VAT Matters – December 2025 – the latest EU and Irish VAT developments

In VAT Matters this month, David Duffy and Kathryn Hewitt from KPMG’s Dublin office discuss recent changes to the Irish VAT grouping rules, as well as VAT changes in the Budget and Finance Bill.

VAT grouping changes

On 19 November 2025, the Irish Revenue Commissioners (“Revenue”) issued eBrief No. 216/25, publishing three new Tax and Duty Manuals (“TDM”) on the application of VAT grouping rules in Ireland. This new Revenue guidance more closely aligns Irish VAT grouping rules with the Court of Justice of the European Union (“CJEU”) judgments in Skandia (C-7/13) and Danske Bank (C-812/19), and the position in most other EU Member States. The new guidance applies immediately to VAT groups established from 19 November 2025. For VAT groups already in place before that date, a transitional period up to 31 December 2026 applies.

Previously, Revenue’s published position had been that where an entity is a member of an Irish VAT group, it is the entire legal entity, including its foreign establishments (if any), that is in the Irish VAT group. This meant that charges between an Irish and foreign establishment of the same legal entity (e.g. head office to branch) were disregarded for Irish VAT purposes, regardless of whether the entity was a member of an Irish VAT group or not. Similarly, the existence of a foreign VAT group was not considered to impact the treatment of supplies of services involving an Irish establishment of a foreign VAT grouped entity.

Revenue have now updated their interpretation such that VAT grouping in Ireland only applies to the Irish establishment of the VAT group members (i.e. an Irish head office or branch) – any foreign establishments of that same legal entity are excluded from the scope of the Irish VAT group.

This means that supplies of services between a VAT grouped Irish establishment and its foreign establishment(s) are no longer disregarded under the Irish VAT grouping rules and VAT could therefore arise on those supplies, unless the supplies are otherwise exempt from VAT. For example, services from a UK branch to its Irish head office which is a member of an Irish VAT group may become subject to VAT as a result of these changes.

This could cause additional VAT leakage for businesses which do not have a right to full VAT recovery, such as banks, insurance providers, asset managers and other providers of VAT exempt services.

A similar position applies where a foreign establishment (e.g. an EU head office) is a member of a VAT group in another EU Member State and is involved in a supply of services to or from an establishment in Ireland (e.g. an Irish branch). The supply of such services will no longer be disregarded from an Irish VAT perspective. For example, services from a French head office to its Irish branch may become subject to VAT in Ireland where the head office is in a French VAT group (even if the Irish branch is not in an Irish VAT group).

Importantly, there is no change to the VAT treatment of supplies of services from a head office to an Irish branch where neither the Irish establishment nor other EU establishment(s) are members of a VAT group in Ireland or another EU member state – those supplies will continue to be disregarded.

On foot of these changes, it is possible that Irish VAT will now apply to certain transactions within the same legal entity in circumstances that were not previously the case, e.g. supplies of services from a head office to a branch or from one branch to another. While the changes apply to all businesses, the impact will be more keenly felt in businesses with no or limited VAT recovery.

However, the change could possibly have the opposite effect for some and result in an increase in Irish VAT recovery in certain cases including but not limited to supplies from an Irish establishment to a foreign establishment (where a VAT group exists) as those supplies may become taxable (having previously been disregarded).

9% VAT rate for supplies of apartments

In his Budget 2026 speech on 7 October 2025, the then Minister for Finance, Paschal Donohue, announced a reduction in the VAT rate from 13.5% to 9% on the supply of apartments (subject to certain conditions discussed below), which became effective from 8 October 2025 to 31 December 2030. This measure took effect by way of Financial Resolution passed on Budget night. Since then, there have been a number of refinements to the scope of the VAT rate reduction, and a further Financial Resolution to give effect to these refinements was passed on 26 November 2025. It is expected that the wording in the most recent Financial Resolution will be formally adopted in Finance Act 2025 which should be enacted in December 2025.

Following these updates, from 26 November 2025 until 31 December 2030, the 9% rate applies to the “supply of immovable goods, as part of a social policy, which are, or when completed, will be:

one or more than one apartment, used or to be used for residential purposes, in an apartment block, or,
an apartment block, used or to be used for residential purposes, but excluding any part of the apartment block that is not used or to be used for residential purposes”.

It is expected therefore that the 9% rate should apply to the sale of completed apartments within an apartment block (as defined – see below), an entire apartment block, and the sale of a site on which an apartment will be constructed (e.g. under a forward funding agreement).

From 26 November 2025, the 9% rate also applies to “services consisting of the development, until completed” of apartments or apartment blocks that fall within the above provisions.

For the purposes of the above provisions, an apartment block is defined as a multi-storey building that comprises, or will comprise, at least three apartments with grouped or common access.

We expect that Revenue will issue further guidance to clarify the exact parameters of the 9% rate.

Other VAT rate updates

The Budget and Finance Bill also confirmed the following VAT rate changes or extensions:

The temporary VAT rate of 9% for supplies of gas and electricity is extended up to and including 31 December 2030.
The VAT rate for restaurant and catering services, as well as hairdressing services, will reduce from the 13.5% rate to the 9% rate with effect from 1 July 2026. This will apply to most food and certain drinks sold in a restaurant, café, hotel, bar, takeaway or other catering environment. However, exceptions will remain, such as sales of soft drinks and alcoholic drinks which remain subject to the standard 23% VAT rate. Unlike in prior periods, the reduction in the VAT rate from 13.5% to 9% will not extend to hotel or short-term rental accommodation services or admissions to tourist attractions.
The 13.5% VAT rate applying to the letting of a room in a hotel or guesthouse will be limited to the provision of holiday or guest accommodation in a hotel, guesthouse or other similar establishment with effect from 1 January 2026. Therefore, the letting of meeting rooms or other similar facilities in a hotel or guesthouse will no longer qualify for the reduced VAT rate.

David Duffy is an Indirect Tax Partner in KPMG. Kathryn Hewitt is an Indirect Tax Manager in KPMG.