VAT on legal fees is a continual headache for many property companies. Typically Irish borrowers will have to fund the lending bank's legal fees. Where VAT is charged to the bank, the borrower cannot recover it. In Ireland, there has been a practice of the bank's lawyers applying VAT to their fees, because they deem the service to relate to Irish property.
However, recent guidance from the EU could be helpful. It confirms that a non-Irish lender should not be subject to Irish VAT on their legal fees. Instead, the rate of VAT (if any) which applies is dependent upon where the lender is established for VAT purposes. As most VAT rates are lower than the Irish rate, this should lead to a lower overall cost for the borrower. Non-Irish lenders and borrowers who may be required to pay the lender's legal fees should note the helpful EU position in this regard.
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