VAT question

NoQuarter

Hi all

There is a company in Ireland that is trading and a company in an offshore jurisdiction which is not subject to corporate tax that are linked but both separate entities. All decisions are made offshore (from the sole director of the offshore company who lives offshore and who is 1/2 of the directors of the Irish company). The offshore company will extract all the trading income from the Irish company as is standard in this situation.

However, the offshore company will invoice IrishCo for either management fees or some other type of fee but does VAT arise here as it will essentially be a management service? Can anyone explain how that works?

Thanks

thegolfer

NoQuarter wrote: »

Hi all

There is a company in Ireland that is trading and a company in an offshore jurisdiction which is not subject to corporate tax that are linked but both separate entities. All decisions are made offshore (from the sole director of the offshore company who lives offshore and who is 1/2 of the directors of the Irish company). The offshore company will extract all the trading income from the Irish company as is standard in this situation.

However, the offshore company will invoice IrishCo for either management fees or some other type of fee but does VAT arise here as it will essentially be a management service? Can anyone explain how that works?

Thanks

This would be a service and so the general place of supply rules would apply, with regard to services.

Assuming that it's of a business to business, B2B, the place of supply would be deemed to be Ireland.

Thus the reverse charge would apply, in that the Irish business becomes the accountable person in Ireland for the VAT.

The Irish business accounts for the VAT in Ireland, and if it is in a position can also take a deduction in it's VAT return.

In reality it's a paper transaction, and will have no cash flow impact, assuming the Irish business has full VAT deductability. Relevant details to be filed in the VAT returns also.

If the Irish business only had 50% VAT deductability it would have to pay 50% Of The VAT to Revenue, in Ireland.

NoQuarter

thegolfer wrote: »

NoQuarter wrote: »

Hi all

There is a company in Ireland that is trading and a company in an offshore jurisdiction which is not subject to corporate tax that are linked but both separate entities. All decisions are made offshore (from the sole director of the offshore company who lives offshore and who is 1/2 of the directors of the Irish company). The offshore company will extract all the trading income from the Irish company as is standard in this situation.

However, the offshore company will invoice IrishCo for either management fees or some other type of fee but does VAT arise here as it will essentially be a management service? Can anyone explain how that works?

Thanks

The Irish business accounts for the VAT in Ireland, and if it is in a position can also take a deduction in it's VAT return.

In reality it's a paper transaction, and will have no cash flow impact, assuming the Irish business has full VAT deductability. Relevant details to be filed in the VAT returns also.

If the Irish business only had 50% VAT deductability it would have to pay 50% Of The VAT to Revenue, in Ireland.

Thanks for that.

Could you explain the quoted bit a bit more in practical terms?

How do I know if IrishCo has VAT deductability and to what extent?

I have read the Revenue page on VAT but still cant get my head around this.

NoQuarter

Quick bump in the hope of an answer!

Timbo1987

where is the "Offshore" location. VAT would be dependent on this.

thegolfer

NoQuarter wrote: »

Thanks for that.

Could you explain the quoted bit a bit more in practical terms?

How do I know if IrishCo has VAT deductability and to what extent?

I have read the Revenue page on VAT but still cant get my head around this.

Assuming the Irish company is a trading company, in say software development, no exempt turnover, then it should have 100% VAT deductability.

If the foreign company invoices for €10k, the Irish company would have to account for the VAT here in Ireland on that foreign invoice.

€ 10.000 @ 23%

T1 Sales VAT € 2,300
T2 Purchases VAT € 2,300
T3 VAT due. Nil

Above is a basic summary of your VAT return.

NoQuarter

Timbo1987 wrote: »

where is the "Offshore" location. VAT would be dependent on this.

It's a non-EU jurisdiction with no double tax treaty!

thegolfer wrote: »

NoQuarter wrote: »

Thanks for that.

Could you explain the quoted bit a bit more in practical terms?

How do I know if IrishCo has VAT deductability and to what extent?

I have read the Revenue page on VAT but still cant get my head around this.

Assuming the Irish company is a trading company, in say software development, no exempt turnover, then it should have 100% VAT deductability.

If the foreign company invoices for 10k, the Irish company would have to account for the VAT here in Ireland on that foreign invoice.

10.000 @ 23%

T1 Sales VAT 2,300
T2 Purchases VAT 2,300
T3 VAT due. Nil

Above is a basic summary of your VAT return.

