VAT applies to the majority of goods and services provided by small businesses (whether sole traders, partnerships or limited companies), although below the VAT registration thresholds, there is no obligation to register for VAT.
For resident businesses, the registration threshold is EUR75,000 if goods are supplied, or EUR37,500 if only services, or a mixture of goods and services are supplied.
For non-resident business owners, a EUR35,000 threshold applies if ‘distance selling' to individuals in Ireland is taking place above that amount.
However, foreign operations with no fixed place of business in Ireland but which are supplying goods and services within the Republic must usually register for VAT purposes regardless of turnover.
There is no distinction made in terms of determining VAT liability between the different types of individual business; the type of good or service being supplied, in conjunction with the turnover threshold, are the determining factors.
The standard VAT rate is 21% (down from 21.5% prior to January 2010), with reduced rates of 13.5% applying to certain construction and hospitality industry services, gas, electricity, and newly built houses, and 4.8% to livestock.
Transport services, exports, children's clothing and certain food products are zero-rated, and education, welfare and cultural services are VAT exempted, as are financial services, and medical goods and services.
Where a principal contractor and subcontractor are within the scope of Relevant Contracts Tax (RCT), from September 2008, with regard to VAT the reverse charge mechanism will apply, meaning that the principal must account for the VAT.
As Ireland is a member of the European Union, it is subject to European VAT legislation, as defined under the Sixth VAT Directive (2006/112/EC), and therefore, VAT-registered individual businesses operating from the Republic will be subject to the VAT directive, to the degree that the Irish authorities are bound by it in putting in place standard and reduced rates within the permitted range, and setting the national rules regarding when and how VAT should be charged by registered businesses and individuals.
In addition, individuals or their businesses undertaking imports in excess of EUR191,000 per year, or exporting more than EUR635,000 in taxable goods (but not services, as they are excluded) will be obliged to make declarations for Intrastat purposes. Intrastat has been put in place to collect data on trade in goods between EU member states.
Under new rules coming into force between 2010 and 2015 (with changes relating to telecoms, broadcasting and electronic services delayed until January 1, 2015) , business to business (B2B) supplies of services will be subject to VAT in the country in which the consumer is located, rather than the supplier's country of residence, with the business consumer required to account for VAT using the reverse charge mechanism (whereby they act as both the supplier and the consumer, charging themselves the VAT where appropriate, and then claiming it back).
For business to private consumer (B2C) supplies of services, the place of taxation with regard to VAT will remain as the supplier's location.
There will, however, be certain exceptions, where the general rules do not apply, and specific rules will be in place, to reflect that the place of taxation should be where the service is consumed. Exempted areas will include: the electronic supply of services, telecommunications and broadcasting, certain catering and hospitality services, scientific and educational supplies, and cultural and sporting services and supplies.
The new rules have effectively removed the advantage of locating in an EU jurisdiction with a low VAT rate, such as Luxembourg or Madeira.
This article is an extract from Personal Business Tax Guide , dated 4th January 2011, for the latest version please click here .