Cracking VAT Tax Exemption Rules In Ireland: What Every E-commerce Business Should Know

VAT tax exemption in Ireland isn’t actually the advantage most people think it is.

Picture a Shopify seller deliberately staying under the €85,000 threshold to avoid VAT registration. The thinking seems clever—keep things simple, avoid compliance headaches. Then comes the realisation of how much VAT they’ve paid on packaging, shipping supplies, advertising, and Shopify apps over the past year.

€14,000. That’s a typical amount of VAT absorbed into costs without any ability to reclaim it.

With VAT registration, those net costs would have been €14,000 lower. Margins would be healthier. Pricing would be more competitive. But because of misunderstanding what VAT tax exemption actually means and how it affects e-commerce operations, that €14,000 essentially goes to suppliers and platforms unnecessarily.

This confusion is everywhere. E-commerce founders hear “VAT exempt” and assume it means they’re getting some kind of tax break. In reality, for most online sellers, being a VAT exempt business means you’re locked out of recovering substantial costs that your VAT-registered competitors reclaim automatically.

I’m going to walk you through exactly how VAT tax exemption works in Ireland, who it genuinely benefits, and when staying exempt actually damages your business rather than helps it.

What Is VAT Tax Exemption in Ireland?

Let me start by clearing up the fundamental confusion that trips up most e-commerce founders.

Definition of VAT-Exempt Goods and Services

VAT tax exemption means certain goods or services are outside the VAT system entirely. When you sell exempt items, you don’t charge VAT. When you buy supplies for your exempt business, you can’t reclaim VAT.

Revenue designates specific categories as exempt:

• Healthcare services and medical supplies
• Financial and insurance services
• Education and training
• Certain property transactions
• Childcare services
• Cultural and sporting activities (with restrictions)

Notice what’s missing from that list? E-commerce. Digital services. Software. Marketing. Almost nothing that applies to typical online businesses.

If you’re selling physical products on Shopify, you’re not selling exempt goods. If you’re running a SaaS platform, you’re not providing exempt services. Your supplies are taxable, which means VAT applies somewhere in the chain.

What Qualifies as a VAT Exempt Business?

A VAT exempt business in Ireland is one that exclusively provides exempt goods or services. A physiotherapy clinic qualifies. An insurance broker qualifies. A private school qualifies.

The thing that confuses people is that being below the VAT registration threshold doesn’t make you a VAT exempt business. It makes you an unregistered business selling taxable goods or services. There’s a critical difference.

If you’re a Shopify seller turning over €60,000 annually, you’re not technically VAT exempt. You’re simply not yet required to register. Your products are still taxable. You’re just operating below the mandatory registration point.

Difference Between VAT-Exempt and Zero-Rated

This distinction costs businesses thousands because people use these terms interchangeably when they mean completely different things.

VAT-exempt: No VAT charged, no VAT reclaimed. You’re outside the system.

Zero-rated: VAT charged at 0%, but you can still reclaim input VAT. You’re inside the system.

Example: Children’s clothing in Ireland is zero-rated. A retailer charges 0% VAT on sales but can reclaim VAT on rent, equipment, packaging, and shipping. They’re VAT-registered and file returns, but their sales rate is 0%.

Compare this to a private tutor providing exempt education services. They charge no VAT and can’t reclaim VAT on their laptop, software, or office costs. They absorb all those VAT charges as pure expense.

Who Can (And Can’t) Register For VAT In Ireland?

VAT registration in Ireland follows specific rules around thresholds, business types, and voluntary registration options.

Revenue Thresholds for VAT Registration

As of 1 January 2025, mandatory registration kicks in at:

• €85,000 annual turnover for goods
• €42,500 annual turnover for services

These are measured on a rolling 12-month basis. If your Amazon sales suddenly spike in Q4 and push you over €85,000 for the trailing 12 months, you must register within 30 days.

These thresholds apply to all your supplies combined. If you sell on Shopify, Amazon, and eBay, you add all those channels together. Total turnover determines your registration requirement.

Can a VAT Exempt Business Choose to Register?

If you’re genuinely providing exempt services exclusively, you cannot register for VAT. A physiotherapist can’t choose to register because all their services are exempt by law.

But if you’re an e-commerce seller below the threshold, you absolutely can register voluntarily. This is one of the most underutilised strategies I see.

When voluntary registration makes sense for e-commerce:

• You’re paying significant VAT on inventory, packaging, shipping, and apps
• You sell primarily to businesses who can reclaim VAT
• You’re expanding into the EU and need VAT registration for IOSS/OSS
• You want to appear more established to wholesale buyers or B2B clients

When staying unregistered makes sense:

• You sell exclusively to consumers who care about final price
• Your expenses are minimal and VAT recovery would be small
• You’re nowhere near the threshold and want to minimise admin

Common Traps for Ecommerce Businesses

Trap 1: Assuming you’re exempt when you’re just unregistered. You’re still selling taxable goods. You’re just not yet collecting VAT from customers.

