Gerard Associates Ltd. Financial Advisory Services does not provide individual tax advice, and nothing contained in this briefing should be construed as such. We make every effort to ensure the accuracy of the information but cannot be held responsible for any liability arising.
It is essential that all clients seek tax advice specific to their own personal circumstances with the relevant tax professional of the jurisdiction(s) in which you are liable to tax.
This has been prepared based on our understanding of current legislation and tax practice as at the date above. However, these are subject to change, and may result in income tax consequences different from those detailed below.
We cannot accept responsibility for its interpretation or any future changes to law
Introduction
Taxation in the Republic of Ireland is at a national level. The tax system is administered by the Irish Revenue Commissioners.
Tax Year
1 January to 31 December.
Assessment Basis
Irish resident domiciled individuals are subject to income tax on their worldwide income, whereas Irish resident non-domiciled individuals are, in general, subject to taxation on Irish source income, foreign employment income (where the duties of employment are carried out in Ireland) and other foreign income to the extent that it is remitted to Ireland.
A self assessment system applies to all individuals except where total income is taxed under the Pay As You Earn (PAYE) system. Married couples may choose to be taxed separately or jointly. All taxpayers require a Personal Public Service (PPS) number which is obtained when the individual registers with the Department of Social and Family Affairs.
Income Tax An individual’s taxable income includes employment income and benefits in kind, income from a trade or profession, income from property and other investment income. Significant tax changes were made in a number of Budgets during 2010 in order to reduce Ireland’s escalating fiscal budget deficit.
Income is taxed at progressive rates, with a rate of 20% applied to the standard rate band and a rate of 41% applied to the balance. The standard rate bands are: €32,800 for single individuals with no dependent children, €36,800 for single individuals with dependent children, €41,800 for married couples with one income and €65,600 for married couples with two incomes. The amount of €41,800 is transferable between spouses. A number of tax credits are available some of which depend on the marital status of the tax payer for example, a single person will receive a credit of €1,650, while a married couple is entitled to a credit of €3,300.
A new Universal Social Charge (USC) has been introduced, applicable with effect from 1 January 2011. The USC merges the existing health levy and the income levy both of which will be abolished. It is payable on gross income before relief for specified capital allowance, losses or pension contributions. The USC will apply to income above €4,004 subject to PAYE at the following rates: the first €10,034 at 2%, €10,034 to €16,016 at 4% and the remainder at 7%. Reduced rates apply to persons over 70 years of age.
Mortgage interest relief is available. For 2011 in the case of first time buyers the rate at which relief is given is based on a sliding scale subject to annual ceilings; at 25% for years 1 and 2 and 22.5% for years 3, 4 and 5. For years 6 and 7, the rate is 20%. Relief for non first time buyers is limited to 15% subject to an annual ceiling. Loans taken out on or after 1 January 2013 will not qualify for relief, and it will be abolished completely from the 2018 tax year.
Tax relief is given at source at the standard rate for approved medical insurance.
Employment income (including benefits in kind) is subject to PAYE, whereby the employer withholds tax from earnings.
Taxation of Investment Income
In general, investment income is included and is taxable with other income when calculating an individual’s income tax liability. Deposit interest retention tax (DIRT) is withheld at source on interest paid by "relevant deposit takers" and, together with the rates of exit tax that apply to life assurance policies and investment funds, is
applicable at a rate of 27% for payments made annually or more frequently and 30% for payments made less frequently than annually. These rates will apply to payments, including deemed payments, made on or after 1 January 2011. Relevant deposit takers are banks, building societies (interest and dividends), Trustee Savings banks, the Agricultural Credit Corporation, the Industrial Credit Corporation
and the Post Office Savings Bank.
Irish company dividends incur a 20% withholding tax.
Wealth Taxes
There are no wealth taxes in Ireland. A domicile levy has been introduced from 1 January 2010 for Irish domiciles with worldwide assets exceeding €1million and retaining property in Ireland valued over €5million regardless of residence.
