Dáil Éireann Debate, Thursday - 1 February 2024
149. Deputy Fergus O'Dowd asked the Minister for Finance if he is considering any further easing of VAT rates for retrofitting or renewable energy works or products for domestic purposes, to assist homeowners in reducing reliance on energy providers in what is a crippling energy crisis; and if he will make a statement on the matter. [4444/24]
View answerThe VAT rating of goods and services is subject to EU VAT law, with which Irish VAT law must comply. In general, the Directive provides that all goods and services are liable to VAT at the standard rate unless they fall within Annex III of the Directive, in respect of which Member States may apply either one or two reduced rates of VAT and can also apply a zero rate to certain goods and services. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive.
As the Deputy is aware following amendments to Annex III of the VAT Directive, agreed in April 2022, it is now possible to apply a zero rate of VAT to "the supply and installation of solar panels on and adjacent to private dwellings, housing and public and other buildings used for activities in the public interest." Consequently, as the Deputy will be aware, I introduced such a zero rate of VAT for the supply and installation of solar panels on private dwellings last year and on the supply and installation of solar panels on schools from 1 January this year. It should be noted that outside of this zero rate of VAT the supply and installation of other solar panels may be subject to VAT at the reduced rate of 13.5% under the two-thirds rule which applies in the construction sector.
The only other area where Annex III applies some latitude in relation to reduced rates for energy work purposes is in relation to heat pumps. Whilst they cannot be reduced to zero there is scope to reduce the VAT rate in highly efficient low emissions heating systems to a reduced VAT rate. In Ireland that would mean a rate of 9% or 13.5%.
However, these systems have to comply with very specific technical requirements, meeting the emission benchmarks laid down in Annex V of Commission Regulation (EU) 2015/1189 and in Annex V of Commission Regulation (EU) 2015/1185 respectively and also have to be attributed an EU energy label to show that the criterion referred to in Article 7(2) of Regulation (EU) 2017/1369 is met.
It should be noted however that while heat pumps have the standard rate of VAT applied they have an effective rate of 13.5% VAT due to the 'two-thirds rule' which applies to construction. This rule means that if the cost of the goods used in carrying out work does not exceed two-thirds of the total price, the rate which applies to the service then applies to the entire transaction. Finally, as the Deputy is aware, any changes in VAT rates are considered as part of the normal annual Budget and Finance Bill process.
