The principal pieces of Irish legislation governing the value added tax system are as follows:
- Value Added Tax Act 1972 (Principal Act)
- Value Added Tax (Amendment) Act 1978
- Value Added Tax Regulations
While there is some Irish case law on VAT including decisions by the Appeal Commissioners, judgments from the European Court of Justice (ECJ) take precedence and are binding on all EU Member States.
European Union Directives
The EU Council issues VAT Directives to the Member States and the Member States must modify their VAT legislation accordingly. EU law takes precedence in the event of an inconsistency.
How is VAT charged ?
Value Added Tax is chargeable on the supply of goods and services within the State by a taxable person in the course or furtherance of any business carried on by him, and on goods imported into the State from outside the EU. VAT is also chargeable on the intra-Community acquisition of goods by VAT registered persons and on the intra-Community acquisition of new means of transport such as motor vehicles, boats etc. by either a registered or unregistered person. The amount on which VAT is chargeable is the total consideration which the person supplying goods or services becomes entitled to receive. Taxable persons account for VAT on their outputs and they are allowed credit against this liability for tax borne on business purchases and other inputs as evidenced by correctly prepared VAT invoices.
Taxable persons (generally, people or corporate entities in business) must be registered with the Revenue Commissioners for VAT purposes where the amount of their annual turnover (i.e. the amount of receipts excluding VAT) from the supplies of taxable goods and services exceeds or is likely to exceed certain limits. A detailed definition of “taxable person” is included in Section 8 of the Value Added Tax Act 1972 as amended. Farmers, sea fishermen and traders whose turnover is below these limits are not generally obliged to register for VAT, but they may do so if they wish.
What are the current VAT rates ?
- Exempt : Details are set out in the First Schedule to the Principal Act. Those carrying on exempted activities cannot, with some minor exceptions, register for VAT.
- Zero Rate : Details of goods and services taxable at this rate are set out in the Second Schedule to the Principal Act.
- 4.8% Rate: This rate applies to livestock which includes live cattle, sheep, pigs, goats, deer, horses and greyhounds.
- 10% Rate: Details of goods and services taxable at this rate are set out in the Third Schedule to the Principal Act.
- 13.5% Rate: Details of goods and services taxable at this rate are set out in the Sixth and Eight Schedules to the Principal Act.
- 21% Rate: All goods and services which do not fall into the categories mentioned above are liable to VAT at this rate.
When is VAT not deductible ?
No deduction is allowed in respect of tax paid on expenditure on the following:
- The provision of food, drink, accommodation or other personal services supplied to the taxable person, his agent, or his employees.
- Entertainment expenses incurred by the taxable person, his agent or his employees.
- The acquisitions, hiring or leasing of motor vehicles other than as stock in trade or for the purposes of a business which consists in whole or part of the hiring of motor vehicles or for use in a driving school business for giving instruction.
- The purchase of petrol otherwise than as stock in trade.
- Expenditure incurred on food, drink, accommodation or other entertainment services as part of an advertising service is not deductible in the hands of the person providing that advertising service.
- Any VAT incurred by a taxable person in a transaction where the margin or auction schemes apply.
Finance Act 2006 – VAT registration thresholds
The VAT registration thresholds for small businesses were increased from €25,500 to €27,500 in the case of services and from €51,000 to €55,000 in the case of goods – effective from 1 May 2006.