Revenue.
If you supply telecommunications, broadcasting and e-services to private consumers, the place of supply is where the consumer resides. Instead of having to register, charge and account for VAT in each EU Member State there is a system called VAT MOSS.
Selling services to other businesses in Ireland and other EU countries: if you supply services to other businesses in the EU, the reverse charge will normally apply and therefore the recipient will account for the VAT on the purchase in their VAT return. The aim of the reverse charge is to have VAT applied in the Member State of consumption (where the customer is based) rather than the Member State of the supplier.
Selling services to private consumers outside the EU: you do not charge VAT, but you need to provide a proof that the customer is based outside of the EU.
Selling services to other businesses outside the EU: you do not charge VAT, but you need to prove that your customer is a taxable person.
Reverse VAT charge: this charge applies if you are receiving services from EU or non-EU countries. You are responsible to account for VAT in your Irish VAT return at the appropriate rate of VAT in Ireland. You will treat it as if you made the supply to yourself and charge yourself the VAT on the supply. This VAT is then owed to Revenue.
In VAT there are many exceptions to the rules, so please get in touch to a professional to determine and understand your personal situation. We will be happy to assist you all the way along from VAT registration to submitting your VAT returns.
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