Value Added Tax (VAT) is a tax charged on the sale of goods or services and is included in the price of most products and services that we use every day.
Who pays VAT?
VAT is a tax on consumer spending so everyone who pays for good and services pays VAT. It is built into the cost of many commonly consumed items such as clothing and petrol, so you don’t see what percentage of VAT you are paying. However, when you are buying items such as computers, electricity and professional services, you will see the amount of VAT and the rate at which you are being charged on your bill.
How VAT is charged?
VAT is charged at every stage of sale where the cost of an item is increased. The standard rate of VAT is 23%.
A manufacturer sells a television to a wholesaler for €100 and charges him VAT on that amount at 23%. Therefore, the wholesaler pays €123 for the television. The manufacturer then pays the VAT of €23 to the government.
The wholesaler goes on to sell the television to a retailer for €200. He adds on VAT at 23%, so the retailer pays a total of €246. The wholesaler must pay the government the VAT of €46, but he can reclaim the €23 VAT he has already paid to the manufacturer, leaving €23, which he pays to the government.
When the retailer comes to sell the television to a consumer, he must also add on VAT to his selling price. He sells the television for €300, plus VAT at 23%, making a selling price of €369 for the consumer. The retailer must pay the VAT to the government but he can claim back the €46 VAT that he paid to the wholesaler, leaving €23 for the government.
The government has now received 23% on the price paid for the television by the consumer (€69). The retailer, wholesaler and manufacturer only paid the amount of VAT they charged to the next group down the line.
This section only deals with VAT for private individuals who buy goods for personal use.
In general, you have to pay VAT and import duty on any goods you are bringing into Ireland from outside the EU. This includes goods purchased online and by mail order. You will have to pay VAT at the same rate as applies in Ireland for similar goods.
Within the EU, VAT is usually paid in the member state you purchased the goods, however, there are some exceptions - see below.
From outside the EU
You can buy goods from outside the EU up to a value of €22 without incurring any VAT charges. Goods up to a value of €150 may be imported without payment of customs duty. To avoid these packages being stopped by Customs, the value should be clearly marked on the label. However, VAT and import duty is charged on importations of tobacco, tobacco products, alcoholic product and perfumes even if they cost less than €22. The Revenue Commissioners provide a guide to the reliefs available for imports from non-EU countries.
If your online purchase costs more than €22 you will have to pay VAT. If your online purchase costs more than €150 you will have to pay VAT and customs duty. This will be collected by the company that delivers your parcel. The company usually have an administration charge. Methods of delivery and collection differ from company to company, so you should contact them directly for more information.
From another EU Member State
If you buy goods online or by mail from another EU member state you may pay VAT at the rate that applies in Ireland. However, if the supplier that you are buying the goods from has not exceeded the Distance Sales Threshold in Ireland then you will pay VAT at the rate appropriate to that product in the member state of purchase. You will usually be informed of the amount of VAT payable at checkout.
Excisable products (for example, alcohol, tobacco and oil) purchased within the EU via the internet or by mail are subject to excise duty and VAT.
From outside the EU
You can buy and bring your goods (other than tobacco and alcohol products) from a non-EU State into Ireland without incurring any taxes, if the value of your goods does not exceed:
Anything in excess of the amounts shown above will be liable for VAT and customs duty.
If you bring in an item worth more than the relevant limit of €430 or €215, you must pay import charges on the full value. The Revenue Commissioners have published information for travellers arriving in Ireland from countries outside the European Union.
From another EU Member State
There are no limits on what private people can buy and take with them when they travel between EU countries, as long as the products purchased are for personal use and not for resale, with exception of new means of transport (for example, a car). VAT is included in the price of the product in the member state and no further payment of taxes including VAT can be charged here in Ireland.
However, special rules apply in the case of goods subject to excise duty, such as alcoholic beverages and tobacco products. The Revenue Commissioners have published information for travellers arriving in Ireland from member states of the European Union.
You can receive a gift from outside the EU up to the value of €45 without incurring import charges. However, the gift must be correctly declared. More information is available in Revenue’s Guide to Relief available for imports from non-EU countries.
The following rules apply:
If you paid VAT on your house (because you bought it from a developer or builder) you only have to pay stamp duty on the base price of the house – before the VAT was added. So, for example, if you paid €227,000 (including VAT) for your new house, this is made up of the base price of €200,000 plus 13.5% VAT (€27,000) and you only pay stamp duty on the base price of €200,000.
VAT is charged at different rates for various goods and services. You can get an extensive list of VAT ratings from the Revenue Commissioners.
23% is the standard rate of VAT and all goods and services that do not fall into the reduced rate categories are charged at this rate. They include alcohol, audio-visual equipment, car parts and accessories, CDs, computers, consultancy services, cosmetics, detergents, diesel, fridges, furniture and furnishings, hardware, jewellery, lawnmowers, machinery, medicines (non-oral), office equipment, pet food, petrol, paper, tobacco, toys, tools, washing machines, bottled water.
13.5% is a reduced rate of VAT for items including fuel (coal, heating oil, gas), electricity, veterinary fees, building and building services, agricultural contracting services, short-term car hire, cleaning and maintenance services.
9% is a special reduced rate of VAT for tourism-related activities including restaurants, hotels, cinemas, hairdressing and newspapers.
4.8% is a reduced rate of VAT specifically for agriculture. It applies to livestock (excluding chickens), greyhounds and the hire of horses.
0% (Zero) VAT rating includes all exports, tea, coffee, milk, bread, books, children’s clothes and shoes, oral medicine for humans and animals, vegetable seeds and fruit trees, fertilisers, large animal feed, disability aids such as wheelchairs, crutches and hearing aids.
Exempt from VAT
You do not have to pay any VAT on financial, medical or educational services. You may also not pay VAT for live theatrical and musical performances (except those where food or drink is served during all or part of the performance).
Difference between exemption and zero-rating
People not registered for VAT
Under certain circumstances, unregistered people can claim back VAT from the government. People with disabilities can claim a VAT refund on certain aids and appliances they need to overcome their disability.
People registered for VAT
A business person must register for VAT to fulfill tax obligations to the government. Registering for VAT also allows a business to reclaim VAT on purchases so that it never pays more tax than it should. As a result, VAT never becomes an overhead for the business.
If you have a question relating to this topic you can contact the Citizens Information Phone Service on 0761 07 4000. The Phone Service will operate Monday to Friday, 9am to 6pm during January 2017. You can also visit your local Citizens Information Centre.