Who Is Liable For Income Taxes in the Republic of Ireland
Income tax liability in Ireland depends on an individual’s tax residence and domicile.
For the 2011 tax year, an individual is regarded as an Irish tax resident if he or she meets any of the following conditions:
- He or she spends 183 or more days in Ireland during the period from 1 January 2011 to 31 December 2011.
- He or she spends an aggregate of 280 or more days in Ireland during the two-tax-year period from 1 January 2010 to 31 December 2011, with more than 30 days in Ireland in each tax year.
- He or she elects to become tax resident for the tax year in which he or she comes to Ireland with the intention to be resident in the following tax year, and is tax resident under one of the tests listed above in the following tax year.
An individual is considered as present for a day if he or she is present in Ireland at any time during that day.
Tax concessions apply to the year when an individual becomes, or ceases to be, an Irish tax resident.
An individual becomes ordinarily tax resident in Ireland after being tax resident for three consecutive tax years. An individual who is ordinarily tax resident and who ceases to be tax resident in Ireland is treated as continuing to be ordinarily resident for three tax years after the tax year of departure.
Domicile in Ireland is not defined in the tax law but is a legal concept based on the location of an individual’s permanent home. Irish law treats domicile as acquired at birth (usually it is the domicile of the father) and retained until an individual takes positive steps to change to another domicile.
Individuals who are tax resident in Ireland are normally subject to tax on worldwide income, including employment income, regardless of whether the employment is carried on in Ireland or abroad. However, exceptions apply to the following individuals:
- Foreign-domiciled individuals
- Individuals who live in border areas and work in Northern Ireland
Individuals domiciled outside Ireland are entitled to a remittance basis of assessment in Ireland on investment income arising outside Ireland and on income from employment duties performed outside Ireland, to the extent that the employment income is paid outside Ireland under a foreign contract. Effective from 1 January 2008, the remittance basis of taxation was extended to include U.K.-source income. Consequently, individuals who are entitled to benefit from the remittance basis of taxation are not subject to income tax on U.K.-source income unless they remit that income into Ireland.
If an individual is on Irish payroll, Pay-As-You-Earn (PAYE) withholding must be accounted for on all employment earnings, including benefits. If an individual is on a payroll outside Ireland, PAYE withholding is required on the amount of employment earnings (including benefits) attributable to duties performed in Ireland. Certain exemptions apply if the employee is from a treaty country and spends less than 183 days in Ireland.
Advance approval may be granted by the Irish Revenue on the proportion of the earnings to which PAYE should be applied if earnings are paid outside Ireland and if the proportion is unclear and only a portion of the earnings is likely to be assessable in Ireland.
Tax relief is available to certain non-domiciled expatriate employees who are seconded to work in Ireland. The relief takes the form of a partial rebate of PAYE tax paid, and is subject to several conditions. The relief applies only to an assignee seconded by a relevant employer. For this purpose, a relevant employer is a company incorporated and resident in a country in the European Economic Area (EEA; the EEA countries consist of the European Union [EU] countries and Iceland, Liechtenstein and Norway), or outside the EEA with which Ireland has entered into a double tax treaty.
The employee must be employed and paid by a relevant employer and must have worked for that same relevant employer, or an associated company of the relevant employer, before being seconded to Ireland. The assignment must be for a minimum period of three years (one year if the assignee becomes resident in Ireland after 1 January 2010) and the assignee must be tax resident in Ireland with respect to the year in which the claim is made.
Nonresidents are generally subject to Irish tax on income arising in Ireland, unless they are protected by the provisions of a double tax treaty.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Most payments made by an employer, including salary, bonuses, benefits in kind and expense allowances, are subject to income tax, unless a prior agreement is made with the tax authorities.