Trap 2: Not tracking towards the threshold. Your turnover includes gross sales before refunds but after discounts. Many sellers exceed the threshold without realising because they’re not monitoring properly.

Trap 3: Mixing up FBA implications. If you’re using Fulfillment by Amazon and storing inventory in multiple EU countries, you may trigger VAT registration requirements in those countries regardless of Irish thresholds.

Trap 4: Ignoring IOSS requirements. If you’re importing goods into the EU valued under €150, you should register for IOSS to simplify VAT accounting.

VAT Exemption For Ecommerce Sellers: Risks, Limits, And Opportunities

Let’s get specific about how VAT tax exemption affects e-commerce profitability and growth.

Can You Run a Profitable Ecommerce Business as VAT Exempt?

Yes, but your margins will be thinner than they need to be, and your growth will hit a ceiling.

If you’re a solo founder running a lean Shopify store with minimal expenses, staying unregistered below the threshold can work short-term. You keep pricing simple, avoid VAT returns, and focus on building revenue.

But the moment your expenses start growing (when you’re paying for inventory, warehousing, shipping, advertising, apps, contractors) you’re absorbing VAT costs that registered competitors reclaim. That difference compounds over time.

The Cost of Not Reclaiming Input VAT

Let me break down typical e-commerce expenses and the VAT you’re leaving on the table as an unregistered business.

Shopify subscription: €25/month = €6/month VAT
Apps and plugins: €100/month = €23/month VAT
Packaging and shipping supplies: €500/month = €115/month VAT
Facebook and Google ads: €2,000/month = €460/month VAT
Freelance designer/developer: €1,000/month = €230/month VAT
Warehousing and fulfilment: €800/month = €184/month VAT

Total monthly VAT absorbed: €1,018
Annual cost of not being VAT-registered: €12,216

That’s over €12,000 annually that a VAT-registered competitor recovers and you don’t. They can either price lower or maintain better margins. You’re stuck absorbing the cost.

How Exemption Affects Pricing, Credibility, and EU Expansion

If you sell B2C (to consumers), staying unregistered gives you a pricing advantage. You quote €100, your registered competitor quotes €123 including VAT. You look cheaper.

But if you sell B2B (to businesses), the situation flips. Your business customers can reclaim VAT, so your competitor’s net cost is €100. Yours is also €100. Except you can’t reclaim VAT on your costs, so you need higher margins to stay profitable.

For EU expansion, being unregistered creates complications. If you want to use IOSS for consignments under €150, you need to register. If you exceed distance selling thresholds in other EU countries, you need to register.

Registered vs Exempt: A Decision Framework

Here’s how to actually decide whether to register for VAT.

Revenue Level: Under or Over the Threshold

Under €85,000 turnover:
You have a choice. Calculate your annual VAT on expenses. If it’s over €5,000, registration probably makes financial sense. If it’s under €2,000, staying unregistered might be simpler.

Over €85,000 turnover:
Registration is mandatory. No choice. Focus on implementing systems to manage VAT correctly from day one.

Type of Products/Services Sold

Physical goods with standard VAT (23%):
High incentive to register if you have substantial input costs.

Reduced-rate goods (13.5% or 9%):
Still worth registering if input costs are significant, though the recovery is slightly less.

Customer Base: B2B vs B2C

Primarily B2C (selling to consumers):
Staying unregistered keeps your pricing lower in the customer’s eyes. Factor this against input VAT recovery benefits.

Primarily B2B (selling to businesses):
Register immediately. Your customers reclaim the VAT anyway, so you’re not disadvantaging yourself. Meanwhile, you recover all your input VAT.

Supply Chain: Are You Buying from EU Suppliers with VAT?

If you import inventory from EU suppliers, they typically charge you their local VAT. As an unregistered Irish business, you absorb this cost completely. As a VAT-registered business, you can reclaim it through the VAT refund mechanism.

For e-commerce brands with significant EU sourcing, this alone often justifies registration.

IOSS, OSS And EU VAT Compliance

E-commerce VAT rules have become significantly more complex with EU-wide reforms. Here’s what you need to know.

Overview of IOSS and OSS for Ecommerce Businesses

IOSS (Import One-Stop Shop) lets you collect and remit VAT on goods imported into the EU valued up to €150. You register in one member state (Ireland) and declare VAT for all EU destinations through a single return.

OSS (One-Stop Shop) is for intra-EU distance sales. If you’re established in Ireland and sell to consumers in other EU countries, OSS lets you account for VAT in those countries without registering in each one.

