9.1

RATES OF VALUE ADDED TAX

Value Added Tax ("VAT") is payable on goods and services supplied in Ireland by taxable persons in the course of business and on goods imported into Ireland from outside the EU. The rates of VAT range from zero% (on exports) to 21%. Generally, businesses registered for VAT are entitled to recover VAT paid on their purchases and expenses, including capital expenditure. VAT is normally payable before imported goods are released by customs. VAT will not be paid at the point of entry from January 1, 1993 on goods imported by Irish registered traders from another EU State but instead will constitute an "intra community acquisition" precipitating a simultaneous charge and reclaim for the Irish trader. Details are given at 9.2 below of means of avoiding or deferring the payment of VAT on imports from non EU countries.

A business is required to register for VAT purposes where its annual turnover exceeds IR£20,000 if the business is supplying services and where its annual turnover exceeds IR£40,000 if the business is supplying goods.

The disposal of developed property is within the VAT net. The following activities, among others, give rise to a charge to VAT:-

(a)the development of land and buildings and the disposal of a freehold interest in them; and

(b)the development of land and buildings and the disposal of a freehold interest in them or the granting of a lease of them for a period of at least 10 years or a disposal of a leasehold interest of such land and buildings under a lease which at the time it was created was for a term of at least 10 years.

As a general rule the activities described in paragraphs (a) and (b) above do not attract liability to VAT unless all of the following conditions are satisfied:-

(a)the property must have been developed in whole or part after the October 31, 1972;

(b)the vendor must have a taxable interest in the property i.e. either the freehold or a leasehold interest of at least 10 years;

(c)the vendor must dispose of a taxable interest in the property;

(d)the disposal must be in the course or furtherance of business; and

(e)the vendor must have been entitled to a tax credit in respect of VAT on the development of the property or on the acquisition of his interest in the property.

Leases of land or buildings for a period of at least 20 years attract VAT at 12.5% on any premium paid and on the capitalised value of the rent reserved. Where VAT is chargeable on the granting of a lease for less than 20 years and more than 10 years, in addition to VAT being payable by the tenant on the consideration payable for the lease, VAT is payable by the landlord on the self supply of the reversion to himself.

In addition, the creation of a lease of developed property where all the above conditions are fulfilled, except that the lease is for less than 10 years, may give rise to a VAT charge of 12.5% in relation to the first letting. This is regarded as a self-delivery and the VAT is not recoverable. However a self-delivery can be avoided if the landlord waives his VAT exemption on rents and charges VAT at the standard rate of 21% to his tenants. VAT is also payable on service charges.

Surrenders and assignments of leases may also give rise to VAT implications.

9.2

AVOIDANCE AND DEFERRAL OF VAT

The Customs Free Airport Act, 1947 provides that the importation of goods into the Shannon Free Zone is not regarded as an importation into Ireland and accordingly, no liability for payment of VAT arises.

Where a business is not in a position to avoid payment of VAT on goods or services imported into the State from outside the EU under the above provisions, it may still be possible to defer payment of VAT on goods imported from outside the EU. Arrangements can be made with the Revenue Commissioners to submit to the Revenue Commissioners a direct debit mandate from an Irish bank pursuant to which deferred VAT will be paid by the bank when demanded by the Revenue Commissioners. Once these arrangements have been made, goods may then be imported without payment of VAT on imports. The deferred VAT is payable on the 15th day of the month following the month of importation.

To assist the cash flow of export orientated traders who would consistently be in a reclaim situation, relieving measures were introduced by the Finance Act 1993. Broadly speaking, where an exporter's turnover from the supply of goods to persons outside the EU or to persons registered for VAT in another EU State amounts to, or is likely to amount to, 75% of his total turnover from the supply of goods and services, the taxable person may apply to the Revenue Authorities to be certified as an authorised person. The effect of obtaining an authorisation is that, with a few exceptions, the supply of goods and services to, and the intra-Community acquisition or importation of goods by, that authorised person may be received subject to a zero rate of VAT.

This article is intended to provide general guidelines. Specialist advice should be sought about specific facts.