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Property investors and developers will face dramatic changes in VAT on property which will create new tax opportunities and tax traps, according to tax partners at Dublin business law firm William Fry.
The Irish VAT on Property Changes will be introduced from 1 July 2008 and are aimed at regulating VAT on the leasing of property, to provide a Capital Goods System for property, and to make the Irish Vat on Property similar to other EU Member States.
The changes will impact on new and refurbished commercial developments, commercial lettings and properties where a change of use is applied for.
Speaking at a briefing on Thursday on the changes facing property investors and developers under the new VAT on Property regime Michael O’Connor, Tax Partner at William Fry said: "This is the most revolutionary change in VAT on property since VAT was introduced in 1972. It will provide many tax planning opportunities and tax traps for corporate Ireland.”
Sonya Manzor, Tax Partner, told attendees from the construction, property investment and financial sectors at the briefing that whilst the changes proposed may seem daunting, the new system would lead to a regularised system of VAT on property and one which is more in-line with the rest of the EU.
She said: “We are now facing a transition period where investors, developers and landlords must be compliant with new systems and legislation. This can be a tricky period and we are advising clients who are considering purchasing property to consider whether or not VAT applies to the property now and whether or not this will change after 30th June 2008. In some cases, businesses who are partially exempt from VAT may be better delaying sales or purchases until after the new legislation has taken affect so they can reclaim previously non-deductible VAT.”
Deirdre Finn, a Tax Assistant at William Fry added: “The introduction of the Capital Goods Scheme, which is a totally new concept in Irish VAT law, brings us in line with other EU member states. It’s a mechanism for the adjustment of VAT reclaimed on the acquisition or development of a property in proportion to taxable or non-taxable usage over a certain period. This adjustment can give rise to a VAT repayment or a VAT clawback depending on the circumstances.”
(VB)
