Value-added tax (VAT)
VAT is charged at the standard rate of 23%. This is the default rate of VAT that applies to the supply of goods and services in the course or furtherance of business unless the goods or services qualify for a reduced rate of VAT, the zero-rate of VAT, or are exempt from VAT.
Reduced VAT rates
There are currently two main reduced rates of VAT, being a reduced rate of 13.5% and a super-reduced rate of 9%. The 13.5% rate applies, inter alia, to the supply and development of immovable goods, labour-intensive services (e.g. certain repair and related services), energy products and supplies, and the supply of certain food and drink provided in the course of catering. The 9% rate is applicable to the provision of facilities for taking part in sporting activities. Finance Act 2023 has further extended the period during which the 9% rate of VAT temporarily applies to certain goods and services that are ordinarily subject to the 13.5% rate. Until 31 August 2023, the 9% rate of VAT will temporarily apply to the following (and these items will revert to 13.5% after this date):
- The supply of certain restaurant and catering services.
- The supply of certain heated take-away food/drink.
- The supply of certain printed matter, including, inter alia, brochures, leaflets, catalogues, maps, and printed music.
- The promotion and admission to certain exhibitions and cultural facilities, such as cinemas and theatrical performances.
- Hotel and holiday/guest accommodation.
- Hairdressing services.
The temporary reduction in the VAT rate for energy products and supplies (from 13.5% to 9%), which was introduced on 1 May 2022, has been extended to 31 October 2023.
Finance Act 2022 also reduced the farmer’s flat-rate addition from 5.5% to 5%.
Zero-rate of VAT
The zero-rate of VAT applies to, inter alia, the supply of goods dispatched from Ireland to a VAT-registered person in another EU member state (provided certain conditions are satisfied), goods exported from Ireland to a place outside of the European Union, the supply of certain food and drink of a kind used for human consumption, oral medicines, books, and children’s clothing and footwear.
Finance Act 2022 brought the supply of the following within scope of the zero-rate of VAT:
- Newspapers (printed and electronic).
- Non-oral hormone replacement products.
- Non-oral nicotine replacement products.
- Menstrual products not already subject to the zero-rate of VAT.
- Automated external defibrillators.
Finance Act 2022 removed 'preparations and extracts derived from milk' from the zero-rate of VAT. As such, any such products will, from 1 January 2023, be subject to VAT at the standard rate.
Certain supplies are exempt from VAT. The exempt categories include certain activities in the public interest (e.g. postal services, medical and related services, education, and national broadcasting), financial services (e.g. certain banking services), insurance services, betting/gambling services, the letting of immovable goods (but an option to tax is possible, subject to certain conditions), and, by way of an Irish derogation from EU law, passenger transport services. Finance Act 2022 introduced the following measures relevant for certain services that previously qualified for VAT exemption in Ireland:
- The management of a fund authorised under Directives 2009/65/EC and 2011/61/EU by a competent authority in another EU member state will be exempt from VAT in the same manner as the management of an equivalent fund in Ireland.
- VAT legislation currently provides that the management of an undertaking that is a qualifying company for the purposes of Section 110 of the Taxes Consolidation Act 1997 is VAT exempt. The Finance Act provides that, from 1 March 2023, this VAT exemption will not apply to Section 110 companies that hold plant and machinery.
- The exemption for agency services in respect of the management of certain qualifying funds has been removed.
Powers of Revenue
The Finance Act includes a provision to allow Revenue to request information from certain financial institutions where requested by another EU member state. It also gives Revenue the power to impose penalties on the financial institution where it does not comply with this request.
Ireland is part of the customs territory of the European Union. Goods imported into Ireland from countries outside the European Union (including Great Britain) are liable to customs duty at the appropriate rates specified in the EU’s Combined Nomenclature (CN) Tariff. These rates vary from 0% to 14% for industrial goods, with much higher rates applicable to agricultural products. Imports may qualify for a partial or full reduction in rates in specific circumstances (e.g. where products meet relevant rules of origin and are considered as ‘originating’ under one of the many Free Trade Agreements that the European Union has negotiated with third countries, such as the EU-UK Trade and Cooperation Agreement).