In general, noncash benefits are taxable and are valued at the cost incurred by an employer in providing the benefits. However, special measures govern the valuation of the following taxable benefits:
- Car: For new cars provided on or after 1 January 2009, the assessable benefit is calculated by reference to the car’s carbon dioxide emissions (the applicability of this measure is subject to a Ministerial Commencement Order which to date has not yet been implemented). At the time of writing, the pre-2009 rules apply to all cars. For cars provided before 1 January 2009, the assessable benefit is up to 30% of the original market value of the car. The taxable benefit is reduced if the employee makes a financial contribution to the employer or if a high percentage of the car’s use is for business purposes.
- Loans: 12.5% of the amount of the loan, with a reduction for interest paid by the employee. The rate is 5% for a home loan.
- Housing: 8% of the market value of the property or rent paid, plus utilities paid by the company.
- Any employee benefits that are not expended wholly, exclusively and necessarily in the performance of employment duties, including private travel and entertainment.
Education allowances provided by employers to their employees’ children 18 years of age and under are taxable for income tax and social security tax purposes.
Employers must withhold Pay Related Social Insurance (PRSI; see Section C) and the Universal Social Charge (USC; see Section B) and apply the Pay-As-You-Earn System (PAYE; see Section D) with respect to the value of benefits in kind provided to employees during the tax year. Employers’ PRSI at a rate of 10.75% also applies to any benefits granted to employees.
In general, nonresidents are subject to income tax on employment income, regardless of their domicile, if their duties are carried on and if their salary is paid in Ireland.
Self-employment and business income. Individuals resident in Ireland are subject to tax on income from trades and professions carried on in Ireland and abroad. Nonresidents are taxed on income from trades and professions carried on in Ireland only.
Taxable profits normally consist of net business profits as disclosed in the financial accounts and adjusted to account for deductions not allowed or restricted by legislation.
Except for years when a business begins or terminates, taxable profits generally are those for the tax year ending 31 December or for the 12-month accounting period ending in that year.
Investment income. An individual resident and domiciled in Ireland is taxed on worldwide income from dividends and interest. If resident but not domiciled, an individual is taxed on all investment income arising in Ireland and on income remitted to Ireland from other countries. A credit for foreign taxes paid is generally available if a double tax treaty applies. A nonresident is taxed on Irish-source income only.
Dividends received by individuals from Irish tax-resident companies are taxed in full. Dividends may be subject to withholding tax at a rate of 20%, which is creditable against a resident individual’s income tax liability.
Interest on Irish government securities is subject to income tax and is generally not taxed at source, but may not be taxable if received by nonresident persons.
Interest credited on or after 1 January 2011 on most bank and building society deposits is taxed at source at a rate of 27% (25% for interest credited in the period of 7 April 2009 through 31 December 2010), unless it is paid or credited to nonresidents. A credit is given for tax withheld if the person is taxed on the interest. The final income tax on deposit interest taxed at source is 27% (25% if paid in the period of 7 April 2009 through 31 December 2010).
Losses from Irish rental properties may be offset against other Irish-source rental income or may be carried forward indefinitely and offset against rental income in future years.
Nonresidents are subject to a 20% withholding tax on nonexempt interest, royalties and rental income.
Directors’ fees. Directors’ fees paid by companies incorporated in Ireland are taxable in Ireland, regardless of the tax residence of the director or the place where duties are performed. Directors’ fees paid by non-Irish companies to Irish residents are taxable in Ireland. Non-domiciled individuals do not pay tax on directors’ fees received from foreign companies if all of the duties are performed outside Ireland unless that income is remitted to Ireland.
Directors are regarded as employed for tax purposes and as either self-employed or employed for social insurance purposes, depending on the circumstances. Tax is withheld under the Pay-As-You-Earn (PAYE system, see Section D) on the basis of income earned during the tax year. Directors must submit personal tax returns by 31 October following the tax year to avoid a surcharge liability (see Section D).
Exempt income. A portion of income from the following sources is exempt from income tax:
- For tax-resident individuals only, income derived from writing, composing music, painting and sculpting. This exemption is limited to profits or gains of €40,000, effective from 1 January 2011.
- Profits or gains from forestry activities.
