The remittance basis of taxation for foreigners moving to Ireland

Your worldwide income becomes taxable in Ireland when you trigger Irish tax residency. Irish tax law states that foreign domiciled expats who are tax-resident in Ireland are not required to pay income tax on foreign sources of income or gains, unless these amounts are remitted, or brought into, Ireland. This is called the remittance basis of taxation. For example, if a US-domiciled individual relocates to Ireland and maintains US investments while tax-resident in Ireland, they will not be subject to Irish tax on the income from these investments unless the income is remitted. This article provides information for foreign individuals who are domiciled in Ireland. Got questions about your domicile status? Book a consultation with an Irish tax professional today.

What is a remittance?

A remittance refers to foreign income that is brought into Ireland while you are tax-resident here. What qualifies as a remittance? Generally, any foreign income you earn while you’re tax-resident in Ireland that is also brought into Ireland in some way. For example, let’s say you purchase an asset overseas. If you bring that asset to Ireland and sell it while you’re tax-resident here, the proceeds of the sale are considered a taxable remittance. This means you’ll need to pay Irish income tax on the sale. Here’s another example. Say you earn money from a source of income in the US, like a rental property. You deposit that income into an American checking account. If you withdraw money from that account from an Irish ATM, that also counts as a taxable remittance. What happens if you’re required to pay tax on that income in the United States as well? This is another tricky tax situation. While the Double Taxation Agreement may apply, you should still seek professional advice to ensure compliance with tax law. It is worth noting that certain investments do not qualify for the remittance basis of tax e.g. certain mutual fund investments.

Maximising the benefits of remittance-basis taxation

People who are planning to move to Ireland should know 3 key terms related to remittance-basis taxation:

• Income-generating accounts
• Pre-residency capital
• Mixed-fund accounts

Income-generating accounts An income-generating account refers to any bank accounts where you deposit foreign-earned income. Pre-residency capital Pre-residency capital refers to foreign sources of income or gains that were earned before triggering tax residency. Foreign cash savings accounts are examples of pre-residency capital. Mixed-fund accounts Mixed-fund accounts potentially include pre-residency capital, post-residency capital gains and foreign income that’s taxable in Ireland. The Irish Revenue Commissioners deem the first euro transferred from these accounts to constitute taxable income until the income is exhausted. As you can see, the remittance basis of taxation in Ireland is far from straightforward. That’s why it’s essential to seek professional advice well in advance of your move to Ireland. Our tax experts can advise you how to separate income-generating accounts from accounts that contain pre-residency capital before you trigger tax residency in Ireland. This ensures you can maximise the benefit of the remittance basis. Remittance basis is a complex tax situation — our professional tax advisers can help you understand how remittance works. Get in touch with us today to arrange a consultation or to learn more about our services. The above does not constitute advice and is for general information purposes only.