VAT compliance can be a complicated process for companies and individuals to understand. Head of International Business, Henry Barrett, examines the process of VAT compliance in Ireland.
Value Added Tax, or VAT, is a tax payable on the sale of goods or services. The standard rate of VAT in Ireland is currently 23%, but some goods and services may be subject to a reduced rate, or indeed exempt from the tax.
VAT is an indirect tax, which means it is not directly levied by Revenue. Trading entities, from small sole trader to large corporates, are each responsible for determining whether the goods and services they provide are subject to the VAT regime, and also for charging and collecting VAT receipts on behalf of Revenue. There are also specific rules on how VAT is recorded and processed, for example with regards to how VAT is shown on invoices or how VAT is dealt with in the case of returns or corrections.
In addition to charging VAT on their sales, businesses need to also familiarise themselves with how to assess and claim credits for any VAT they have been charged on their own purchases.
Q. What companies are required to charge VAT?
Any trading company or sole trader who supplies taxable goods and services in Ireland can opt to register for VAT. However, registration is compulsory if the value of goods and services exceeds certain thresholds calculated over a 12-month period.
The main relevant thresholds are €37,500 with respect to the supply of services, €75,000 with regards to the supply of goods and €41,000 for acquisitions from other EU member states.
Trading companies or sole traders not established in Ireland who supply taxable goods or services to taxable customers in the State must register for VAT regardless of their level of turnover.
It is important to remember that it can be in a company’s interest to register for VAT, where they can recover the VAT they have incurred themselves on their own purchases and expenses.
Q. How do companies register for VAT?
Companies can register for VAT through the Revenue’s online portal ROS, but in my experience it’s not always a straight-forward process.
If companies do not have an Irish director a Form TR2 must be submitted, or in the case of individuals, partnerships, trusts or unincorporated bodies a Form TR1. All VAT applications must be accompanied with supporting documentation which provides sufficient evidence that the company will be undertaking trading activities. This documentation could be copies of invoices or contracts, for example. Furthermore, the company will need to have evidence of a physical presence in Ireland.
Getting assistance from an experienced corporate service provider is highly recommended at this stage. Mistakes can be costly and without local resources and knowledge this process can be tricky. An experienced corporate service provider such as Cafico International, can offer guidance on the level of evidence and detail typically expected by Revenue in order to make this process as quick and painless as can be.
Q. How is VAT reported to Revenue?
VAT registered companies are required to file VAT returns (VAT3 return) usually on a bi-monthly basis as well as an annual return (RTD return) outlining all VAT applicable purchases and sales. The deadline for VAT returns is the 23rd of the month following the reporting period. For example, if Company A has its first VAT reporting period from the beginning of January to the end of February, then they will need to file the related return by the 23rd of March.
Q. Are there any other VAT compliance issues to be aware of?
For companies trading goods or services on the European market, there are a number of additional reporting requirements which may be relevant.
A VIES return (VAT Information Exchange System) must be filed by any entity who supplies goods or services to the EU. Typically, this is filed on a quarterly basis. This is a requirement introduced by the European Commission.
Companies may be required to also file a separate Intrastat return on a monthly basis. Intrastat filings collect statistical data on the movement of goods between Ireland and other EU member states. VAT registered entities annually exporting goods from Ireland to EU in excess of €635,000, or importing goods to Ireland from the EU of €500,000 annually, fall within the scope of Intrastat. Traders not reaching this level of activity should just include the details of goods traded across the EU in their VAT 3 returns.
In recent years, the EU has made efforts to simplify the process of calculating and collecting VAT on cross-border sales to individual customers (B2C), such as with the introduction of the OneStopShop (OSS) system in July 2021. However, it remains a complicated process for companies to manage and as result many companies may opt to engage Cafico International to outsource this process to.
