Quick question - VAT

tweety11981

Hi all, if I am not VAT registered and company X is VAT registered, obviously I buy the goods and pay VAT on them, but do I sell the goods to customers including the VAT? thanks, a little confused on the VAT side of things! I understand the turnover limits and why register for VAT etc.

I Drink It Up!

tweety11981 wrote: »

Hi all, if I am not VAT registered and company X is VAT registered, obviously I buy the goods and pay VAT on them, but do I sell the goods to customers including the VAT? thanks, a little confused on the VAT side of things! I understand the turnover limits and why register for VAT etc.

Hi Tweety, if you go to the phone book you will find a section which deals with government departments and the revenue. Every county in Ireland has its own local number, which you call. They will try to explain it to you.

Basically, from what I have gathered, the case is that if you do not anticipate a turnover of more than €75,000 then you are not obliged to register for VAT purposes.

However, if you want to claim VAT back, you must first register.

If you pay VAT without registering, you cannot claim that VAT back retrospectively.

The nature of VAT is that it is charged to CUSTOMERS/BUYERS as opposed to sellers.

The man I spoke to made mention of keeping a record of the VAT you charged your customers and then trying to reclaim the VAT you paid upon entry of the product to the country.

VAT is a mystery to me, I will be honest. Maybe this should be the official VAT thread.:cool:

tweety11981

Hi Drink it up :-) (love the name!)

I'm so confused about VAT also! yes, if you earn more than 75k you don't have to register for Vat, but you can if you want.

So I wonder does that mean when I buy the products and I pay VAT (as stated on website), I charge it to customers and try claim it back?

Yes, I agree would be a great VAT thread!

dbran

Hi

I have written a blog about VAT you may find useful.

http://www.irishaccounts.ie/blog/2010/04/vat-whats-the-deal/

Kind Regards

dbran

tweety11981

Thanks DBran, useful site. I wonder could you answer my question though, im still a bit confused:rolleyes:

I Drink It Up!

Here is my interpretation of it.

1. When you import, you get nailed for VAT at either 21% or 13.5%, whether you are registered for VAT or not.

2. VAT is charged on the CIF, that is to say, the final figure realized when COST INSURANCE and FREIGHT are totalled.

3. You can claim this VAT back only {a} if you are registered for VAT and {b} you have charged VAT to your customers.



My basic problem is that I will be paying upwards of €300 on imports in the form of VAT. How do I get this back and remain competitive all at the same time.

tweety11981

Im importing from an EU country, that want 19% VAT as im not VAT registered, so must be different rates for different countries?? My shipping cost is 15euro which is fine. do you mind me asking where are you importing from, feel free to PM if you want

I Drink It Up!

tweety11981 wrote: »

Im importing from an EU country, that want 19% VAT as im not VAT registered, so must be different rates for different countries?? My shipping cost is 15euro which is fine. do you mind me asking where are you importing from, feel free to PM if you want

Hello Tweety, like many people, I am importing from China. My shipping cost is higher than €15. I don't know why there are different rates of VAT, I thought there were only 2 rates, namely 21% and 13.5%.

tweety11981

Hi, I hope you looked well into your china supplier, lots of scammers out there.

These links may help you:

http://www.citizensinformation.ie/categories/money-and-tax/tax/duties-and-vat/value-added-tax

Also the revenue has a link (click on imports on the list)
http://www.revenue.ie/en/tax/vat/vat-international-transactions-foreign-traders.html

Im not sure why there are different VAT rates, maybe it might be on the above link, I must read it myself! what are you importing ?

tweety11981

I found out why, different VAT rates for different EU countries, thats why its 19% for me.

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

DubTony

OK, lets put this in simple terms. For this example forget about shipping charges.

You buy the goods for €100 + vat. In the case of importing from Germany it's 19% so the goods cost you €119
You sell to the customer with (let's say) a 50% markup.
The result is a selling price of €178.5 (€119 + 50%)
You inform your customer that you're not VAT registered so as you aren't charging VAT he has nothing to reclaim so his cost of goods is €178.50

Here's your VAT registered competitors position.

He buys the goods for €100 and pays no vat on an international (European) transaction. (If he bought the goods in Ireland he'd pay the VAT at 21% and reclaim the VAT element of the transaction, so his cost is the same)
He sell the goods to his customer at €150 + VAT @ 21% = €181.5. However his VAT registered customer can reclaim the VAT making his actual product cost €150. So your competitor has the advantage of selling the product for €28.50 cheaper than you do and making the same percentage profit.