The three main elements (‘customs duty drivers’) that determine the duty liability arising on goods imported into the European Union from a non-EU country are (i) the product’s commodity code (Tariff Classification), (ii) its customs valuation, and (iii) its origin. Each of these elements will need to be considered when determining the customs duty cost at import.
There are special customs procedures that allow for the import of goods into the European Union from non-EU countries with full or partial relief from customs duty or under a suspension of customs duty. Examples of these are Temporary Admission, Customs Warehousing, Inward Processing Relief, and Outward Processing Relief. There are different conditions attached to each customs special procedure, and an analysis of the trade footprint of the importer of the goods will need to be considered in order to determine whether or not they may avail of one of these reliefs. Advance authorisation is generally required from Irish Revenue to use such special procedures. These procedures are important and are in place with the intention of stimulating economic activity within the European Union.
It should be noted that no customs duties arise on goods ‘imported’ from other EU member states (known as Intra-Community movements), provided the products are in ‘free circulation’ in another member state of the European Union.
Carbon Border Adjustment Mechanism (CBAM): The EU's new carbon charge
A new CBAM will enter into effect in all EU member states from October 2023. The aim of CBAM is to mitigate against carbon leakage whereby companies based in the European Union import carbon-intensive products as part of their manufacturing processes that work against domestic measures introduced in the European Union to tackle carbon intensive manufacturing. It also will encourage more sustainable industrial production outside the European Union. The key products impacted by CBAM are cement, iron and steel, aluminium, fertilisers, electricity, and hydrogen.
The new measure is underpinned by Regulation (EU) 2023/956. CBAM will enter into force on a phased, transitional basis. The transitional phase will begin on 1 October 2023, and CBAM reports will be required on a quarterly basis until 31 December 2025. Annual declarations will then replace quarterly declarations from 1 January 2026, when the measures enter into force on a permanent basis.
Excise duties are charged on mineral oils (including petrol and diesel) which includes a carbon charge component (see below), alcohol products (including spirits, beer, wine, cider, and perry), and tobacco products where they are consumed in Ireland. Reduced rates of excise duty may apply when setting up a microbrewery in Ireland (depending on production quantities). Similarly, Ireland has also introduced a relief for micro-producers of ciders and perry. Relief from alcohol products tax also applies to alcohol intended for use or to have been used in the production of flavours for the preparation either of foodstuffs or of beverages not exceeding 1.2% vol., medicinal products, vinegar, and other specified products.
In addition, a diesel rebate scheme applies in Ireland. It provides hauliers or coach/bus owners with an opportunity to claim a partial refund of excise duty paid on fuel used in specifically designated vehicles for the purposes of transporting goods or passengers.
Excise duties are not charged in Ireland on the export or sale of excisable goods to other EU countries, but special control arrangements apply to the intra-EU movement of such goods.
In addition, Ireland applies excise duties to electricity, betting (including so-called 'free bets' and discounted bets on what would have been the unit stake), natural gas and solid fuel in the form of a carbon charge (see below), sugar (see below), and the first registration of vehicles in the state (the latter is known as VRT). The VRT regime for motor vehicles is based on a CO2 emissions rating system and charged on the ‘open market selling price’ of the vehicle. A more robust system of calculating emissions was introduced with effect from 1 January 2021, to increase the VRT for vehicles with higher CO2 emissions. Specific reductions in VRT apply to electric and hybrid vehicles, subject to certain conditions being met. In addition, there are reliefs available for cars imported temporarily by non-residents, or imported on transfer of residence to Ireland (such VRT reliefs require prior approval from the Customs authorities).
Penalties also apply for breaches of excise legislation. Changes introduced in the Finance Act 2022 bring excise duties into line with other tax heads for the purposes of disclosures and tax-geared penalties. The changes introduced also mean that there is a legislative basis for not charging penalties for technical adjustments, innocent errors, and cases where the total tax defaults do not exceed EUR 6,000 and are careless and not deliberate.