Capital Gains Tax
A capital gains tax of 25% is levied on the disposal of assets. Losses on assets held for over 12 months can be used to offset gains in the current year, with unused losses being carried forward.
There are various exemptions available, including an annual exemption for gains of up to €1,270 for an individual. In addition, gains on the disposal of an individual’s principal residence, together with land occupied as its garden or grounds up to a maximum of one acre, are also exempt where certain conditions are fulfilled.
Tax on Property Rental Income
Rental income is included in the calculation of taxable income and taxed at the relevant rate. Various expenses can be deducted in arriving at taxable rental income. Income derived from this source is not taxed through PAYE and individuals must submit a tax return. A "rent-a-room" scheme allows for annual tax-free income of up to €10,000 (2008-2009) from the renting of a room or rooms in a taxpayer's principal residence. The exemption does not affect the entitlement to mortgage interest relief or relief from capital gains tax on the disposal of a principal private residence.
Inheritance and Gift Tax
A capital acquisition tax (CAT) is levied on transfers of assets on death, or those gifted during an individual’s lifetime. The tax is payable by the recipient. The recipient of the assets is classified into one of three categories depending upon their relationship with the donor. Differing tax-free thresholds apply, depending upon the category into which the recipient falls.
Gifts or inheritances taken on or after 8 December 2010 by an individual’s child are exempt up to €332,084, with the exemption threshold being €33,208 for close family members and €16,604 for any other person. Gifts or inheritances taken on or after 5 December 1991 are aggregated with later gifts or inheritances received under the same group threshold in order to arrive at the amount of tax payable. The rate of tax is 25% for gifts and inheritances taken on or after 8 December 2010 and various exemptions apply, including transfers between spouses. The first €3,000 of gifts taken by a donee from any one disponer in a calendar year is exempt from tax. Where the beneficiary is gifted or bequeathed property that will become their main residence, the gift or inheritance is exempt from CAT.
Regional, Municipal & Property Taxes
Local authorities levy annual local property taxes on commercial properties, but not dwellings. Rates are payable per €1 rateable valuation of the property. The valuation is based on presumed rental value and is determined by the local authority. An annual charge of €200 is payable by owners of non-principal private residences to the local authority in whose area the property concerned is located. A person who, on 31 March of each year, is the owner of a non-principal private residence is liable to pay the charge.
Stamp Duty
Stamp duty on residential property has been fundamentally reformed and simplified. It has been reduced to a flat rate of 1% on property values up to €1 million and 2% on any amounts over €1 million. There will no longer be a distinction between new versus second hand properties or first time buyers versus non-first time buyers in its application. The small property exemption will also be removed as will the 50% relief for transfers between related persons and relief for site transfers to a child.
Sales Tax
A sales tax of 21% applies in Ireland and is generally added to the sale price of goods. Some goods are subject to reduced rates of 13.5% or 4.8% and some goods are exempt.
Social Security Contributions
Social security contributions in Ireland are known as Pay Related Social Insurance (PRSI). The employer’s contribution is 8.5% where employees earn up to €356 a week and 10.75% where employees earn in excess of €356 a week. Employees pay 4% of their gross salary with the first €127 a week being exempt. Employees earning less than €352 in any week are not required to pay PRSI in that week. The scope of Irish taxes with regard to an expatriate individual living and working in Ireland depends upon the individual’s residence, ordinary residence and domicile status. There are a number of tests to determine an individual’s residence status in Ireland.
Residence
An individual’s residence status for Irish tax purposes is determined by the number of days he/she is present in Ireland during any given tax year. An individual’s residence status in other countries is irrelevant to determining Irish tax residency.
In order to be classified as tax resident in Ireland an individual must satisfy either of the following circumstances:
· Spend 183 days or more in Ireland for any purpose in that tax year; or
· Spend 280 days or more in Ireland for any purpose over a period of two consecutive tax years; they will be regarded as resident in Ireland for the second tax year, provided they spend more than 30 days in Ireland during each tax year.
