Am I Irish tax resident

Perhaps the most crucial information for me to determine as an Expatriate Tax Adviser is the tax residency of my client. Like most tax regimes, the Irish tax legislation seeks to tax an individual mainly based on their tax residency position.

So who is considered an Irish tax resident? And why does it matter?

IRISH TAX RESIDENCY

An individual’s Irish tax residence is determined with reference to the number of days that an individual spends in the Republic of Ireland each year. The Irish tax year runs from 1 January to 31 December.

There are two tests to determine if an individual is Irish resident in a tax year:

• 183 days or more in the Republic in a calendar year; or
• A total of 280 or more days spread over the current tax year and the previous tax year (with at least 30 days in one of these years)

So to summarise the above, to avoid Irish tax residency you need to spend fewer than 140 days in Ireland in each tax year on a continuous basis.

ELECTING TO BE IRISH TAX RESIDENT

Section 819(3) of the Taxes Consolidation Act 1997 allows an individual to elect to be a tax resident even if they do not meet the required number of days test in a given PROVIDED they intend to be resident in Ireland in the next tax year.

Why would someone do that you might ask?

Irish tax residents are entitled to tax credits and certain tax exemptions that non-residents do not necessarily qualify for. Therefore it can be advantageous to make this election in some cases.

THE CONCEPT OF “ORDINARY RESIDENCE”

Irish tax legislation also includes a term “ordinary residence”. An individual is “ordinarily tax resident” in Ireland when they have been Irish tax resident for three consecutive tax years i.e. they become “ordinary resident” in the fourth year. It takes three years to acquire ordinary residency and three years to lose it.

Ordinary tax residence can be of importance to individuals who have high levels of investment income and who go abroad to work for a period of time. They remain liable to Irish income tax on the investment income, even though they are living abroad. N.B. In this case it would be necessary to look to the relevant Double Tax Agreement as it will take precedence over Irish domestic legislation in this respect.

SPLIT – YEAR RESIDENCE RELIEF

This relief is of interest to anyone who is coming to live in Ireland to work as an employee or who may be leaving Ireland part-way through the year. An individual entitled to this relief is treated as resident in Ireland for the full tax year.

To qualify:

• When leaving you must be leaving for more than a temporary purpose with no intention of being Irish tax resident in the following year.
• When arriving to live in Ireland you must be coming for more than a temporary purpose and intend to be Irish tax resident in the following year.

If you meet the conditions you are:

• only taxed on employment income up to the date of departure when leaving Ireland
• only taxed on employment income from the date of arrival when coming to Ireland

This relief ONLY applies to employment income. One of the advantages of the relief is that it provides an entitlement to full personal tax credits for the tax year in question.

DOMICILE

The domicile of an individual is relevant for establishing their exposure to Irish tax. A non-Irish person who moves to Ireland can be eligible for the “remittance basis of taxation” for certain types of income. More on this later.

So often when I speak to client’s they tell me where they believe they are domiciled. They are often interested when I explain that domicile is actually a complex legal concept and that every person is born with a “domicile of dependence or origin”. Conceptually domicile indicates which country you regard as your permanent home.

Your domicile of origin is acquired at birth, from your father if your parents were married (or your mother if they were not). Until the age of 18 your domicile of origin remains with you, at which point you can acquire a domicile of choice.

This essentially means you abandon your domicile of origin and live in another country with the intention of remaining there permanently. Sounds straight forward but domicile is a complex area of law and in reality it can be difficult to prove a new domicile of choice.

The good news is that from an Irish tax perspective non-Irish domiciled persons are taxed on income arising outside Ireland only if that income is brought into Ireland. Non-domiciled individuals who intend to come to live in Ireland should seek tax advice prior to their return.

DISCLAIMER

The material in this article is for general information purposes only and does not constitute legal or taxation advice. Specific legal and taxation advice should be sought before acting. All information and taxation rules are subject to change without notice. No liability whatsoever is accepted by Expats Taxes for any action taken in reliance on the information in this article