Value-added tax (VAT)
VAT is charged at the standard rate of 23% (temporarily reduced to 21%, which is expected to end on 28 February 2021) on the supply of the majority of goods and services in the course or furtherance of business.
There are currently two main reduced rates of VAT. A 13.5% rate applies to building services, labour intensive services, domestic fuel, and power. In addition, a second reduced rate of 9% is applicable to tourism-related services (such as accommodation and food services), newspapers, and sporting facilities.
Exports, the majority of basic food items, oral medicines, books, and children’s clothing and footwear are zero-rated.
Certain supplies are exempt from VAT. The exempt categories include the majority of banking services, insurance services, medical services, passenger transport, education and training, and letting of immovable goods (although an ‘option to tax’ is possible in certain circumstances).
The zero rate is preferable to a VAT exemption as the deductible VAT incurred in making a zero-rated supply can be recovered, while VAT incurred in making an exempt supply generally cannot.
If a business is fully engaged in a VATable activity, it will be entitled to reclaim VAT incurred, subject to the normal rules of deductibility. Businesses engaged in exempt supplies will not be in a position to reclaim VAT. As a result, any VAT incurred will be a real cost. Any business engaged in both VATable and exempt supplies will be required to apportion VAT incurred accordingly.
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.
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. 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.
Excise duties are charged on mineral oils (including petrol and diesel), 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).
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, 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. 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).
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 2% 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. 7.5% applies for shares in certain companies deriving their value from Irish non-residential property where certain conditions are satisfied.
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 1 euro (EUR) 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 2020) 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 33.50 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 electrolytical or metallurgical processes.
A tax rate of 20 cent per litre applies where the sugar content is five or more grams of sugar per 100ml and 30 cent per litre for drinks with 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.
Finance Act 2020 includes a technical amendment to the exit tax provisions. The amendment relates 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.