The extent of an individual’s liability to Irish income tax depends on:
- whether he/she is tax resident in Ireland;
- whether he/she is ordinarily tax resident in Ireland; and
- whether he/she is domiciled in Ireland.
It is important to note that these are specific tax concepts.
An individual is regarded as resident in Ireland if he is present in the State for 183 days in that income tax year, i.e. from 1st January to the following 31st December. This is known as the ‘183 day rule’.
Alternatively, an individual is regarded as resident here if he spends 280 days or more in Ireland in aggregate in that income tax year and the preceding income tax year. This is known as the ‘280 day rule’.
An individual will not be regarded as resident in an income tax year in which he spends a period in the whole amounting to 30 days or less in the State and no account shall be taken of such a period for the purpose of the 280 day test.
In determining days present in Ireland, an individual is deemed to be present if he is in the country at any time during the day.
An individual becomes ordinarily resident in Ireland if she has been tax resident here for each of the three immediately preceding tax years.
Once a person becomes ordinarily resident, she will continue to be ordinarily resident here until she has been non-resident for three consecutive income tax years.
This term is much harder to explain because, unlike residence and ordinary residence, it has never been defined in tax legislation. In general, it refers to the place you regard as your natural home. Many pages have been written on this matter and a person’s place of domicile is not always as easily determined as one might think. However, there are some general rules which should be remembered.
Domicile of origin
Each person acquires a domicile at birth which in most cases is that of his father. This original domicile is retained throughout your life unless you acquire a domicile of choice. It should be noted that you cannot simply abandon your domicile of origin, it can only be replaced by acquiring a domicile of choice.
Domicile of choice
This is acquired through a combination of choice and circumstances. Establishing that a person has abandoned her domicile of origin in favour of a new country can be a very complex matter and many factors are relevant – for example where her family currently live, if she has purchased burial plots in the new country, and what connections she has kept with the original country. Normally the individual must sever all links with the country which serves as her original domicile of origin and take up residence in this new country. Please note that no person can be without domicile nor can you have more than one place of domicile at the same time. For example, if at any time a person abandons his domicile of choice he will immediately revert back to his domicile of origin.
Effect of residence, ordinary residence and domicile
Resident, ordinarily resident and domiciled
As a general rule, an individual who is resident, ordinarily resident and domiciled in Ireland is liable to Irish income tax on worldwide income. If this includes income from another country then the treatment of that income for Irish tax purposes will normally be determined by the provisions of the Double Taxation Agreement (DTA) between Ireland and that country. If no DTA exists, then the general rule is that he will be liable to Irish tax on the income net of any foreign tax paid.
Resident, domiciled but not ordinarily resident
This would include, for example, an Irish individual who returns to Ireland after many years abroad. As outlined above, she will not become ordinarily resident until she has been resident here for three consecutive years. Previously, for the first three years after returning she would have been taxed on all Irish income and on foreign income only if remitted to this country (until she became ordinary resident and became taxable on worldwide income). However from 2010 onwards an Irish domiciled but non ordinary resident individual cannot utilise the remittance basis of taxation and despite not being ordinary resident is taxed on his worldwide income.
Resident but not ordinarily resident or domiciled
This may include, for example, a foreign citizen sent to work in Ireland for a few years. Such an individual is liable to Irish income tax in full on his income arising in Ireland and on his foreign employment income to the extent that he performs the duties of his employment in Ireland. Any foreign non employment income is only liable to Irish tax to the extent that the income is remitted into Ireland.
Domiciled, ordinarily resident but not resident
An Irish person who leaves Ireland will continue to be ordinarily resident here for the first three years. A domiciled, ordinarily resident but non-resident person is liable to Irish tax on worldwide income with the exception of:
- income from a trade or profession no part of which is carried on in Ireland.
- income from an employment the duties of which are carried on abroad.
- other foreign income provided it does not exceed €3,810. (If it does exceed €3,810 then the full amount is taxable in Ireland, not just the excess).
Not resident and not ordinary resident
In general, a person who is neither resident nor ordinarily resident in Ireland is taxable on Irish source income only. This would include for example a UK individual who owns a rental property in Ireland. In some circumstances the provisions of a Double Taxation Agreement may determine that the income is not liable to Irish tax.
