At present non -resident companies are liable to income tax on their Irish rental profits but Section 18 Finance Bill 2021 brings those companies with Irish rental income within the charge to corporation tax.
Therefore the company’s income tax registration will cease at 31 December 2021 and its corporation tax registration will be activated from 1 January 2022 if necessary.
This proposal will result in the rate of taxation on Irish rental taxable profits going from 20 per cent to 25 per cent from 1 January 2022.
There will be no change to the tax deductibility of any expenses in relation to rental properties and provisions will ensure that capital allowances and rental losses will be transitioned from income tax to corporation tax.
As non-resident corporate landlords will now be liable to corporation tax, they will also be subject to the new Interest Limitation Rules (ILR) which have been introduced to comply with the EU’s Anti-Tax Avoidance Directives.
These rules link the allowable net borrowing costs directly to the level of earnings by limiting the maximum tax deduction for net borrowing costs to 30% of earnings before tax and deductions for interest, depreciation and amortisation.
So a company will continue to be liable to Irish income tax on its net rental income up to 31 December 2021 and from 1 January 2022 to corporation tax on its annual rental taxable profits.
A company could also be liable to close company surcharge tax which is a tax due on any undistributed investment income.