The remittance basis of tax in Ireland: The dos and don’ts

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September 21st, 2022
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The remittance basis of tax in Ireland: The dos and don’ts

In a previous blog, we discussed the remittance basis of tax in Ireland. As a brief refresher, this basis of taxation generally applies to those who are resident in Ireland but not considered to be domiciled here (i.e. Ireland being considered their permanent home). The remittance basis of tax is of particular interest to those with foreign income or proceeds from foreign assets. 

The remittance basis of tax can be a complicated subject. This is why it’s always a good idea to have an expert talk you through it. However, to make things easier, we’ve compiled a list of 4 simple Dos and Don’ts when it comes to the remittance basis of tax in Ireland.

First up: The Dos.

1.     Find out if you are eligible for remittance basis of tax

To meet the criteria for the remittance basis of tax in Ireland, you must meet a specific set of requirements. The most important of these requirements is that you are resident in Ireland, but are not considered to be domiciled in Ireland. The broad definition of being domiciled in Ireland is if Ireland is considered to be your natural, permanent home. Every individual is born with a domicile of origin and this will only change if you intend to live in another country on a permanent basis.

You are considered to be resident in Ireland for tax purposes if you spend 183 days in Ireland during that tax year, or 280 days over the course of two calendar years. However, if you are resident and not domiciled in Ireland, your liability for income tax on foreign income is limited to what is remitted into Ireland either (either directly or indirectly). 

In more basic terms, this means that with the remittance basis of tax, you will be taxed as a normal Irish tax resident on all income from Irish sources, but for income relating to foreign gains, your taxation will depend on what is remitted in Ireland. (See more on this below) 

2. Understand exactly what counts as “remittance”

The Oxford Dictionary defines the word “remittance” as “a sum of money that is sent to somebody in order to pay for something”. However, in terms of taxation, the definition of this word is a little more complex.

For example, under the remittance basis of tax, if a resident of Ireland purchases a holiday home outside of Ireland and then sells this property and uses the money within Ireland, the portion of foreign income/gains used for the original purchase may count as remittance. 

It’s worth remembering that remittance doesn’t just apply to foreign income that is used directly in Ireland. It can also apply to any foreign income that eventually ends up in circulation within Ireland — even through indirect routes. E.g. using a foreign credit card while in Ireland.

3. Keep your accounts organised

Following on from the previous point, keeping track of your remittances can be difficult. This is why many people under the remittance basis of tax have segregated accounts to help them keep track of exactly how their foreign income is being spent. 

The Revenue Commissioners take the approach that income is remitted from an account in priority to capital gains, and then subsequent capital in the same account. An expert tax adviser will be able to help you efficiently structure your foreign bank accounts to maximise the benefit of the remittance basis of tax. 

4. Speak to an expert

It might seem like with enough research, you can take care of your remittance basis tax liability yourself. While this can be true, it’s often the case that important factors get overlooked. Even the experts sometimes struggle with fully comprehending your tax liability. This is usually due to each case being so different to the next.

While your accountant might be a good person to mention remittance-based tax to, more specialist knowledge on the subject is often required. 

If you are moving to Ireland from abroad, it might be worth investigating local services to help you keep on top of your accounting. While some expats choose to keep the accountant they are used to working with from the country they’re coming from, local knowledge of accounting and taxation is always best.

Alternatively, make use of specialist advisory services for expats within Ireland that help with tax matters as you need them (you can get in touch with us here).

Next up: The Don’ts.

1. Don’t take your advice purely from online sources

Online research is a great way to gain a general insight into the remittance basis of tax. However, online sources won’t be able to take into account your own personal circumstances. When it comes to the remittance basis of tax, your individual case needs to be evaluated, with your remittances a particular focus during the tax year.

If you only take advice from online sources, it’s likely that you’ll miss something important and could end up with some complicated tax matters on your hands. The best advice we can give is to try understanding what remittance is in broader terms, and then speak to someone with expert knowledge that can help you avoid making any mistakes.

Tip: Citizens Information is a great resource in Ireland for general enquiries about living there. However, this is still an online source — so be sure to seek out additional advice based on your findings from reliable online platforms.

2. Don’t assume what counts as remittance and what doesn’t

Many believe that a taxable remittance only applies to a direct transfer of foreign income. As previously mentioned, this isn’t the case. In fact, you might be surprised by what falls under the category of remittance. 

While more obvious cases of remittance do exist (such as rental income from abroad or gains from share sales being paid into an Irish bank account), some forms of remittance can be less obvious.

For example, did you know that using a foreign credit card in Ireland can count as remittance? This surprises many of our clients who don’t consider these everyday uses of their foreign income as falling under the remittance basis of tax. This is why knowing as much about this basis of taxation is so important; to reap the benefits of it, you must first understand exactly how it works.

Tip: An expert will be able to advise on these less common taxable remittances but in general, it’s good to be aware that not everything is a straightforward process with the remittance basis of tax. The golden rule is: If you’re unsure, check!

3. Don’t wait to consider the remittance basis of tax until you’ve already moved to Ireland

Where the remittance basis of tax in Ireland is concerned, it’s best to consider your capital and assets circumstances before moving. This is because in certain circumstances, remittances made out of funds accumulated before the commencement of the Irish tax year (in which the person becomes a resident of Ireland) may be treated as remittances of capital rather than income. Therefore, depending on the time of your move, some of your foreign income may not be subject to Irish income tax. 

The tax year in Ireland runs from 1 January to 31 December, so this is worth keeping in mind before your move.

4. Don’t fall victim to bogus tax scams in Ireland

Because the remittance basis of tax in Ireland can be so overwhelming, it’s easy to get confused about which tax authorities are legitimate and which ones aren’t. If you’re dealing with income from two different countries, it’s likely that you’ll also have double the amount of tax bureaucracy to deal with. During a move to a new country, this can sometimes feel like a lot.

When you get set up with the tax system in Ireland, it’s important to know that it is Revenue that you’ll be dealing with. Revenue is the tax authority in Ireland and handles everything from tax matters to customs and related matters. However, there are some bogus scammers who impersonate authorities such as Revenue and make it their mission to trick you into parting with your money. 

Unfortunately, the reality is that once you live in Ireland and start using Irish services, details such as your name, phone number and email address can get into the wrong hands. Data leaks aren’t likely to come from Revenue themselves, they’re more likely to come from other sources who simply confirm that you are resident in Ireland and are therefore likely to be paying Irish tax.

Because of this, bogus phone calls and emails have become common in Ireland. Revenue recently released a warning on the matter but the main points are:

  • Scam callers often suggest that you are due a tax refund to lure you in
  • Scam callers sometimes state that an outstanding tax bill is due
  • Scam callers often request bank details for reason that sound authentic, but aren’t

The guidelines from Revenue are as follows: “If you receive a telephone call purporting to be from Revenue about which you have any doubts, particularly if the call is unexpected, you should contact your Revenue Office”.

Some final thoughts

With the remittance basis of tax, we understand that there’s a lot to think about — especially if you’re moving from abroad. While this basis of taxation has its perks, these perks are only truly noticeable if you have your affairs in order.

If you’re unsure about whether or not you’re eligible for the remittance basis of tax in Ireland,  or you’d like help ensuring that you’re following the right steps in relation to the tax, you can contact us or book a consultation

Moving to Ireland can be enough of a stress already, let us take care of your tax worries.

Stephanie Wickham

Stephanie is an award-winning international and expatriate tax specialist with over a decade’s experience. She is a KPMG trained Chartered Tax Adviser and Chartered Accountant.

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