VAT and Services
VAT applies to the supply of services by a taxable person in the furtherance of business in the State. Services are very broadly defined. They extend to include the performance or omission of any act and even the toleration of a state of affairs.
VAT is charged in respect of the supply of services in accordance with common OECD developed rules on the place of supply. This is often the place of establishment of the provider of the services, which is the general rule. There are provisions that deem the position to be otherwise in several important cases involving cross-border services so that in that context, the general rule now seems to be the exception.
The amount on which VAT is payable is the price for the service. If, as will commonly be the case, the Irish business customer to whom the service is supplied is fully chargeable to VAT on its own sales of goods or services, then it may claim an input credit against this obligation for which it is to self-account, in the appropriate VAT return.
Nature of Services
A one-off transaction which may not appear to be a service in the conventional sense may be subject to VAT if it is done in the course of a business. There need not be a trading business.
A service must be rendered in return for money or money’s worth in order to be Vatable. There must be a link between the service performed and the value received. Some benefit must be received by the person who made the payment or transfer of value.
VAT applies to a service supplied in the course of a business established in the State. In some cases, difficult questions of interpretation arise in ascertaining the place of the establishment with which the service is connected.
Supply of services to and by Businesses in EU
The EU rules on the supply of services between member states were reformed significantly on 1 January 2010. Prior to then, the rule was generally determined by the place of establishment of the supplier of the service. So-called Fourth Schedule services, which covered a range of listed professional services were accounted for by the recipient. This approach now applies generally to the supply of most services.
The general position is that where services are supplied to VAT registered business /traders in another EU state, the place of supply is where the customer is located, so that VAT is charged where the latter is based/established under the so-called reverse charge mechanism. In the same way, where a business recipient of services is located in Ireland, it is obliged to account for (and if necessary to register for) VAT, as if it had supplied the service itself.
If the services are supplied to a fixed establishment located in a place other than where the business is established (e.g. a branch) the supply is made to the branch. If there is no place of business or fixed establishment, the place of the permanent address or usual place of residence of the person receiving the service determines the place of supply.
Where the recipient is a business, it must self-account for VAT. Where the recipient is a non-business consumer/customer, the place of supply is generally where the supplier is established. In this case, the supplier charges VAT in his home state.
Evidence of Supply
If a business supplies services to a business customer in another European Union (EU) Member State, it must do the following:
- obtain the business customer’s Value-Added Tax (VAT) number and confirm its validity
- insert the customer’s VAT number on the invoice and retain records of the transaction
- issue an invoice indicating reverse charge will apply
- obtain a letter from the tax authorities if a business customer is a new business and a VAT number is not available
- establish if the supply is exempt in the other Member State for the purposes of VAT Information Exchange System (VIES)
- include the supply on the VIES return if it is taxable.
A VIES statement will be required to show details of the services supplied and the correct VAT number of the new business.
Equally, where a service provider in another state provides services to a business customer in Ireland the Irish business customer is obliged to register (if necessary) and account for VAT. There is no VAT in the EU service provider’s home state.
Supply of Services to and by Businesses outside the EU
After the United Kingdom leaves the European Union it will become a third country for VAT purposes unless alternative arrangements are made. Therefore the following will apply.
The position in the UK will be the mirror image, at least initially as the UK indicates it will replicate the EU VAT system on Brexit. Ireland will be a third country from the UK perspective (absent any special relieving arrangements.)
As with suppliesB2B within the EU, the general rule is that the supply of services to business customers outside the EU is not subject to VAT in Ireland. This is because the place of supply is usually deemed to be where the business customer is established (outside the EU). The supply may be taxable in the third country (in the current context, the UK) under its VAT rules.
For the services to be supplied free of VAT, the supplier will need to provide proof that the customer is established outside the European Union (EU) and is a business. The trader should obtain sufficient evidence and proof that the customer is a business / taxable person. He should obtain the following:
- proof as to the place of establishment of the customer outside the EU
- proof that the customer is a trader / business, such as sufficient evidence from the customer to show that he or she is a taxable person.
The general position is that when a service provider outside the EU provides services to a business in Ireland the business is liable to account for Irish VAT. Generally the service will not be subject to VAT in the service providers home state outside the EU.
Supplies to non-Business customers in another EU State
The general rule in the case of services supplied to non-business customers in the EU is that Irish VAT is chargeable. Where the services are supplied from an establishment in Ireland, it is the place of supply. There are important exceptions for digital and telecommunications services.
