VAT registration and tax compliance for Grape Limited in Ireland

¶ … professional VAT (value added tax) advice for the managing director of the Grape Limited. The Grape Limited is a U.S. multinational company and decides to incorporate new companies that provide supply management services, management company, manufacturing company and marketing companies. The management company will deliver supply management services to foreign services providers. On the other hand, the manufacturing company will focus on the electronic parts, and marketing company will deliver marketing services for the parts manufactured by the manufacturing company.

VAT Registration

The VAT (value-added tax) is a government levy on any goods or services produced in the Republic of Ireland. The first condition that must be fulfilled before Grape Limited demands for the VAT numbers is to incorporate its businesses in the Republic of Ireland. After the company registrations, the next step is to apply for the VAT number. To apply for the VAT registration number in the Republic of Ireland, your company must open an Irish business bank account, which must be opened in the company name. Moreover, you must fill in the Irish VAT registration form, which is available at the website of the Irish Tax and Customs website (http://www.revenue.ie/en/tax/vat/forms/). (Irish Tax and Custom 2014). The website contains all the VAT forms for the individual and companies. The Grape Limited should download "TR2 Registration Form" from the Irish Revenue website. The form is used for the application of the VAT number. It is important to fill this form in a correct format because if the form is filled incorrectly, it may delay the tax registration. It is advisable to fill the form with the assistance of a tax expert to supply correct information.

Typically, VAT is a starting point for the tax registration for a newly registered business in Ireland. The VAT is an indirect tax, which the Irish Revenue uses to collect revenue indirectly from a company. The government leaves the responsibility for the company to collect the tax from the customer and pass the tax to the government. One of the benefits of the VAT is that organizations can pass the tax to customers. Moreover, VAT registered organizations can usually claim tax credits from the Irish Revenue. (KPMG, 2009).

The process that the Irish Revenue uses to processes the VAT return is that when purchase is greater than the VAT on company sales, an organization is due for a refund. Thus, Grape Limited can reclaim VAT for the goods and services purchased thus reducing the costs of production. Moreover, the company can transfer the VAT charges that need to be paid to customer. Rather than paying tax directly to the Irish Revenue, the company can collect the tax from customer. Thus, the VAT can boost the profits of the Grape Limited, given the Grape an appearance of more established and bigger company. (O'Brien, 2014).

Currently, an organization must register for VAT if the company is generating a turnover of €37,500 for twelve months in case a company is providing services. However, annual turnover of a company supplying goods should reach €75,000 to register for VAT. Similarly, a company can register for the VAT if supplying goods and services reaching €75,000 where more than 90% of the turnover are from supplying of good.

In Ireland, the standard rate for VAT is 23% starting from January 1, 2012. Although, there is a reduce tax of 13.5% for producing goods and services such as building work, works of art, repair services, veterinary services and child car seats. However, some related tourism businesses such as catering, restaurants, hotels as well as holiday accommodation enjoy a reduced VAT rate of 9%. Since the product and services delivered by the Grape Limited is not in these business categories, the company will be liable to the 23% the VAT standard rate. Other benefit of VAT is that it can assist the company to reduce costs of production because the company can enjoy tax credits using the VAT. The best strategy to pay VAT is to use an online service available at the website of the Irish Revenue. The company can upload its tax returns at the Irish Revenue website and the VAT will be debited from the tax returns.

However, the Irish Revenue levies a penalty of €4,000 for failing to register for VAT. Moreover, a company that qualifies for VAT and fails to register will be liable for all unpaid VAT. The company may also be liable to pay 100% of tax due added with 0.0274% per day of interest rates.

In essence, the Grape Limited should file the VAT returns on a bi-monthly basis, and the company must submit the VAT returns on the 19th March for the January and February VAT period. Failure of the company to furnish the tax returns as well as settling the outstanding payment can lead to the penalty of EUR4,000 and 100% of tax due and the interest rate of 0.02274% per day. The company should use the form VAT 3 for the VAT returns. (Irish Tax and Custom, 2014).

2: VAT Group Registration

Grape Limited can make VAT group registration based on the following conditions: First, all the companies intending to become a VAT group member must incorporate in the Republic of Ireland. Thus, the Grape Limited must incorporate the following companies to apply for VAT grouping on their behalf:

management company that will receive services from an overseas service provider and deliver management services to the other entities.

manufacturing company that will manufacture electronic parts.

marketing company that will deliver marketing services for the parts of the manufacturing company.

Moreover, these companies must be linked economically and financially. They must also be linked organizationally. More importantly, Irish Revenue allows VAT groups, if these companies have 50% common ownership. In essence, Grape Limited must ensure that its management company, manufacturing company and marketing company must be linked financial and economically to make the VAT grouping possible. Moreover, the Grape Limited must ensure that all these companies share a common organizational structure, ideology and system to make VAT grouping possible. The main benefit of VAT grouping is that the company can derive tax benefits from intra-group supplies. The shortcoming of VAT grouping is that VAT group will be jointly liable for the liabilities of all members. The company can assess the VAT group registration form on the website of the Irish Revenue:

http://www.revenue.ie/en/tax/vat/forms/vat53.pdf

http://www.revenue.ie/en/tax/vat/forms/vat52.pdf (Irish Tax and Custom, 2014).

