VAT & indirect taxes - Budget 2026

KPMG insights – our view

VAT modernisation and domestic business-to-business e-invoicing

The minister’s announcement that Revenue will begin a phased roll-out of mandatory domestic B2B electronic invoicing (“e-invoicing”) is a significant development, that will impact businesses across all sectors. Revenue’s forthcoming paper, due to be published tomorrow, is expected to provide further details on the proposal.

This is not a surprising development, as the introduction of e-invoicing and digital reporting for VAT has been under consideration as part of Revenue’s VAT modernisation agenda for several years. However, a timeline for the introduction of this proposal has not yet been provided – tomorrow’s paper may provide further details in this regard.

The introduction of mandatory e-invoicing will present a significant change to the way many Irish businesses operate their sales and purchases, with a likely need for updates to systems and processes. It is therefore crucial that businesses are given sufficient time to prepare for the change.

The proposal builds on agreed EU-wide reforms under the VAT in the Digital Age (ViDA) package. This will introduce mandatory e-invoicing and digital reporting for cross-border transactions with effect from 1 July 2030. 

VAT rate reductions

We welcome these targeted VAT rate reductions which aim to increase the supply of apartments and support services businesses trading in a difficult environment. While these VAT changes alone are unlikely to solve these complex issues, they are nonetheless intended to increase economic activity and maintain employment in these important sectors.

The measures build on the increased flexibility given to EU Member States in recent years regarding the setting of reduced rates of VAT and recognise that VAT can be an important social policy tool.

An increase in availability of housing is a critical requirement for the Irish economy. While the reduction in VAT rate for the sale of apartments (which for VAT purposes is generally regarded as taking place when the sale closes) should contribute towards this requirement, further steps are likely to be required to support this goal.

In addition, as the VAT rate for other property sales and construction services will remain at 13.5% and the VAT on property regime is already complex, it will be important to carefully consider the precise implications of this measure. We comment further on the VAT rate reduction for sales of apartments and other housing measures announced in the Budget in our Property and Construction article.

The re-introduction of a 9% VAT rate for restaurant/catering services was a commitment in the current Programme for Government. Furthermore, the VAT rate reduction will also include hairdressing services.

The change, which effectively reduces the VAT due on qualifying sales by one-third, will be welcomed by the many businesses operating in a challenging trading environment, where costs have risen significantly in recent years.  As mentioned in the minister’s speech, this will support more than 150,000 jobs in these sectors across the country.

The VAT rate cut will apply to most food and certain drinks sold in a restaurant, café, hotel, bar, takeaway or other catering environment. However, exceptions will remain, such as soft drinks and alcoholic drinks which remain subject to the standard (23%) VAT rate.  

Unlike in prior periods, the VAT reduction from 13.5% to 9% will not extend to hotel or short-term rental accommodation services or admissions to tourist attractions. This will also introduce some complexity for businesses that sell combined services, which partly qualify for the 9% rate. For example, a combined bed and breakfast rate may now need to be split between the accommodation and food elements.

While the deferral of the reduction until July 2026 lessens the cost to the Exchequer in 2026, affected businesses must continue to apply the current 13.5% rate to relevant sales until that time which may pose some financial challenges for them in the interim.

The retention of the 9% rate for supplies of electricity and natural gas until 31 December 2030 will also be welcome as a cost-of-living measure, particularly in light of recent price increase announcements from electricity suppliers.