Equally where a business in another EU state makes supplies to a non-business customer in Ireland VAT is usually chargeable in that other state and not in Ireland.
Supplies by businesses outside the EU to non-business customers
It depends on the nature of the service as to whether VAT applies. If the service is subject to VAT by the special rules applicable to that type of service, the supplier from outside EU must register and account for VAT in the state of supply.
There is a VAT scheme in the case of non-EU businesses that supply electronic services to private consumers in the EU. In this case, the trader may opt to register in one EU state which acts as agent and remits VAT to and on behalf of the states in which VAT is due by the non-EU supplier.
Supplies to non-business customers outside the EU
Where the service is provided to a non-business customer/consumer outside the EU VAT may or may not be chargeable depending on the nature of the service involved.
Where the supply is exempt, the supplier will need to provide proof that the customer is established outside the European Union (EU). The trader must obtain the necessary information from the customer and verify the accuracy of that information. Credit card pre-authorisation checks can verify the address associated with a card number.
Subject to some exceptions, Irish VAT is not chargeable on the following services supplied to non-business customers established outside the EU:
- transfers and assignments of copyrights, patents, licences, trademarks and similar rights
- advertising services
- the services of consultants, engineers, consultancy firms, lawyers, accountants and other similar services, as well as data processing and the provision of information
- obligations to refrain from pursuing or exercising a business activity or a right
- banking, financial and insurance transactions including reinsurance
- the supply of staff
- the hiring out of movable tangible property, with the exception of all means of transport
- the provision of access to, and of transport or transmission through, natural gas and electricity distribution systems and the provision of other services directly linked thereto
- telecommunications services
- radio and television broadcasting services
- electronically supplied services.
Services not included in the list above, supplied to a non-business customer outside the EU are subject to Irish VAT at the appropriate rate.
Exceptions / Special Rules
There are a number of general exceptions to the place of supply rules for VAT purposes. In these cases the nature of the services are such that they are deemed to be subject to VAT in a particular state, usually with a close connection to the service. In this case general rules above do not apply. The trader may be obliged to register in the other country for this purpose.
Events and Catering
In the case of cultural artistic sporting scientific educational and entertainment or similar services place of supplies where the event takes place. In relation to other ancillary services the general business to business rule applies. In the case of supplies to non-businesses of services and ancillary services in relation to the event the place of supply is where the event takes place.
In the case of restaurant and catering services the place of supply supplier is established. Where they are for consumption on board ships aeroplanes and trains within the EU .the place of supply is the point of departure of the ship plane or train
Connected with a Place
There supply of services in connection with real property and land is where the real property/land is situated. This would cover for example services in connection property development conveyancing architecture et cetera. Where the service provider is outside Ireland and the work is carried out in Ireland it accounted for by the Irish business recipient on reverse charge basis by that business sub-unit
Services in connection with the supply of property are deemed to take place where the property is located. Therefore, if a Dublin based solicitors firm provides conveyancing services in the United Kingdom, the place of supply is the United Kingdom. The firm must register with the UK Revenue, irrespective of whether the recipient is a consumer or a business.
Services supplied in connection with cultural, artistic, sporting, scientific, educational, entertainment, or similar activities (including fair and exhibits) are deemed supplied where they take place. Therefore the persons performing the services (and thereby supplying them) must register in that place. As set out elsewhere, promoters and persons supplying premises may be liable to account for VAT for such services.
There were formerly more complex rules in relation to transport. Under the new rules, transport services provided to a business are deemed to take place where the recipient is based. Therefore, the recipient accounts for VAT. Where a supply of transport of goods is involved and there is no transport between member states, the place of supply is where the transport takes place.
A transport of goods between member states involves a departure in one state and an arrival in another state. Where the goods are transported between EU states to a consumer, the place of supply is the place of departure. Therefore, the supplier charges VAT in his home state to the consumer recipient in the other member state.
Formerly, there were special rules in relation to work on movable goods and on ancillary transport activities, such as handling and loading goods (other than those ancillary to the transport of goods between EU states). Generally, they were deemed supplied where they were performed. However, under the post-2010 rules, they are generally supplied where the recipient business is established.
In the case of passenger transport services both those supplied to businesses and nonbusiness customers the place of supply is where the transport takes place. In the case of transit within the European Union by businesses to non-businesses the place of supply is the place of departure. VAT is payable in the place of supply
In the case of supplies to non-registered customers/consumers, the old rules remain. The services are deemed to be provided where they are actually carried out.
There is an exception to the general rules where vehicles are hired short term. This generally means hire for less than 30 days. The place of supply with the consequent obligation to register and charge VAT is where the car or vehicle is put at the customer’s disposal.
