Indirect tax

 The Bill includes various measures affecting the VAT treatment of supplies of goods and services across many sectors, as well as administrative points in relation to VAT registrations and VAT compliance. These measures are summarised below. Also outlined below are certain VAT changes agreed at EU level to come into effect on 1 January 2025 in relation to small and medium enterprises (SMEs) and online suppliers of livestreaming and virtual admission services.

The Bill includes legislative changes to clarify the VAT treatment of the management of EU (including Irish) Alternative Investment Funds (AIFs).  These changes confirm the VAT exemption for the qualifying management of AIFs by an Alternative Investment Fund Manager (AIFM) where the AIFM is authorised by, or registered with, the competent authority of an EU Member State including Ireland.  Hereto date there had been some uncertainty concerning the position for Irish managed AIFs. 

The change will in practice most likely impact the management of 1907 Limited Partnerships which qualify as AIFs and which are managed by Irish AIFMs as well as potentially impacting the VAT recovery position of Irish AIFMs who provide management services to (non-Irish) EU AIFS. 

The Bill includes several measures impacting the VAT rate on supplies of certain goods and services. Some of these measures were announced by the Minister in his Budget speech whereas others are intended to be clarifications. These measures are as follows:

• As announced in the Budget, the temporary VAT rate of 9% for supplies of gas and electricity will continue to apply up to and including 30 April 2025. The VAT rate for these supplies is due to revert to 13.5% on 1 May 2025.
• As also announced in the Budget, the VAT rate for the supply and installation of certain low emission heat pumps will be reduced from the standard 23% rate to the reduced 9% rate with effect from 1 January 2025.
• The 0% VAT rate will cease to apply from 1 January 2025 to certain services relating to vessels and aircraft comprising: (i) the provision of docking, landing, loading or unloading facilities (including customs clearance), directly in connection with the disembarkation or embarkation of passengers, or the importation or exportation of goods; (ii) the supply of navigation services by the Irish Aviation Authority to meet the needs of “qualifying aircraft”; and (iii) intermediary services in relation to the services mentioned at (i) above. These are consequential changes required following amendments in Finance Act 2020.
• The “Food and Drink” table in the Irish VAT Consolidation Act 2010 will be updated to clarify that the standard rate of VAT (currently 23%) applies to juice extracted, or drinkable products derived, from plants, grains, seeds or pulses, as well as from fruit and vegetables. Following publication of the Bill, there had been some concern that this legislative change would impact the existing Revenue practice of applying the zero-rate of VAT rate to non-dairy milk and milk substitute products. However, the Committee Stage amendments to the Bill confirm, and put on a statutory footing, that the zero rate of VAT will apply not only to “milk” but also to oat milk, almond milk, rice milk, coconut milk, hemp milk, cashew milk, soy milk, pea milk, hazelnut milk, flax milk, potato milk or other similar milk substitute drinks.
• The flat-rate addition payable to farmers who are not VAT registered will increase from 4.8% to 5.1% with effect from 1 January 2025.

The Bill includes measures confirming the Budget announcement that the VAT registration thresholds will increase. The new thresholds, applying from 1 January 2025, will increase for supplies of goods from €80,000 to €85,000 and for supplies of services from €40,000 to €42,500. The thresholds depend on turnover from taxable supplies in any continuous 12-month period. 

The increase in Ireland’s domestic VAT registration thresholds is in keeping with a package of EU-wide measures aimed at simplifying VAT compliance for SMEs, which is due to take effect from 1 January 2025 onwards (referred to hereafter as the “SME VAT Package”). The SME VAT Package allows EU Member States to set their VAT registration thresholds at a turnover value of up to €85,000 per annum.

Although not specifically addressed in the Finance Bill, the EU SME VAT Package measures will also introduce a new EU “cross-border” VAT registration threshold from 1 January 2025 for non-established businesses. Currently, a nil VAT registration threshold generally applies to non-established businesses when they make taxable supplies on which they are liable to account for Irish VAT. Under the SME VAT Package, from 1 January 2025, non-established traders can elect not to register for VAT in an EU Member State in which they are not established, if:

1. The SME’s annual turnover from supplies across the EU does not exceed €100,000; and,
2. The SME’s turnover from supplies in the relevant Member State (in which they are not established) does not exceed the relevant domestic VAT registration threshold in that Member State.

However, an SME wishing to avail of this new cross-border threshold must register to obtain a special VAT number (which will have an ‘EX’ prefix) and must report quarterly to their local tax authority their sales in the other EU Member States in which they are not VAT registered. We anticipate that the SME VAT Package will be introduced into Irish VAT law by way of a separate statutory instrument on or before 1 January 2025.

It is important to note that there continues to be a “nil” turnover threshold for Irish established businesses in receipt of taxable services from abroad on which they are subject to reverse charge VAT.