Stamp duty is a tax on instruments. It is payable on transfers of land and on other assets where legal title cannot be passed by delivery. It is chargeable on instruments of transfer executed in Ireland and on instruments, wherever executed, that relate to Irish property or relate to matters done or to be done in Ireland. Stamp duty on the transfer of assets between associated companies may be fully relieved from stamp duty, provided the following key conditions are met:
- The companies have a 90% relationship (that is, one company is, directly or indirectly, the beneficial owner of at least 90% of the ordinary share capital of the other and is entitled to at least 90% of the profits available for distribution and at least 90% of the assets in the case of a winding-up of the other company, or a third company has these rights, directly or indirectly, in respect of both companies).
- This relationship is maintained for a period of at least two years after the transfer of the assets (to avoid the relief being clawed back). There are certain limited exceptions to this two-year association requirement.
There is an exemption for transfers of intellectual property (IP), and the categories of IP qualifying for this exemption are the exact same as those for which IP capital allowances are available (see Intellectual property [IP] regime in the Tax credits and incentives section).
Stamp duty is payable based on the higher of the consideration paid for the transfer or the market value of the assets transferring. Rates of 1% to 10% apply for transfers of residential property, 7.5% for transfers of non-residential property (commercial/industrial land and buildings, but also business assets, such as goodwill, debtors, contracts, etc.), and 1% on transfers of shares. A 7.5% rate applies for shares in certain companies deriving their value from Irish non-residential property, and a 10% rate applies for shares in certain companies deriving their value from Irish houses or duplexes, where particular circumstances exist.
Capital duty on share capital
Ireland does not levy capital duty on share capital of companies.
Ireland does not levy tax on the net worth of companies.
The ‘pay-as-you-earn’ system (PAYE system) places an obligation on employers to make deductions at source of income tax, universal social charge (USC), and pay-related social insurance (PRSI) from payments made to employees and an obligation to remit such deductions to the Irish tax authorities.
Pay-related social insurance (PRSI)
Employed persons are compulsorily insured under a state-administered scheme of PRSI. Contributions are made by both the employer and the employee. The employer is responsible for making PRSI contributions up to a rate of 11.05% (effective from 1 January 2021), and these are an allowable deduction for corporation tax purposes.
Levies on insurance policies
A levy of 3% of gross premiums received by insurers applies in respect of non-life insurance policies relating to risks located in Ireland. This levy is payable four times per annum, within 25 days of the end of each quarter (i.e. within 25 days from quarters ending 31 March, 30 June, 30 September, and 31 December).
An additional contribution of 2% to the Insurance Compensation Fund applies to premiums received in relation to non-life insurance policies. Similar to the 3% non-life insurance levy, the contribution applies where premiums are received in respect of risks located in Ireland. The contribution is also payable four times per annum in conjunction with the non-life insurance levy on premiums.
A levy of 1% of gross premiums received by insurers applies in relation to certain classes of life insurance policies relating to risks located in Ireland. This levy is payable four times per annum, within 25 days of the end of each quarter (i.e. within 25 days from quarters ending 31 March, 30 June, 30 September, and 31 December).
Reinsurance business is excluded from both of these levies.
There is also a stamp duty liability of EUR 1 euro on each non-life insurance policy where the risk is located in Ireland.
A 2% contribution applies to all motor insurer premiums generated to directly fund the Motor Insurers’ Insolvency Compensation Fund (MIICF). The purpose of the MIICF is to build up a reserve fund, administered by the Motor Insurers’ Bureau of Ireland (MIBI), to ensure that outstanding policyholder claims can be met in the event that a motor insurer goes into liquidation. It is anticipated that the additional levy will be in place for several years in order to build up the necessary reserves totalling EUR 200 million. Once fully funded, the rate is expected to reduce to 0%.
Certain voluntary health insurance policies are subject to risk equalisation fixed levies. Risk equalisation is a process that aims to equitably neutralise differences in insurers’ costs that arise due to variations in the age profile of the insured. The levies are updated regularly and currently (on or after 1 April 2021) range between EUR 52 to EUR 449 per policy, depending on your age profile and the type of coverage.