In the case of longer-term hires, the general rule applies. In the case of supply to a business the recipient accounts. In the case of a supply to a consumer, the place of establishment of the hire company applies and VAT is charged in that state.
There are special rules of supply rules for e-commerce services provided to private persons. Those provided to businesses are deemed to be provided where received.Those supplied to consumers are deemed supplied where the consumer is based with the consequence that the recipient must account for VAT there. If this is another member state, the VAT is charged in that state.
EU suppliers may avail of an EU scheme by which they may register with their own revenue authority which will in turn account for the tax to the respective states where the non-business recipients are based. The relevant state then redistributes the revenue at the relevant tax rate to the various states in which supplies are made. The scheme is an alternative to registration in each state
Non-EU suppliers of electronics services may also avail of a similar l EU scheme, designed to obviate the need for them to register in each member state. They may register in a single state and make a single return in the chosen state. The relevant state then redistributes the revenue at the relevant tax rate to the various states in which supplies are made. The scheme is an alternative to registration in each state.
Use and Enjoyment in EU/ Ireland
The use and enjoyment rules ensure that services are taxed where the service is used and enjoyed. The rules prevent double taxation, non-taxation or distortions of competition. These provisions ensure that the place of the supply of a service is where the service is actually used and enjoyed.
The use and enjoyment rules only apply to the following areas:
- Hiring of movable goods
- Hiring out of means of transport
- Telecommunications services
- Financial services.
Where the place of supply of a service is the State under the general rule, if that service is actually used and enjoyed outside the European Union (EU), then the place of supply is deemed to be outside the EU.
Alternatively, in a case where the place of supply of a service is outside the EU, if that service is actually used and enjoyed in the State, then the place of supply is the State.
Hiring of movable goods
The place of supply of the hiring of movable goods is deemed to be the State where:
- the place of supply would be outside the EU under the general rules and
- the service is used and enjoyed in the State.
The place of supply of the hiring out of a means of transport is deemed to be outside the EU where:
- the place of supply would be the State under the general rules and
- the service is used and enjoyed outside the EU.
There are two use and enjoyment rules for telecommunication services. In the case of telecommunication services, radio and television broadcasting services and telephone cards
The place of supply of these services or cards to consumers is deemed to be the State where:
- the place of supply would be outside the EU under the general rules and
- the services or card are used and enjoyed in the State.
In the case of telecommunications and phone cards, the place of supply of telecommunications services or cards by an Irish established business to a consumer is deemed to be the State where:
- the place of supply would be outside the EU under the general rules
- the service or card is used and enjoyed in the State.
Financial services such as banking and insurance are deemed to be provided where they are used and enjoyed. Such services are generally exempt. Where the services are provided outside the EU, there are special provisions providing for recovery of VAT input or costs.
Financial services include banking, insurance, reinsurance and financial fund management but exclude the provision of safe deposit facilities.
The place of supply of financial services to consumers is deemed to be the State where:
- the place of supply would be outside the EU under the general rules and
- the services are used and enjoyed in the State.
Non-established traders doing business in Ireland
In some cases, non-established traders are required to register and account for VAT in the State, regardless of the level of their turnover.
Non-established traders are required to register where he or she:
- import goods into the State
- supply goods in the State
- supply goods and services on board vessels, aircraft or trains leaving the State for another European Union (EU) Member State
- engage in distance selling of goods to a person who is not a taxable person in the State
- engage in the supply of services connected with immovable goods located in the State, including the services of builders, plumbers and the like, estate agents, architects and firms providing cleaning and security services and on site supervision in relation to property
- engage in the transport of goods or ancillary transport activities for a customer who is not registered for VAT where the transport service begins in the State
- engage in cultural, artistic, sporting, scientific entertainment or similar services to private individuals in the State
- engage in the valuation of movable goods within the State, including contract work where the service is supplied to a private individual
- engage in catering services physically carried out within the State
- are established outside the EU and engage in the hire of movable goods for effective use within the State
- engage in the supply of a telecommunications service, or telephone cards, or radio or television broadcasting services from outside the EU to a private individual in the State in certain circumstances.
- engage in the supply of electronic services from outside the EU to a private individual whose usual place of residence is the State. These services include the following:
- website supply, web-hosting, distance maintenance of programmes and equipment
- supply of software and the updating of it
- supply of images, text and information, and making databases available
- supply of music, films and games, including games of chance and gambling games and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events
- supply of distance teaching.