Yes it's a trading company providing a service to the public.

Thanks, that's very helpful.

I think I understand the T1 Sales VAT as the reverse charge as it's a non-EU business to business transaction. Is the T2 Purchases VAT the corollary of that because the Irish company had to reverse charge?

So this is basically all just figures on a page then and no liability to Revenue actually arises here?

Thanks again.

thegolfer

NoQuarter wrote: »

It's a non-EU jurisdiction with no double tax treaty!



Yes it's a trading company providing a service to the public.

Thanks, that's very helpful.

I think I understand the T1 Sales VAT as the reverse charge as it's a non-EU business to business transaction. Is the T2 Purchases VAT the corollary of that because the Irish company had to reverse charge?

So this is basically all just figures on a page then and no liability to Revenue actually arises here?

Thanks again.

The T2 figure is the VAT deduction that the company is eligible to take. If it only had 90% deductability then it would be 2300 x 90%, and have to pay 230 to Revenue, ie the 10% not eligible to deduct.

Timbo1987

The reverse charge treatment is for EU countries only. Both need to be vat registered.

This is an import. Different situation. Zero rated for vat

barneystinson

NoQuarter wrote: »

How do I know if IrishCo has VAT deductability and to what extent?

I have read the Revenue page on VAT but still cant get my head around this.

IrishCo's deductibility for VAT depends on whether it is making taxable supplies - what type of trade is it carrying on? Will it be charging VAT to its customers?

thegolfer

Timbo1987 wrote: »

The reverse charge treatment is for EU countries only. Both need to be vat registered.

This is an import. Different situation. Zero rated for vat

Imports relate to goods only.
VAT is paid at the point of entry into the EU.

http://www.revenue.ie/en/tax/vat/guide/supply-of-services.html#section3

OP is discussing a service, not good.

Reverse charge applies.

Timbo1987

thegolfer wrote: »

Imports relate to goods only.
VAT is paid at the point of entry into the EU.

OP is discussing a service, not good.

Reverse charge applies.

Right you are @thegolfer

Pain in the ass for Op having to register for vat, do a one in one out return. At least they can claim vat back on other stuff once registered

NoQuarter

barneystinson wrote: »

NoQuarter wrote: »

How do I know if IrishCo has VAT deductability and to what extent?

I have read the Revenue page on VAT but still cant get my head around this.

IrishCo's deductibility for VAT depends on whether it is making taxable supplies - what type of trade is it carrying on? Will it be charging VAT to its customers?

It's an Airbnb management business. I'll basically be controlling my business from offshore and just paying an agency to do the cleaning services etc. No Irish employees.

In that regard I dont think I directly charge VAT to customers - I think Airbnb incorporate VAT into their fee but I need to do a bit more reading into that point. Would that make the company 100% VAT deductible then?

Appreciate all the responses!

barneystinson

NoQuarter wrote: »

It's an Airbnb management business. I'll basically be controlling my business from offshore and just paying an agency to do the cleaning services etc. No Irish employees.

In that regard I dont think I directly charge VAT to customers - I think Airbnb incorporate VAT into their fee but I need to do a bit more reading into that point. Would that make the company 100% VAT deductible then?

Appreciate all the responses!

The IrishCo is an AirBnB management business? Who is operating the business of providing accommodation then?!

NoQuarter

Well the management part is offshore, but the irish company will be the facilitator - paying cleaning agents and so forth.

barneystinson

NoQuarter wrote: »

Well the management part is offshore, but the irish company will be the facilitator - paying cleaning agents and so forth.

That doesn't really answer the question, who is actually letting the property to guests? Who gets paid by AirBnB? Who's liable to be sued if someone falls down the stairs?

Something smells not right, at best it's fudge, or worse still the inedible brown stuff... Is this a structure that actually exists, and if so why hasn't whom ever advised on the structure advised you on the VAT?

NoQuarter

barneystinson wrote: »

NoQuarter wrote: »

Well the management part is offshore, but the irish company will be the facilitator - paying cleaning agents and so forth.

That doesn't really answer the question, who is actually letting the property to guests? Who gets paid by AirBnB? Who's liable to be sued if someone falls down the stairs?

Something smells not right, at best it's fudge, or worse still the inedible brown stuff... Is this a structure that actually exists, and if so why hasn't whom ever advised on the structure advised you on the VAT?