In order to compete with him you need to sell at €150 and so your margin is reduced. He makes 33% in this example (€50 out of a €150 sale) while you make a 20% profit (€31 out of a €150 sale)

My advice is that if you've got VAT registered customers, you should be registered for VAT irrespective of thresholds.

tweety11981

Thanks DubTony. So, it is cheaper to import from Spain and Luxembourg as they have a lower VAT rate? (15%?)

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

Basically, if im not VAT registered I have nothing to do with Tax, just pay whatever tax rate that applies to the country, so I have lower profit margins? Is this correct?

i will be selling clothes online, but hoping to branch into a souvenir shop in the future so maybe VAT will benefit me in this with Americans etc. Is importing from Asia similar with VAT?

RUDOLF289

tweety11981 wrote: »

Thanks DubTony. So, it is cheaper to import from Spain and Luxembourg as they have a lower VAT rate? (15%?)

http://ec.europa.eu/taxation_customs/resources/documents/taxation/vat/how_vat_works/rates/vat_rates_en.pdf

Basically, if im not VAT registered I have nothing to do with Tax, just pay whatever tax rate that applies to the country, so I have lower profit margins? Is this correct?

i will be selling clothes online, but hoping to branch into a souvenir shop in the future so maybe VAT will benefit me in this with Americans etc. Is importing from Asia similar with VAT?

Hi Tweety 11981

I would be with Dubtony on this. If you are importing, be it from an EU member state or from outside the EU (e.g. USA, China etc), register for VAT.

In case of imports from another EU member state, if you are registered for VAT, they would not have to charge you VAT. You would have an obligation to account for the transaction in your VAT return and if you are importing above Eur 191.000 in a 12 month period, you also have to file INTRASTAT returns. In your VAT return you accrue a liability and at the same time claim a deductible input, so your VAT outlay is ZERO.

In case of imports from outside the EU your normally would expect to pay VAT at the point of entry. The VAT you pay on imports is again a deductible input so you claim that back in your VAT return. So ultimately the transaction becomes ZERO.

Obviously once you register for VAT you need to charge your clients 21% VAT. The VAT you receive from your client is accounted for in your VAT return. Your deductible input (on imports from outside the EU) is offset against the VAT due on your sales, you remit the balance due.

Please see attached the latest VAT guide. Feel free to post or PM me if you have any further questions.

Regards,
Rudolf289

tweety11981

Hi Rudolf

I was thinking since I would be only starting out selling on a small scale to test the waters, would I be better off as a sole trader? Interested in importing from an EU country that has a low VAT rate. so basically, as sole trader I pay for VAT, and that's it. I guess I loose out a bit with that as I can't get it back. Is it true VAT returns can be costly?

I don't see the lastest VAT guide attached...maybe it's just me!

I Drink It Up!

DubTony wrote: »

OK, lets put this in simple terms. For this example forget about shipping charges.

You buy the goods for €100 + vat. In the case of importing from Germany it's 19% so the goods cost you €119
You sell to the customer with (let's say) a 50% markup.
The result is a selling price of €178.5 (€119 + 50%)
You inform your customer that you're not VAT registered so as you aren't charging VAT he has nothing to reclaim so his cost of goods is €178.50

Here's your VAT registered competitors position.

He buys the goods for €100 and pays no vat on an international (European) transaction. (If he bought the goods in Ireland he'd pay the VAT at 21% and reclaim the VAT element of the transaction, so his cost is the same)
He sell the goods to his customer at €150 + VAT @ 21% = €181.5. However his VAT registered customer can reclaim the VAT making his actual product cost €150. So your competitor has the advantage of selling the product for €28.50 cheaper than you do and making the same percentage profit.

In order to compete with him you need to sell at €150 and so your margin is reduced. He makes 33% in this example (€50 out of a €150 sale) while you make a 20% profit (€31 out of a €150 sale)

My advice is that if you've got VAT registered customers, you should be registered for VAT irrespective of thresholds.

That makes sense. It seems that we are going to get nailed with the vat, one way or the other.

My only issue is this: how troublesome or trouble-free is the business of getting your goods out of customs WITHOUT being asked for the VAT once you are already VAT registered?

Furthermore, suppose you are liable for X in terms of VAT over any 2 month period and you end up charging your customers more for VAT than you owe the Government...what happens with the difference.??

Cheers:cool:

I Drink It Up!

RUDOLF289 wrote: »

Hi Tweety 11981

I would be with Dubtony on this. If you are importing, be it from an EU member state or from outside the EU (e.g. USA, China etc), register for VAT.

