Scope of Income Tax
Irish income tax applies to income arising in Ireland. This includes income earned from an employment or a service contract which is performed in Ireland.
Capital gains tax is broadly similar to that in the United Kingdom. It is entirely independent of income tax. The rates and allowances are set out in another section.
The tax status of other income of the employee or service provider depends on his or her residence and domicile, much the same way as in the United Kingdom.
A person who is resident in Ireland but is not domiciled, may avail of the remittance basis of taxation. Essentially under this basis of taxation, only income arising outside Ireland which is remitted into Ireland is subject to Irish income tax.
The same applies to capital gains which arise outside Ireland. The remission of capital and savings into Ireland is not subject to Irish capital gains tax or income tax. The principle is much the same as that in the United Kingdom.
Calculation and Return of Tax
The tax year in Ireland is the calendar year. Therefore, it commences on 1st January and ends on 31st December following.
The system of calculating income tax is slightly different from that in the United Kingdom. Like the UK system, Irish income tax aggregates income from all sources. Some allowances and reliefs do apply but the most significant deductions are by way of a tax credit. Broad details of the tax rates and credits are set out below.
The effect of tax credits differs to that of allowances. In the case of a personal allowance, the allowance is deducted from income before the charge to tax. In contrast, in the case of a tax credit, the income tax liability is first calculated and the tax credit is applied to reduce it. All things being equal, it applies more equitably in that it benefits lower tax rate taxpayers in Euro terms in the same way as higher rate taxpayers.
Most persons undertake their tax returns online through the revenue online system (ROS). It is necessary to register and obtain a digital certificate in order to use the ROS system. There is a parallel system does not involve a digital signature for employees and persons with nontrading income.
Married Persons/ Civil Partners
Married couples including same-sex married couples and registered civil partners, may choose to be jointly assessed. They make a single tax return nominating one spouse or partner as the chargeable person. This is the person with whom the Irish Revenue, the Revenue Commissioners, correspond.
Each spouse or civil partner may choose to be assessed separately. In this case, each receives a proportion of the tax credits and reliefs. The total tax liability should be the same as in the case of joint assessment.
Each spouse or civil partner may choose to be assessed as a single person. In this case, they obtain the tax credits, reliefs, bands and rates applicable to single persons. Their liability may be greater than that which would have applied, had they elected for joint assessment.
Tax Residence
A person who comes to Ireland as an assignee for a temporary period who has not previously spent time in Ireland, is unlikely to be Irish domiciled unless and until he or she takes steps to make Ireland his or her permanent home.
The Irish test for residence is similar to simpler than that now applicable in the United Kingdom. A person is resident if he or she is present in Ireland for more than 183 days or is present for 280 days in the tax year and in the previous tax year. The latter test does not apply to persons present in Ireland for less than 30 days in the tax year concerned. Presence includes presence for any part of the day.
As in the United Kingdom, a person may elect to be resident even if he is not otherwise resident under the above test. This must be done by the date of the relevant tax return. The position must be considered in the context of the totality of the persons’ taxation obligations in Ireland and abroad. Election to be resident in Ireland would not mean that the person is not resident in the United Kingdom.
In cases where a person is resident both in Ireland and the United Kingdom, the double taxation treaty will apply so as to determine the country of tax residence and the relevant credits and exemptions thereunder. A double taxation treaty may override the general position in the particular circumstances.
Ordinary residence has implications for income tax purposes. A person is ordinarily resident when he or she has been resident for three consecutive tax years. He or she ceases to be ordinarily resident when he or she has been non-resident for three consecutive tax years. This has implications in respect of certain non-employment income for periods after the person ceases to be resident.
Strictly speaking, residence applies on a whole year basis and in this sense can be retrospective. So-called split year employment income relief allows a person to elect to be resident as and from the date of arrival and to cease to be resident as and from the date of departure and cessation of employment. The relief must be claimed and the requisite proof must be furnished to Revenue of arrival and departure.
Domicile
Domicile is a common law concept, effectively identical to that applicable in the United Kingdom. A person’s domicile is his permanent long-term home. It need not necessarily coincide with nationality or residence.
On birth, a person acquires a domicile of origin, generally that of his father at common law. He acquires a domicile of his mother if his mother and father do not live together and he lives with his mother.
On reaching the age of majority (18 years) a person can take a domicile of choice by moving his permanent home to another country and severing links with the domicile of origin and/or establishing sufficiently strong ties with the new domicile.
Non-domicile Levy
The non-domicile levy is not linked to the remittance basis treatment. There is a domicile levy which applies if a person is Irish domiciled and his :
• worldwide income exceeds €1m
• Irish property is greater in value than €5m
• Irish Income Tax in a year was less than €200,000.
The amount of the levy is €200,000 per year. The levy is payable each year on or before 31 October in the year after the valuation date. This is done through self-assessment.
The valuation date is 31 December each year. Persons liable may offset the amount of Irish Income Tax that he paid in a year against the domicile levy due for that year. A liable person cannot offset the Universal Social Charge (USC)against the levy.