3: VAT Invoicing

The Grape Limited will be VAT accountable for any invoice that the company issues during the tax period. In essence, the company must pay the VAT that have been shown on the invoices whether it has been issued or not. Grape Limited can also issue credit notes for any invoice that has not yet been paid. The company is required to issue tax to accountable person who is Irish VAT registered that supply goods or services. The company can also issue the tax invoices for entities in the following categories:

accountable person who is VAT registered a public body

An individual carrying activity .

An entity in another EU Member State.

A tax invoice should contain the following data:

Issue date a sequential invoice number.

supplier name and address

VAT registration number,

customer name and address,

Nature and quantity of the goods or services supplied.

The amount of tax payable in respect of goods and services supplied.

Taxable amount

Unit price.

Grape Limited can issue the VAT invoice electronically. Since 1 January 2013, the Irish Revenue has allowed organizations to use a modernized and simplified technology to use e-invoicing to eliminate current barriers to issue of invoicing . The new rules is to increase the use of e-invoicing by all the small, medium and large enterprises. (KPMG, 2009).

Non-Deductible VAT

Non-deductible VAT is the type of VAT that is payable by a purchaser, which is not deductible from a purchaser own VAT liability. The company cannot recover VAT from the following items:

exempt supplies,

Goods or services used for non-business activities, employee personal services food and drink

Accommodation, food, drink and personal services.

Hire or purchase of Motor cars . Note: it is still possible to recover 20% of VAT input incurred on the purchase or hire of qualifying vehicle, which is used for the purpose of the CO2 emission of less than 156g/km. This vehicle should be used for 60% of the business purpose.

Business entertainment: The company cannot recover VAT on the costs of business entertainment.

fuel (although the company can reclaim VAT on diesel).

accommodation except conference accommodation that include 50 or more delegates.

goods sold under margin schemes.

5.Cross Border Services Supplied or Received

Importation

If the Grape Limited imports goods from outside the EU member state into the Republic of Ireland, the Grape Limited is required to pay the import VAT, and the company has to pay the tax before the Custom releases the goods. However, the company can still enjoy the deferred VAT payment for the imported goods subject to a bank guarantee.

However, the services bought from another country may enjoy a reverse charge applicable to the service. Under the reverse charge, the company will enjoy the tax advantage by buying services outside the country where the Irish Revenue will offer lower VAT charge or zero VAT.

Reverse charges are applied to the following services that include:

Assignment or transfer of copyrights, licenses, patents, trademarks as well as similar rights.

Advertising services.

Hiring of some movable goods.

Services of engineers, lawyers, consultants, data processing, and other similar services.

Telecommunication services.

Staff provision.

Banking, insurance and financial transactions.

Authorization (Previously Section 13A VAT Act 1972)

VAT Section 56 reveals that when VAT registered company derives 75% or more of the annual income from zero VAT related goods supplied from the Republic of Ireland to customers in another countries or sold to EU members countries or non-EU member states, the trader can apply for zero percent VAT rates. However, the VAT relief does not apply to items such as drink, food, hire or purchase cars.( Chattered Accountant, 2014).

PART B

On 14 October, 2014, the Minister of Finance release the 2015 budget which sets a roadmap for the tax regime. The package measures announced include:

1. "Lowering of the income tax burden on low and middle earners." ( O'Brien, 2014 p 1).

2. "Significant improvements to the income tax regime for foreign workers coming to Ireland. This will afford such workers a marginal income tax rate lower than that which applies in the UK." ( O'Brien, 2014 p 1).

3. "The retention of the 9% tourism VAT rate." ( O'Brien, 2014 p 1).

Typically, the Minister announced that there will be 8% rate (previously 7%) on employment income of more than €70,044 and income on self-employment between 70,044 Euro and

100,000 Euro. However, the government retains the 55% tax rates on self-employed individuals earning more than €100,000. The changes also reveals that people earning an excess of €70,044 will pay 52%/55%.marginal tax rates. (PricewaterhouseCooper, 2014).

Failure to reduce the self-employed tax rates of 55% is disappointing because it is revealed that top 1% earners in the Republic of Ireland are paying more tax rates. Typically, the tax rates can reduce incentive to invest in the Republic of Ireland. (Department of Finance, 2015).

However, the Minister confirms that the VAT rates of 13.5% and 23% remain unchanged. Since the VAT tax rates remain change, the budget will boost economic development of the country because many companies will take the advantages of low VAT tax rates in the Ireland to invest in the country. By leaving the VAT rates as they are, the government will be able to have more revenues for the business development. Despite the benefits that the government will derive from VAT, the VAT rates are not equitable because it is still a double taxation on customer since customer are already paying income tax . It is critical for the government to reduce the VAT tax rate a little bit to reduce a tax burden on people. The improvement of income tax for foreign workers coming to Ireland will attract the skilled workers into the country, which will boost the country economic development.

List of References

Chattered Accountant (2014). Form VAT 56A. Ireland.

Department of Finance (2015).Summary of 2015 Budget Measures Policy Changes. Ireland.

O'Brien, C. (2014). Personal Tax. KPMG Ireland .

KPMG (2009). Ireland: Country Fact File. KPMG International.

PricewaterhouseCooper (2014). Are we there Yet Budget 2013.

Irish Tax and Custom (2014). VAT Rates. Ireland.

Irish Tax and Custom (2014). VAT Forms. Ireland.