In case of imports from another EU member state, if you are registered for VAT, they would not have to charge you VAT. You would have an obligation to account for the transaction in your VAT return and if you are importing above Eur 191.000 in a 12 month period, you also have to file INTRASTAT returns. In your VAT return you accrue a liability and at the same time claim a deductible input, so your VAT outlay is ZERO.

In case of imports from outside the EU your normally would expect to pay VAT at the point of entry. The VAT you pay on imports is again a deductible input so you claim that back in your VAT return. So ultimately the transaction becomes ZERO.

Obviously once you register for VAT you need to charge your clients 21% VAT. The VAT you receive from your client is accounted for in your VAT return. Your deductible input (on imports from outside the EU) is offset against the VAT due on your sales, you remit the balance due.

Please see attached the latest VAT guide. Feel free to post or PM me if you have any further questions.

Regards,
Rudolf289

Thanks Rudolf. The only gray area for me on the matter is this: are we absolutely sure that once we register for VAT that the VAT payment at the time/point of entry is definitely suspended in favour of a VAT return 2 months later? Thanks.

mickbyrne

Tweetie, maybe I'm missing the point ofthis thead but if you are not registered for vat and buy something for 100+19 vat, ie 119- your cost price is 119 and the vat is irrelevant. When you sell it you add on your markup and that's it.

There is a different question to be answered as to whether or not you should be registered in thefirst place

dbran

tweety11981 wrote: »

Thanks DBran, useful site. I wonder could you answer my question though, im still a bit confused:rolleyes:

Hi Tweety

No. If you are not registered for VAT you do not charge VAT to anyone. Period!

You basically act as if VAT does not exist and it is just a cost to you. If you are competing against VAT registered business you can charge the same price as them to the customer. The only thing is you cant claim back any VAT on your supplies.

Hope this helps

dbran

dbran

I Drink It Up! wrote: »

My only issue is this: how troublesome or trouble-free is the business of getting your goods out of customs WITHOUT being asked for the VAT once you are already VAT registered?

Furthermore, suppose you are liable for X in terms of VAT over any 2 month period and you end up charging your customers more for VAT than you owe the Government...what happens with the difference.??

Cheers:cool:

Hi Drink it up.

I still dont think you understand how the VAT system works.:)

Basically if you are VAT registered, you are charged VAT by your suppliers and you in turn charge VAT to your customers. At the end of every VAT period, you add up the total VAT on sales and the total VAT on purchases and take one from the other. If there is more VAT on sales then purchase you pay the net difference, if there is more VAT on on purchases then sales you get a refund of the difference.

Regarding VAT at the point of entry, this VAT is effectivly the same as the VAT you are charged by suppliers. You can therefore claim it back on your VAT return so you add it to the total VAT on your purchases.

Whether or not you are VAT registered you will have to pay VAT at the Point of entry (if it is due) before you can get your goods out of customs. Once you pay it you can then claim it back on your VAt return.

Hope this helps

dbran

RUDOLF289

I Drink It Up! wrote: »

Hello Tweety, like many people, I am importing from China. My shipping cost is higher than €15. I don't know why there are different rates of VAT, I thought there were only 2 rates, namely 21% and 13.5%.

Hello Idrinkitup,

Indeed, in Ireland there are only 2 VAT rates (well 3, if you count a Zero rate aswell), being 13.5% and 21%. However, each EU country is free to set their own rates for VAT (between a minimum and a maximum). Most products are at 21% in Ireland. Refer to the VAT Guide in my previous post for more information.

Cheers,
Rudolf289

dbran

I Drink It Up! wrote: »

Thanks Rudolf. The only gray area for me on the matter is this: are we absolutely sure that once we register for VAT that the VAT payment at the time/point of entry is definitely suspended in favour of a VAT return 2 months later? Thanks.

No it is not suspended. You have to pay it and then reclaim it back on your VAT return as a VAT credit.

RUDOLF289

tweety11981 wrote: »

Hi Rudolf

I was thinking since I would be only starting out selling on a small scale to test the waters, would I be better off as a sole trader? Interested in importing from an EU country that has a low VAT rate. so basically, as sole trader I pay for VAT, and that's it. I guess I loose out a bit with that as I can't get it back. Is it true VAT returns can be costly?

I don't see the lastest VAT guide attached...maybe it's just me!

Hello Tweety 11981,

First of all, whether you are a private individual, sole trader or a limited company the same VAT rules apply.

What is important to realise, as some of the contributors to this thread have pointed out, if you register for VAT, two things happen.

1) You can claim VAT back on your deductible expenses / inputs. For instance VAT you pay at the point of entry on goods imported from outside the EU, VAT on goods you buy in Ireland as part of your business activities.

2) You collect VAT on your sales invoices, i.e. you add 21% to your selling price.

