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Ireland Government Stimulus Plan – VAT rate reduction

Insight 25 August 2020

Ireland Government Stimulus Plan – VAT rate reduction

The Irish Government recently announced the much-anticipated July Stimulus plan, with particular emphasis on stimulating and supporting businesses at all levels that continue to be negatively impacted by the COVID-19 crisis.

The Stimulus Plan is expected to cost up to €5.2 billion. The standout measure included in the Stimulus Plan is a temporary reduction to the standard rate of VAT in Ireland from 23% to 21% for a six-month period from 1 September 2020 to 28 February 2021.  This mirrors similar VAT rate reductions announced in other countries, most recently, the United Kingdom. The reduced VAT rate of 13.5% will remain the same.

In considering the VAT rate reduction, we envisage the reduction from 23% to 21% can potentially impact Special Purpose Vehicles and Funds from a cash flow perspective. Furthermore, although not impacting the VAT on acquisition, we see potential benefits for real estate clients following acquisition, particularly where additional costs post acquisition are significant.”

Additionally, for certain properties subject to letting, the VAT on rent and rates charged at the standard rate should be temporarily reduced to 21%. Likewise, in a situation where a contract has been entered into at the time the 23% VAT rate applies, and the contract is not completed before 1 September 2020, an adjustment to the account for the decrease in the VAT rate may be necessary.

From 1 September 2020, VAT invoices issued by a VAT registered person/entity to another VAT registered person/entity should indicate VAT at the new 21% rate even if the goods or services were supplied before this date.  There can be further positive implications from a cash flow point of view in respect of  bi-monthly VAT returns processed during the six-month period, particularly where in receipt of VAT taxable reverse charge services from non-resident suppliers. The reverse charge mechanism is charged at the standard rate of VAT. Consequently, the reduction of the standard rate should in turn reduce the VAT payable, depending on the recovery rate applicable at the time.

Other notable measures included in the Stimulus Plan are:

  • The pandemic unemployment payment is to be extended until April 2021but will be closed to new applicants in September.
  • A new "Employment Wage Support Scheme" will succeed the temporary wage subsidy scheme and run until March 2021.
  • There will be reduced interest rates available for loans to small and medium-sized enterprises.
  • The waiver of commercial rates has been further extended until the end of September 2020.
  • Corporation Tax loss relief for companies and the ability to set off losses for 2020 against 2019 taxable gains.

How can Sanne help?

Sanne can provide the full range of services to comply with the obligations under the law.

Our dedicated VAT experts at Sanne would be delighted to provide further assistance on the VAT related matters outlined above or any other VAT related issues. The team have a proven track record in assisting clients and entities administered through new taxation and compliance requirements. We take great pride in our ability to deliver the solutions required by our clients to support their private debt and capital markets investment structures, in an ever-evolving industry.

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