Dáil Éireann Debate, Tuesday - 10 June 2014
197. Deputy Brendan Griffin asked the Minister for Finance further to Parliamentary Question No. 181 of 18 February 2014, the reason a reduced rate of 9% VAT could apply to the construction of residential properties and not all construction activity; and if he will make a statement on the matter. [24739/14]
Amharc ar fhreagraAs you will be aware, Irish VAT law must comply with EU VAT law and in this context, the application of VAT rates in general is determined by the EU VAT Directive. Member States must apply a standard VAT rate of 15% or greater and have the option of applying one or two reduced VAT rates of 5% or more to the goods and services listed in Annex III of the EU VAT Directive. Ireland operates a standard VAT rate of 23% and two reduced VAT rates of 9% and 13.5%.
Annex III allows Member States to apply a reduced VAT rate of 5% or more to the construction, repair and renovation of housing, but not to non-residential construction. While most Member States apply the higher standard VAT rate to construction services, Ireland applies the 13.5% reduced rate of VAT to all construction services, including non-residential construction, under a derogation in Article 118 of the EU VAT Directive. This provides that Ireland can maintain our reduced VAT rate on non-residential construction services because we applied a reduced rate to non-residential construction services on and from 1 January 1991. However, this derogation is only permissible where the VAT rate applying is 12% or greater. In this case, while Annex III would allow Ireland to operate a 9% reduced VAT rate on the construction of residential housing, there is no provision in the VAT Directive that would allow Ireland to apply a 9% VAT rate to non-residential construction services.