- Shares provided to an employee under an Approved Profit Sharing Scheme, up to a value of €12,700 in a tax year.
An individual may use the first two reliefs mentioned above to reduce the tax liability, subject to restrictions. Effective from 1 January 2010, an individual effectively pays income tax at a minimum rate of 30% if his or her total income exceeds €400,000 and if sufficient specified tax reliefs are claimed. The effective tax rate for individuals with total income between €125,000 and €400,000 is lower because the restriction applies on a tapering basis.
Taxation of employer-provided stock options. Employer-provided share options not approved by the tax authorities are subject to income tax at the date of exercise on the market value of the shares at the date of exercise, less the sum of the option and exercise prices. Effective from 5 April 2007 a gain arising on the exercise, assignment or release of certain share options granted on or after 1 January 2006 is subject to income tax in Ireland by reference to the number of work days spent in Ireland during the vesting period. For gains arising after 1 January 2004, an individual may claim a tax credit for foreign taxes paid on the same option gain in a jurisdiction with which Ireland has entered into a double tax treaty. If an income tax charge arises in a non-treaty country, Ireland reduces the gain subject to Irish income tax by the tax payable in the other jurisdiction.
When the shares are disposed of, capital gains tax is charged on the difference between the market value of the shares at the date of exercise and the market value at the date of disposal. If the option is capable of being exercised in a period exceeding seven years after the date of grant, income tax may be charged at the date of grant in addition to a charge at the date of exercise.
Employer-provided share options approved by the tax authorities are not subject to income tax. For these options, capital gains tax is charged on the difference between the option price and the market value of the shares at the date of disposal.
Restricted stock unit and stock appreciation rights are generally taxed at the date of vesting.
Effective from 1 January 2011, employers must withhold the following from payroll:
- The USC (see Section B) on the net value of all share awards
- PRSI employee contributions, on awards granted and vested or exercised after 1 January 2011
- PAYE on share schemes that are not Revenue approved (excluding share option schemes; the employee is required to account for tax regarding these schemes within 30 days of exercise)
Capital gains and losses. Individuals resident in Ireland generally are subject to tax on worldwide capital gains. Non-domiciled individuals are not taxed on gains arising outside Ireland unless the proceeds are remitted to Ireland. Capital gains are taxed at a rate of 25% for disposals on or after 8 April 2009 (22% for disposals in the period of 15 October 2008 to 7 April 2009).
Nonresidents are taxable on capital gains derived from the following assets located in Ireland:
- Land and buildings
- Mineral rights
- Exploration or exploitation rights on the Continental Shelf
- Assets used by a trade carried on in Ireland through a branch or agency
- Shares that derive the greater part of their value from the first three items listed above
Gains are calculated by deducting from the proceeds the greater of the cost of the asset or, if the asset was owned by the seller on 6 April 1974, its value on that date. Cost (or the 1974 value) is increased by an index factor to adjust for inflation up to 31 December 2002. The value of the asset cannot be increased for inflation beginning 1 January 2003. Indexation relief is also restricted on land situated in Ireland that is held for development and on shares that derive the greater part of their value from such land.
Exemptions are available for the following capital gains:
- The first €1,270 of taxable gains derived during the 2011 tax year
- Capital gains derived from the taxpayer’s principal residence
- Assets transferred on death
- Wasting chattels (that is, tangible movable property with a useful life of less than 50 years)
Retirement relief for capital gains is available, subject to certain conditions.
Capital losses may be offset against capital gains derived in the same year or carried forward to offset capital gains in future years.
Income tax deductions
Deductible expenses. Few deductions are allowed for employees. To claim a deduction, an employee first must show that the expense was incurred wholly, exclusively and necessarily in the performance of employment. Tax deductions for expenses incurred by employees are granted only for exceptional items, including purchases of protective clothing.
Personal credits and allowances. The principal credits for the 2011 tax year are listed in the following table. Credits are deducted from the individual’s income tax liability.