Both schemes simplify compliance dramatically. But to use them, you need to be VAT-registered in Ireland first.

What VAT Tax Exemption Means for EU-Wide Sales

If you’re unregistered in Ireland and selling cross-border into the EU, you face immediate complications. You can’t use IOSS or OSS. You need to monitor distance selling thresholds for every EU country separately. Once you exceed €10,000 in cross-border sales, you trigger local VAT registration requirements in destination countries.

Being VAT-registered in Ireland unlocks these simplification schemes and prevents fragmented registrations across Europe.

Common VAT Compliance Mistakes for Irish Online Sellers

• Mistake 1: Not registering for IOSS when importing from outside the EU. Your customers face unexpected import charges at delivery, killing conversion rates.
• Mistake 2: Exceeding distance selling thresholds without tracking. You unknowingly trigger registration requirements in Germany, France, or other countries.
• Mistake 3: Misclassifying digital vs physical goods. Different VAT rules apply. Get this wrong and you’re non-compliant across multiple jurisdictions.

Case Study: When Staying VAT Exempt Hurts Growth

Let me walk through two potential scenarios where staying unregistered can damage profitability.

Example 1: Shopify Brand Staying Under Threshold

A beauty brand selling organic skincare products on Shopify deliberately kept turnover just under €85,000 to avoid VAT registration. They were paying:

• €18,000 annually on inventory from an EU supplier (includes €3,450 VAT)
• €4,800 annually on packaging and shipping supplies (includes €920 VAT)
• €12,000 annually on Instagram and Facebook ads (includes €2,300 VAT)
• €3,600 annually on Shopify, apps, and web development (includes €690 VAT)

Total VAT absorbed: €7,360 annually.

By staying unregistered, they saved maybe 10 hours annually on VAT return compliance. But they paid €7,360 extra in costs they couldn’t recover.

Example 2: Amazon Seller Unable to Reclaim VAT

An Amazon FBA seller turning over €120,000 annually finally registered for VAT after operating unregistered for two years. During those two years, they’d paid approximately €25,000 in VAT on Amazon fees, advertising, packaging, and shipping to warehouses.

None of this was recoverable. Once registered, their net costs dropped immediately. They could finally compete on pricing with other VAT-registered sellers who’d been recovering these costs all along.

How To Transition From Exempt To VAT Registered

If you’ve decided registration makes sense, here’s how to implement it properly.

Revenue or Supply Changes That Trigger Registration

Common triggers that mean it’s time to register:

• Exceeding €85,000 in trailing 12-month turnover
• Launching B2B sales channels alongside B2C
• Expanding into EU markets needing IOSS/OSS
• Major capital investment in inventory or equipment where VAT recovery is substantial

Checklist: What to Prepare Before Registering

Before you submit your registration application, gather:

• Business registration documents and tax reference number
• Bank account details for VAT refunds
• Description of goods/services and expected turnover
• Details of any existing EU VAT registrations
• Accounting system ready to track VAT (Xero, QuickBooks, or similar)

Register through Revenue’s online system using Form TR1. Processing typically takes 2-4 weeks.

Tech Setup: Manage VAT Automatically

Once registered, your tech stack needs to handle VAT correctly.

In Shopify:

• Enable VAT collection in your tax settings
• Set up correct rates for Ireland (23% standard, 13.5% reduced, 9% for specific goods)
• Configure EU VAT for cross-border sales if using OSS

In Xero:

• Set up VAT tracking and tax codes
• Create rules to automatically categorise transactions
• Connect Shopify so sales data flows with correct VAT treatment

Integration between systems:

• Connect Shopify to Xero using native integration or apps like A2X
• Ensure sales, refunds, and fees sync with correct VAT coding

This automation prevents manual errors and makes VAT compliance straightforward rather than overwhelming.

Work With A Finance Partner Who Gets E-commerce VAT

Standard accountants don’t typically understand e-commerce VAT complexity. They know annual accounts and corporation tax. They don’t know IOSS, FBA implications, or multi-channel VAT reconciliation.

At Around Finance, we work specifically with e-commerce brands, SaaS companies, and marketing agencies. We understand how VAT tax exemption affects online businesses differently than traditional retail.

Our tax services include VAT registration support, IOSS/OSS setup, ongoing compliance management, and strategic advice around when to register voluntarily or how to structure cross-border sales tax-efficiently.

We integrate directly with your Shopify, Amazon, and accounting systems, so VAT tracking happens automatically rather than becoming a monthly scramble.

Ready to stop overpaying on VAT or figure out if registration makes sense for your business? Contact us for a free VAT review tailored to your specific situation.

FAQs