A person is present in Ireland during a given day if they are in Ireland for any part of the day. Therefore, days of arrival and days of departure are included. Certain exemptions apply where an individual is only present in Ireland for the purposes of a continuing journey and where they remain within an airport or in circumstances where an individual is prevented from leaving Ireland on a particular day due to say, adverse weather conditions or exceptional third party failure or action.
Ordinary Residence
The term ordinarily resident refers to an individual’s pattern of residence over a number of years and is distinct from residence. An individual will become ordinarily resident when they have been resident for three consecutive tax years, that is, at the beginning of the fourth tax year of residence. Once acquired, the status of being ordinarily resident is retained until the individual has been non-resident for three consecutive tax years.
An individual who is non-resident for a particular tax year but who is ordinarily resident and domiciled may be chargeable to tax in the same manner as a resident individual but subject to certain exemptions.
Domicile
Domicile is a concept of general law. It may be broadly interpreted as meaning residence in a particular country with the intention of residing permanently in that country. Every individual acquires a domicile of origin at birth. A domicile of origin will remain with an individual until such time as a new domicile of choice is acquired. However, before a domicile of origin can be changed there has to be clear evidence that the individual has the positive intention of becoming a permanent resident in another country, has abandoned the idea of ever returning to live in their country of birth and has severed connections with that country.
Extent of liability to Irish tax
The taxation basis applicable to an individual’s Irish and foreign source income and gains depends on their residence, ordinary residence and domicile status. An individual who is an Irish resident, is ordinarily resident in Ireland and has an Irish domicile will be taxed on worldwide income and gains. Gift and inheritance tax will be based on the value of their worldwide assets. The table below shows the potential liability to tax.
Special Assignment Relief Programme
The Special Assignment Relief Programme aims to attract ‘key talent’ from overseas to work in Ireland. It applies only to certain qualifying individuals coming to work in Ireland for a minimum of a year and the relief takes the form of a repayment of taxes. The employee must come from a country with which Ireland has a double taxation treaty and applies to the first €100,000 of earnings and benefits received in or remitted to Ireland, plus 50% of earnings and benefits in excess of €100,000.
N.B. With effect from 1 January 2006 the remittance basis no longer applied in respect of foreign employment income earned where the duties are performed in Ireland.
The charge to Capital Acquisition Tax (CAT) on gifts or inheritances is residence-based and will generally arise on the entire property received where the donor or the beneficiary is resident or ordinarily resident in Ireland. If neither the donor nor the beneficiary is resident or ordinarily resident in Ireland, the charge is only in respect of property which is situated in Ireland. A non-domiciled individual moving to Ireland will only become liable to CAT on non-Irish property after they have been resident for five years or more.
Where income is taxable in both the country where it is sourced and in the country in which the recipient of that income is resident, relief may be provided under the terms of a double taxation agreement. Ireland has concluded over 45 double taxation agreements with other countries in order to provide relief where income is taxable in both countries.
An individual’s liability to social security contributions depends on such factors as the length of assignment to Ireland, the individual’s country of origin and the country in which the employer is situated, if different. There are three distinct groups of countries which affect liability to Irish social security contributions. If an individual is posted to Ireland from an European Economic Area (EEA) country there is no liability to pay PRSI if the individual holds a certificate from the social security authorities in their home country confirming that they are still subject to their social security legislation and continue to pay the equivalent contributions in that country. For non-EEA countries with which Ireland has a reciprocal social security agreement, an individual will, in certain circumstances, remain in the social security system of their home country for up to five years, depending on the maximum period provided for in
the specific agreement. In respect of any other country, an individual may not be required to pay PRSI for the first 52 weeks after arrival if the individual is working in Ireland temporarily for a non-Irish employer. Full contributions are payable when the 52 week period has expired.
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