Normally no personal allowances are available but some exceptions exist. For example, Irish domiciled individuals are entitled to a portion of their personal allowances. The apportionment is calculated on the basis of their Irish income over their worldwide income. In some cases the terms of a Double Taxation Agreement may grant similar personal allowances to an individual who is not domiciled in Ireland.
As outlined above, certain individuals are liable to Irish tax on the remittance basis, i.e. liable to Irish income tax on all Irish income and foreign income (including UK income) is taxable only to the extent that it is remitted into Ireland.
Only remittances of income are liable to income tax. Remittances out of capital are not liable to income tax (capital gains tax may however arise depending on the circumstances). It should be noted that you cannot disguise income as capital for the purpose of remitting it to Ireland. For example if an individual uses his income to purchase property and then remits the proceeds of a sale of same into Ireland – it may still be treated as a remittance of income and Irish income tax may arise.
In addition, where an Irish tax liability is paid out of foreign income, this payment in itself constitutes a remittance and may give rise to further tax.
Please note that from 2010 the remittance basis only applies to individuals who are Irish resident but not domiciled in Ireland.
As outlined above, a person’s residence in Ireland is determined by either the 183 day rule or the 280 day rule. However special rules of residence may apply for the year of arrival into Ireland or the year of departure from Ireland.
Subject to certain conditions, an individual who, having not been resident in the preceding year, arrives in Ireland during a tax year with the intention and in such circumstances that he will be resident next year, may elect to be treated as Irish tax resident from the date of arrival only.
Similarly, a person who is leaving Ireland with the intention and in such circumstances that he will not be resident in Ireland for the next year may elect to be treated as Irish tax resident in Ireland up to the date of departure only and non-resident from that date.
It should be noted that this special split-year residence treatment is only available to individuals who are resident in Ireland under the 183 day rule or the 280 day rule. In addition, the above rules are relevant for employment income only.
Cross-border workers relief
This relief contained in Section 825A TCA 1997 is aimed primarily at Irish residents who commute to work in the UK. It applies where an individual commutes daily or weekly to work outside the State and pays tax on the income from the employment outside the State (but in a country with which Ireland has a tax treaty). The employment must be held for a period of 13 weeks. The individual must spend at least one day in Ireland a week. Such Irish tax residents will only pay Irish income tax on sources of income other than the foreign employment. Therefore the relief is attractive where the foreign tax is lower than the Irish tax.
In general, the Cross-Border Workers Relief will not be available in the following circumstances:
- The individual is taxable on the ‘remittance basis’.
- The individual has claimed the seafarers allowance or the split-year residence treatment.
- The income is paid by a company to a proprietary director or his/her spouse.
The relief is available to an individual resident in the State, who is absent from the State for at least 161 days in the tax year as a seafarer on a seagoing ship on a voyage or voyages beginning or ending in a foreign port.
Under this relief an allowance of 6,350 Euros is given as a deduction from total income for each year of assessment in which the conditions for the allowance are met and for which the allowance is claimed.
There are, as always, a number of conditions that must be satisfied, including:
- The individual must be absent from the state for at least 161 days for the purposes of a qualifying employment.
- A qualifying employment is one where the duties are performed outside the State on board a “seagoing vessel” on an ‘international voyage’. (Normally employments with state bodies or state – sponsored bodies do not qualify).
- A “sea-going vessel” is a ship used solely for the purposes of carrying passengers or cargo by sea for reward (fishing vessels are specifically excluded).
- An ‘international voyage’, i.e. one that begins and/or ends at a port outside of the State (may include vessels servicing offshore rigs).
- The ship must be registered on the Register of an EU Member State and the individual must have entered into an agreement (known as “articles of agreement”) with the master of the ship.
The allowance is not available to individuals taxable on the ‘remittance basis’ or to individuals who have claimed the split-year residence treatment.
Related Article: The Remittance Basis of Tax in the UK and Ireland
Please call Noel Murphy today on 021-4310266 if you need further information on residence, ordinary residence and domicile or a free consultation.