What is VAT?
Updated: July 2026
VAT, Value-Added Tax, is a tax on consumer spending, collected in stages by businesses on behalf of Revenue. Ireland introduced it in November 1972, just ahead of joining the European Community, and it has been part of every till receipt since. The customer pays it, the business collects it, and the arithmetic between the two is what our Irish VAT calculator does all day.
The idea in one chain
Follow a wooden table from workshop to living room, using the 23% standard rate throughout.
- A joiner sells the table to a furniture shop for €400 plus €92 VAT. The joiner sends that €92 to Revenue, minus the VAT already paid on timber.
- The shop sells it to a customer for €700 plus €161 VAT. On its VAT3 return the shop declares the €161 collected, deducts the €92 it paid the joiner, and pays Revenue the €69 difference.
- Add up every payment along the chain and Revenue has received exactly €161: 23% of the final €700 price. Each business taxed only the value it added, which is where the name comes from.
The customer at the end of the chain bears the full amount and reclaims nothing. Every business in the middle is, in effect, an unpaid tax collector with a deduction right.
Why the chain design matters
The deduction right is what makes VAT largely self-policing. The shop can only reclaim its €92 with a proper invoice from the joiner, so buyers demand invoices, which pulls sellers into the system. It also means VAT should never be a cost to a registered business trading normally: the tax flows through to the consumer. Where businesses do feel it is in cash flow and in the rules around what cannot be deducted, such as entertainment and passenger cars.
Where it applies
Nearly everything, at one of five rates: 23%, 13.5%, 9%, 4.8% or 0%, with a set of exempt activities such as financial services, medicine and education outside the system entirely. The full picture, including the July 2026 hospitality change, is on our Irish VAT rates page. If your own turnover is approaching €42,500 for services or €85,000 for goods, the registration guide covers when the collecting job becomes yours.
Open the calculator
Common questions
Who actually pays VAT?
The final consumer. Businesses along the chain collect VAT on sales and deduct VAT on purchases, so the tax passes through them and lands on the person who buys for their own use and has no deduction right.
Is VAT the same as a sales tax?
No. A sales tax is charged once, at the final retail sale. VAT is collected in stages at every step of the supply chain, with each business deducting the VAT it paid. The end result on the consumer is similar but the collection mechanics are very different.
When did Ireland introduce VAT?
In November 1972, replacing older turnover and wholesale taxes, shortly before Ireland joined the European Community in 1973. Membership required a VAT system.