Business deductions and capital allowances. Expenses incurred wholly and exclusively for the purposes of a trade or profession generally are deductible. Entertainment expenses are not deductible. Deductions for automobile expenses are restricted.
Capital expenditures and financial depreciation amounts are not deductible, but annual capital allowances ranging from 4% to 15% may be granted. The basic annual straight-line rates are 4% for industrial buildings and 12.5% for plant and machinery. Motor vehicles purchased on or after 1 July 2008 are subject to a new scheme of capital allowances based on carbon-dioxide emissions. Capital allowances for motor vehicles purchased before 1 July 2008 are calculated on the original cost (restricted to €24,000) the vehicle. Rates in excess of the basic rates are permitted for certain assets.
Relief for losses. A loss arising from a trade or profession, as calculated for income tax purposes, may be offset against all income for the tax year in which the loss is incurred, or may be carried forward indefinitely and offset against income from the same trade or profession in future years; however, the loss must be used as early as possible in the years when a profit arises. A loss incurred in the final 12 months of a trade or profession may be carried back and offset against profits from the same trade or profession for the three tax years prior to the year of cessation.
B. Other taxes
Universal Social Charge. Effective from the 2011 tax year, the Health Levy and the Income Levy were abolished and replaced by a new Universal Social Charge (USC), which is imposed at the following rates and income thresholds.
Inheritance and gift tax. Capital Acquisitions Tax (CAT) includes both gift and inheritance tax and is primarily payable by the beneficiary of a gift or an inheritance.
CAT is payable if any of the following conditions are met:
- The donor or decedent is resident or ordinarily resident in Ireland.
- The beneficiary is resident or ordinarily resident in Ireland.
- The gift or inheritance consists of Irish property.
If the donor or decedent or beneficiary is not domiciled in Ireland, he or she is not regarded as resident or ordinarily resident for CAT purposes unless he or she has been resident for five consecutive years immediately preceding the year of the gift or inheritance.
CAT is imposed at a rate of 25% for gifts and inheritances received on or after 8 April 2009 (22% for benefits received in the period 20 November 2008 through 7 April 2009). It is payable on the amount exceeding the relevant tax-free threshold. Three tax-free thresholds exist. The thresholds vary depending on the relationship between the donor or decedent, and the beneficiary.
C. Social security
Rates. Ireland imposes payroll taxes for Pay Related Social Insurance (PRSI) on all employment income, including most benefits. The following are the rates of social security contributions for 2011.
Social insurance. Employed individuals are generally subject to PRSI on income from employment, including benefits in kind. A contribution based on each employee’s salary and benefits is payable by employers. Self-employed persons are subject to social insurance contributions on total income, including investment income and rental income.
The payment of PRSI contributions may secure the following benefits:
- Contributory old-age pension (for employees and self-employed persons)
- Unemployment benefits (now known as Jobseekers Benefits; for employees only)
- Sickness benefits (for employees only)
- Limited dental benefits (for employees only)
- Limited medical (optical and hearing) benefits (for employees only)
Social insurance is payable by individuals employed in Ireland. However, non-EEA nationals, other than individuals from Australia, Canada, New Zealand, Quebec, Switzerland and the United States, are exempt for the first 52 weeks of their assignment in Ireland if the assignment is temporary and if the employer’s principal place of business is outside Ireland, the United Kingdom and the Isle of Man. EEA nationals, Americans, Australians, Canadians including those from Quebec) and New Zealanders may remain covered by their home-country social insurance systems for a specified time period.
Ireland also has an agreement that applies to the Isle of Man and the Channel Islands (Aldernay, Guernsey, Herm, Jersey and Jethou). These are the parts of the United Kingdom that are outside the EEA.
Some individuals leaving Ireland on short-term assignments may remain covered under the Irish system for a limited period, subject to approval of social welfare authorities.
To learn more about the history, culture, economy and other information about the Republic of Ireland
We have been preparing US income tax returns for US Citizens and permanent residents living in the Republic of Ireland for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in the Republic of Ireland and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in the Republic of Ireland.
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