In Ireland, a levy of 22 cents per bag is imposed upon consumers provided with a plastic bag when purchasing goods in supermarkets and other retail outlets. Under the applicable legislation, retailers are obligated to collect 22 cents in respect of every plastic bag or bag containing plastic, regardless of size, unless specifically exempted, that is provided to customers and remit all plastic bag levies collected to Irish Revenue. As a result of the levy, most non-supermarket retailers provide paper carrier bags, and same retailers sell ‘bags for life’, which are made from non-plastic material and, therefore, not subject to the environmental levy.
A carbon tax is levied on mineral oils (e.g. auto fuels, kerosene) that are supplied in Ireland. The rate of carbon tax on oil and gas broadly equates to EUR 41 per tonne of CO2 emitted, and the government has committed to increasing this to EUR 100 by 2030. Relief applies where mineral oils are supplied to an Emissions Trading Scheme (ETS) installation, to combined heat and power plants, or used for electricity generation. Pure biofuels are exempt from carbon tax. There is full relief for the biofuel component of the fuel. Where biofuel has been mixed or blended with any other mineral oil, the relief from carbon taxes shall apply to the biofuel content of the mixture or blend, regardless of the percentage.
A carbon tax is also levied on natural gas and solid fuel where supplied for combustion. Again, reliefs apply where these fuels are supplied to ETS installations or used in electricity generation, chemical reduction, or in the electrolytic or metallurgical processes.
Finance Act 2022 did not contain any deferral or postponement of the carbon tax increases in Finance Act 2020, and an increase of EUR 7.50 up from EUR 41 to EUR 48.50 per tonne of carbon dioxide emitted shall apply. The increase applies from 12 October 2022 for auto fuels and from 1 May 2023 for all other fuels. However, this carbon tax increase has been offset by a reduction to EUR 0.001 of the National Oil Reserves Agency (NORA) levy for auto fuels through the Electricity Costs (Domestic Electricity Accounts) Emergency Measures and Miscellaneous Provisions Act 2022, which was approved by the Irish government on 12 October 2022.
Sugar Tax applies on a volumetric basis at one of the following rates:
- EUR 16.26 per hectolitre on drinks where the sugar content is five or more grams of sugar per 100ml.
- EUR 24.39 per hectolitre on drinks where the sugar content is eight or more grams of sugar per 100ml.
The exit tax applies not only to the migration of tax residence of a company from Ireland, but also in respect of certain transfers of assets from Ireland to other countries where the same company retains legal or economic ownership of those transferred assets. The provisions deem a company that is resident in an EU member state other than Ireland to have disposed of and immediately reacquired at market value:
- assets transferred by it from a PE in Ireland to its head office or to a PE in another country, or
- business assets transferred by it on the transfer of a business carried on by a PE in Ireland to another country.
The provisions also deem a company migrating its tax residence from Ireland to another EU member state or to a third country to have disposed of all of its assets (subject to certain exceptions) and to immediately reacquire them at market value.
The company is entitled to deduct the tax base cost held in the relevant assets in calculating the gain arising.
Subject to certain anti-avoidance rules, the tax rate applicable to any chargeable gain arising is 12.5%.
Exemption from the charge to exit tax may be available in respect of a range of assets, subject to certain conditions being met. These include:
- assets that remain situated in Ireland and are used in an Irish trade post migration
- assets that are given as security for a debt, assets that are transferred to satisfy capital requirements or for liquidity purposes, and assets that relate to the financing of securities, in circumstances where those assets are due to revert to the Irish PE or company within 12 months of the transfer, and
- certain ‘specified’ assets that remain within the charge to Irish capital gains tax post migration, including Irish land and buildings and unquoted shares deriving the greater part of their value from such assets.
An exception applies relating to interest on deferred payments of the exit tax. Companies have the right, in certain circumstances, to pay the exit tax in equal annual instalments over five years. Interest applies over the period of deferral. The amendment ensures that the calculation of interest on instalment payments operates as intended.
Local taxes, known as ‘rates’, are not based on income but rather are levied on the occupiers of business property by reference to a deemed rental value of the property concerned. The level of rates levied can depend on the region in which the property is located. Rates are an allowable deduction for corporation tax purposes.
Local authorities are also empowered to levy charges on all occupiers for specific services (e.g. water supply). These charges are also deductible for corporation tax purposes.