Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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176. To ask the Minister for Finance the current rate of VAT on construction for Government-funded social and affordable housing schemes; and if there are any legal impediments to reducing or zero-rating VAT on such schemes. [35787/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy should note that the 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. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive.

Under the EU VAT Directive the supply of construction services is liable to VAT at the standard rate generally across the EU. However, by way of special derogation from the general rule, Ireland is permitted to continue to apply a reduced rate, currently 13.5%, to the supply of all property both residential and commercial.   This is a ‘parked rate’, governed by Article 118 of the VAT Directive, and standstill provisions from 1991 mean that this reduced rate can be maintained but it cannot be reduced below 12%.

A reduced rate for housing (below the ‘parked rate’ of 13.5%  but no lower than 5%) is permitted under the Directive as part of social policy. Technically, it would be possible for Ireland to decide, on social policy grounds, to apply a reduced rate to the construction, repair and renovation of certain residential housing.  However, in accordance with the Directive, such a decision would not be permitted in relation to housing built for reasons other than social policy and non-residential construction.  Such a situation would involve having two separate VAT rates applying to construction services depending on the customer. This would be very difficult to administer and would have the high risk of accidental or fraudulent underpayments of VAT.

There is no provision in the Directive to permit the application of a zero rate of VAT to the supply of residential property.

Eoin Ó Broin (Dublin Mid West, Sinn Fein)
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177. To ask the Minister for Finance the current rate of VAT on construction for refurbishment of vacant properties; and if there are any legal impediments to lowering this rate of VAT for refurbishment of vacant properties when such refurbishments meet other Government policy objectives, including those set out in the climate action plan's town centre first policy. [35788/22]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Deputy should note  that the 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. Ireland currently operates two reduced rates of VAT, 13.5% and 9%, as permitted by the Directive.

Under the EU VAT Directive the supply of construction services is liable to VAT at the standard rate generally across the EU but Ireland applies a 13.5% reduced rate of VAT to all construction services under a derogation from the EU VAT Directive, subject to strict restrictions.

Construction services that consist of the “renovation and repairing of private dwellings, excluding material which account for a significant part of the value of the service supplied” can benefit from the reduced rate of VAT, currently 13.5%. This means that where a building contractor carries out home improvements and the material cost does not exceed two-thirds of the costs of the improvements then the reduced rate of 13.5% applies to the total construction service.

It is not possible for Ireland to apply the 9% reduced VAT rate solely to the refurbishment of vacant properties on a restricted basis.