NB : When your turnover is below 1 million Euro, you can ask revenue to only remit VAT on cash received, ie you only account for VAT that you actually have received. If your turnover is more than 1 million Euro, you actually have to account for VAT invoiced (.....)

Doing VAT returns can be outsourced to your accountant. Obviously he or she will charge a fee for doing so. You can do the VAT returns yourself, in all, provided you keep proper records, it is not a major exercise and it could save you money.

I am attaching the VAT guide one more time. Look below my signature, there is a box marked : attachments

Keep asking questions, check the various websites and the VAT guide. There is plenty of help and goodwill out there.

Best of luck,
Rudolf289

RUDOLF289

dbran wrote: »

No it is not suspended. You have to pay it and then reclaim it back on your VAT return as a VAT credit.

Hello Dbran,

in the normal course of events indeed, you would need to pay the VAT at the time the goods are entered to customs. However, you can structure imports in such a way that you can defer VAT on imports to your VAT return. This would particularly work on container / full load shipments. On that basis you would account for the VAT in your VAT return, accrue the liability and at the same time claim the deductible input for the same amount. Needless to say, you would improve your cashflow position.

Cheers,
Rudolf289

dbran

RUDOLF289 wrote: »

Hello Dbran,

in the normal course of events indeed, you would need to pay the VAT at the time the goods are entered to customs. However, you can structure imports in such a way that you can defer VAT on imports to your VAT return. This would particularly work on container / full load shipments. On that basis you would account for the VAT in your VAT return, accrue the liability and at the same time claim the deductible input for the same amount. Needless to say, you would improve your cashflow position.

Cheers,
Rudolf289

Oh. Learn something new every day Do you have to apply to revenue to do this?

Kind Regards

dbran

RUDOLF289

dbran wrote: »

Oh. Learn something new every day Do you have to apply to revenue to do this?

Kind Regards

dbran

Hi Dbran,

no, you don't have to apply to revenue, you just need to employ the services of a forwarder who can make the required arrangements and look after the formalities. It involves clearing the goods at the point of transhipment (usually Rotterdam or Antwerp), account for the VAT transaction in that jurisdiction on the basis that the goods are immediately onforwarded to Ireland (e.g. file the European Sales Listing - VIES - and do an INTRASTAT return). The importer here in Ireland simply accounts for the transaction in his VAT return as an Intra European Aquisition and files the corresponding INTRASAT return.

Cheers,
Rudolf289

tweety11981

Everyone, thanks so much, Mickbyrne you answered my question in a nutshell! Rudolf thanks so much for the VAT attachment, lot of reading to do! I am just starting out so I don't think know if it will be worth my while registering for VAT at the moment, I can always do it at a later date.

I see that Malta and Belgium have the lowest VAT rates, does this mean I'd get the goods cheaper?

I Drink It Up!

Okay, I understand VAT a lot better.

Basically, for me to be competitive, I have to forget about Air Transport and go for the cheaper shipping option.For me to be competitive I have to forget about charging vat. In otherwords, VAT eats my profits. I guess my income tax returns will have to be the greatest work of Art since the Mona Lisa in order for me to make any money.

This also now means I have to work harder against having the infamous "Chinese Surcharge" imposed on otherwise modest shipping fees.

It also means my plan, basically, has been set back in terms of time by the difference between air shipping and sea shipping. Luckily I have some samples on the way which will keep me occupied in the interim.

Thank you all for your time and help. It is most appreciated.

RUDOLF289

tweety11981 wrote: »

Everyone, thanks so much, Mickbyrne you answered my question in a nutshell! Rudolf thanks so much for the VAT attachment, lot of reading to do! I am just starting out so I don't think know if it will be worth my while registering for VAT at the moment, I can always do it at a later date.

I see that Malta and Belgium have the lowest VAT rates, does this mean I'd get the goods cheaper?

Hi Tweety11981,

trust you realise the VAT rate is not the only ingredient in your cost price (that is if you don't register for VAT). Just because the rate of VAT is cheaper in Malta and Belgium, does not follow that your overall cost is cheaper. It really depends on what a supplier quotes you and equally important, how expensive it is to bring your goods from Malta or Belgium to Ireland.

I realise you have a lot to read through. I still believe, if you trade where you buy and sell goods that it makes sense to register for VAT. It allows you and your customers to deduct that VAT in their VAT return and makes you more competitive (or allows you to make more margin). Taking in VAT as part of your cost - no matter what the VAT rate is - adds to your cost.

Now, enough of the lecture (sorry ...). Any request for assistance will be answered.

Cheers,
Rudy289