The Bill includes measures clarifying who has the right to VAT deductibility on costs relating to goods or services supplied by an accountable person but under a power exercisable by another person (including a receiver or liquidator). In such cases, the obligation to account for VAT to Revenue on the relevant supplies rests with the person who exercises that power (e.g., the receiver or liquidator). The Bill clarifies that the person with the right to claim input VAT on costs associated with those supplies is the person exercising the power rather than the underlying owner of the asset (e.g., the borrower).  

The Bill includes a legislative change to clarify the limitation on input VAT deduction with respect to food, drink, accommodation or personal services for an accountable person or its agents or employees. Input VAT incurred on such costs would only be deductible to the extent that the cost was incurred in relation to a supply of taxable services comprising the provision of food, drink, accommodation or personal services.

The Bill provides that a penalty of €4,000 may apply where a payment service provider (PSP) fails to fulfil its obligations under the EU Cross-Border Payments Reporting rules (often referred to as ‘CESOP’). CESOP was introduced across the EU with effect from 1 January 2024 and requires PSPs, as defined under the Payment Services Directive, to report to the relevant tax authorities, details of any cross-border payments where the number of those payments exceeds 25 in the respect of the same payee in a calendar quarter.

Although not addressed in the Bill, relevant suppliers should also be aware of changes to the VAT place of supply rules for livestreaming and virtual admissions to events and activities which will take effect across the EU from 1 January 2025. We expect this may be transposed into Irish law by way of a statutory instrument on or before 1 January 2025.

The new rules will clarify that admission to an event where the “attendance is virtual” is no longer subject to VAT where the event takes place. Rather, a new rule will be introduced to confirm that B2C services and ancillary services relating to “activities which are streamed or otherwise made virtually available” will be subject to VAT where the customer is established or usually resident. The impact of the changes will be as follows:

• For B2B livestreaming and virtual admission services, VAT will arise where the customer is established (or has a fixed establishment receiving the service). This VAT should generally be accounted for by the customer under the reverse charge mechanism if the supplier is not established in the same jurisdiction where the VAT is due.
• For B2C livestreaming and virtual admission services, VAT will also arise where the customer is established, has their permanent address or usually resides. However, the supplier will be the party liable to charge VAT by reference to the customer’s location (the reverse charge will not apply). Suppliers of such services on a cross-border basis will therefore need to consider the VAT treatment and to potentially charge VAT in multiple EU countries. However, to reduce administration, this VAT can be paid to multiple EU tax authorities through a one stop shop (OSS) VAT registration.

The Bill provides for the introduction of an excise duty on e-cigarettes / vapes, as announced in the Budget. This duty will apply to all e-liquids at a rate of 50c per millilitre of e-liquid (or €500 per litre) and will increase the price of a typical disposable vape product from €8 to €9.23 (including VAT).

The duty will be chargeable at the time an e-liquid product (which includes liquid for e-liquid inhalation products except where used exclusively as a nicotine replacement) is first supplied by a supplier and that supplier will be liable to register for and pay the duty to Revenue within one month after the end of the relevant accounting period (being one calendar month or any other period as prescribed by Revenue). Implementation of this new duty is subject to a Ministerial commencement order and will not occur until the middle of 2025 to allow time for the operational and administrative preparations associated with this measure.

The Bill provides for a number of legislative changes to Finance Act 2002 in preparation for the enactment of the Gambling Regulation Bill (GRB), 2024 and to ensure that the GRB operates effectively on implementation. These changes update definitions and the betting charging provisions to ensure they are aligned with the GRB, as well as transitional arrangements relating to licencing and the collection of betting duty.

The Bill also contains legislative provisions which will give effect to the excise measures announced in the Budget, including:

• Increase in excise duty on a packet of 20 cigarettes by €1 (including VAT), with pro-rata increases on other tobacco products. This measure took effect from midnight on 1 October 2024 and will bring the price of a pack of 20 cigarettes in the most popular price category to €18.05.
• Extension of the excise relief programme already available to small independent producers of beer, cider and perry (reducing excise duty payable by up to 50% within prescribed limits) to other fermented beverages such as mead and wines other than grape wine (e.g., elderberry wine and strawberry wine), as well as to higher-strength cider and perry (exceeding 8.5% vol.).

The Bill includes an amendment to the Vehicle Registration Tax (VRT) weight ratio applicable to battery electric commercial (BEV) vehicles so that they can qualify for the €200 VRT rate available for their fossil-fuelled counterparts. These BEVs currently do not qualify, due to the battery weight, which puts them at a competitive disadvantage.

The Bill also provides for the new emissions-based approach to VRT for Category B commercial vehicles announced in the Budget. Under the new approach, a reduced 8% VRT rate will be payable for category B vehicles with CO2 emissions of less than 120g per kilometre.