Not fudge at all. The company sublets to the guest. I let to the company. The occupiers liability act comes in to play if someone falls I assume but that's any potential plaintiff's problem, not mine.

The structure doesn't exist yet, im just trying to hash it all now and will be getting further advice in addition to my own research. Just seeing if it's viable for now.

barneystinson

NoQuarter wrote: »

Not fudge at all. The company sublets to the guest. I let to the company. The occupiers liability act comes in to play if someone falls I assume but that's any potential plaintiff's problem, not mine.

The structure doesn't exist yet, im just trying to hash it all now and will be getting further advice in addition to my own research. Just seeing if it's viable for now.

"The company"?! WHICH COMPANY FFS!! This is like pulling teeth. :rolleyes:

NoQuarter

The Irish company! It's probably like pulling teeth because I don't know where you're going with this!

I own the property.
I lease it to the Irish company.
The Irish company services the property by paying for cleaners and agents to hand over keys etc.
I'm the one who is organising this and deciding who the Irish company let's the property to and what agents we use etc.
I live and work offshore.
I'll charge the Irish company via my offshore company for my time managing the bookings etc.

My understanding is this is just good tax management?

I suppose the question is if you lived and worked offshore and wanted to let your property on Airbnb, what's the most tax efficient way of doing it that stays within the confines of the law.

barneystinson

NoQuarter wrote: »

The Irish company! It's probably like pulling teeth because I don't know where you're going with this!

I own the property.
I lease it to the Irish company.
The Irish company services the property by paying for cleaners and agents to hand over keys etc.
I'm the one who is organising this and deciding who the Irish company let's the property to and what agents we use etc.
I live and work offshore.
I'll charge the Irish company via my offshore company for my time managing the bookings etc.

My understanding is this is just good tax management?

I suppose the question is if you lived and worked offshore and wanted to let your property on Airbnb, what's the most tax efficient way of doing it that stays within the confines of the law.

There now, was that so hard?

Ok so you, the individual, are letting the property to your company, so you're exposed to income tax - are you charging a market rent? From a vat perspective this will be an exempt letting, no Vat charged.

The IrishCo will operate a B&B business in Ireland and if it exceeds the VAT turnover threshold it'll be obliged to register for and charge Irish VAT @ 9%. This is the company's obligation, not the agent's AFAIK, but either way it's a cost to be borne by the business. The agents commission will probably include vat so you can recover that, but a business like this, where the main overhead (rent to you the individual) has no VAT element, would be expected to generate a VAT liability.

You say that the offshore company will be providing services to the Irish company, but from what you said the services to be provided will be your own time and judgement in managing the Irish company and its operations. Effectively you will be fulfilling your duties as director of the Irish company but trying to artificially add a layer to the relationship by purporting to provide that service through the offshore company. If the offshore company didn't exist to provide that service to the Irish company, wouldn't you still be performing the same functions directly, in your capacity as the director of the Irish company? It sounds as though you're simply drawing your directors fee via an offshore company in order to avoid Irish tax, is that about the size of it?

From a VAT perspective, the question of whether VAT arises on the "supply" by the offshore company is somewhat moot, now that we have established that IrishCo will be carrying on a fully taxable activity - if there is a supply and if there is VAT to be accounted for on that supply, it will be an in-and-out job.

NoQuarter

Thanks, that's all very helpful. I'll answer the points you've raised.

1. No it wasn't that hard

2. Understood re the income tax. Do I have to charge market rent? It's obviously better for me to charge a tiny rent but again, I want to stay within the confines of the letter of the law. On the income tax front, I'm on a very low tax rate living where I do but I have a feeling that any rental income from Ireland won't be taxed at my normal income rate? If it was, that would make my life easier.

3. I expect I will exceed the VAT threshold so it will be an issue. Reading Airbnb's guidance it's a bit unclear here. If I opted not to take the agent approach and instead use an employee, apart from payroll tax etc - how is VAT impacted? Does it fall away for the most part bar from repairs and lightbulbs etc!?

4. Yes I think that sums it up regarding the offshore company. My (very limited) understanding of tax affairs is that avoidance is fine and evasion is of course illegal. I could operate the Airbnb from Ireland personally yet it seems ok to add an Irish company, so why not another company where I live and work? It might be different if I wasn't living and working offshore, in which case the structure is very artificial! But the area I work in I see tax blockers all the time. What's your view on it? Is the offshore company one step too far?

Thanks for you time!