How to account for VAT when buying from abroad

If your business is buying goods from abroad, do you know how to account for VAT? If not, don’t despair. This article sets out what to do if you buying from abroad.

EU intra-Community acquisitions

If you are VAT registered in Ireland, you can buy goods VAT free from another business in the European Union once these goods are for the purpose of your business. This is known as an EU intra-Community acquisition.

The steps to be taken are as follows:

1. Provide the supplier with your VAT number. They have to check that this is a valid VAT number. Once this is confirmed, the supply will be made at a zero VAT rate in the country of supply.

2. You become liable for the VAT on acquisition in Ireland. What this means is that you must account for it as a VAT on Sale (in the T1 section of the VAT return) at the rate of VAT you would sell the goods at.

3. You are entitled to claim an input credit for the same amount in the VAT on Purchases on the VAT return (Box T2) This gives a NIL liability on the VAT return.

4. When these goods are sold on, any future VAT on Sales must be accounted for in the normal way in your VAT return.

Here’s an example of how this works

A business purchases stock from the UK for €20,000. The supply is zero rated in the UK. The Irish trader must account for VAT on the acquisition in Box T1 on the VAT return at €20,000 @ 23% = €4,600.

They also have an input credit in Box T2 on the return of €20,000 @ 23% = €4,600.

The goods are sold in the same period for €30,000 plus VAT @ 23% therefore the VAT on Sale will be €6,900.

The total liability due by the trader in the relevant period will be €6,900.

The main advantage of buying from within the EU would be for cash flow purposes, i.e. no VAT to be paid at time of purchase compared with Ireland and price may be more favourable than Irish prices.

Importing from outside the EU

If you are importing from outside of the EU then a different process applies. VAT on the import must be accounted for in the normal way and there is generally no exemption from VAT. Customs will charge the VAT and customs duties before the goods are released to you.

Any VAT charged can be reclaimed in your next VAT return. If the goods are imported into Ireland with the intention of forwarding them on to another intra EU state then no VAT will be charged, provided these goods do not enter circularisation in Ireland.

Read more about VAT

• VAT jargon buster: Key phrases for your business to know
• Accounting for VAT on a cash received basis
• When to submit your VAT return
• Understanding if you need to register for VAT and how to do it

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Other examples of VAT free imports

• Where goods imported are placed in a free zone e.g. Shannon
• Where goods are imported for a temporary period (up to a maximum of 24 months)
• Goods imported for personal or household use when residence is changed
• Wedding presents imported up to a value of €1,000 where residence is changed upon marriage
• Goods imported within the regulations of personal luggage allowances.

This is only a brief guide to importing from abroad and advice should always be sought when considering importing from outside or inside the EU. Further information may be obtained from the Revenue Commissioners website.

Editor’s note: This post was originally published in May 2013 and has been updated for accuracy and relevance.