In a global society where jobs are becoming more flexible and many workers are adopting a more nomadic style of working, taxation rules across different countries can seem a little blurred. Even with this blurring or confusion about liability, it’s still important for you as the taxpayer to understand the rules as they apply to you.
For tax authorities, there is rarely room for extenuating circumstances or misunderstandings. Taxes need to be paid and it’s up to you to figure out who they need to be paid to.
Even for those who only split their time between two countries, tax rules can get complicated very quickly. That said, there are guidelines in place to provide you with a starting point from which to base your tax payments. It might just take some additional research and advice to get to grips with!
To get your started with these guidelines, we’d answered some of your most common questions relating to dual residency and working across different countries below.
Even though you can technically be viewed as being a tax resident of two countries at the same time, it’s important to understand that situations of ‘dual tax residency’ can usually be resolved. This is particularly the case where the countries have a Double Tax Agreement in place.
While each country will have differing policies regarding tax residency, in most cases taxpayers settle the majority of their taxes in the country they spend the most time in (N.B. Remember though, every rule has exceptions!)
While certain circumstances exist where this may not apply, the country where you spend the most time and have your permanent home within a tax year is usually where you’ll be considered tax ‘resident of’ (under a Double Tax Agreement).
For people who move around a lot or work across several countries, it’s always best to reach out to an expert to discuss where you are liable to pay taxes.
Under Ireland’s tax rules, your tax residency is determined by the number of days you spend within Ireland during a tax year. Therefore, you are tax resident in Ireland if you are in the State:
Therefore, if you travel frequently between Ireland and another country, it will be the number of days you’ve spent in Ireland during a tax year that will determine whether Ireland will deem you to be an Irish tax resident under Irish rules. The country you travel to may also deem you to be a resident under their domestic tax rules.
Note: The Irish tax year runs from 1 January to 31 December.
In some cases, you may be viewed as a tax resident of two countries at the same time. This can be due to several reasons, but most commonly it applies to people working between two countries or who have strong financial or family ties to two different states.
The most important thing to remember about dual residency is that you may be required to pay tax to both countries on your total worldwide income. Luckily, many countries have a special double taxation agreement to avoid this happening. We’ll speak about this a little more later!
In Ireland, it is also possible to be a tax resident in Ireland, but not be domiciled here. Citizens Information defines your domicile in Ireland as “the country where you live with the intention of remaining there permanently. It may be different to your residence or nationality”. Depending on your domicile status, tax on certain sources of income/gains might differ from that of an Irish domiciled person. This can include foreign-source income.
If you are a tax resident in Ireland but are not domiciled here, it’s always worth asking a tax specialist about your entitlements to the remittance basis of tax in Ireland. (For more on the remittance-basis of tax, we’ve written an entire blog post on the topic).
If you are a resident in Ireland (and are also domiciled here), you will be taxed on your worldwide income (including any foreign income earned abroad). However, if you have already paid tax on this income overseas, you may be entitled to claim a tax credit.
The entitlement to this credit will depend on:
You can check out tax treaties by country using this handy webpage.
If you are not resident in Ireland and end up paying both Irish tax and foreign tax on certain income, you may also be entitled to claim relief in your country of residence.
If you know that you are going to be resident in Ireland for at least the next year, you can request split-year treatment for the year that you arrive. This means that you will be treated as a resident in Ireland for tax purposes from the moment you arrive and all of your employment income from that date will be taxed in Ireland (with full personal tax credit entitlements).
Keep in mind that because your pre-arrival foreign employment income is not taxed in Ireland (assuming the relief is granted by the Revenue Commissioners), accuracy when it comes to dates is essential for ensuring you are taxed accurately and fairly.
The good thing about split-year treatment is that it can be applied for at any time during the tax year (1 January – 31 December). Split-year treatment is especially useful in avoiding double taxation within a single tax year, so knowing about it before your money can save you money (and time later on!) as soon as you arrive.
You can also apply for split-year treatment if you are planning on leaving Ireland. Upon successful application, you will continue to be treated as an Irish resident until your date of departure but foreign employment income received after the date is not taxable in Ireland.
Even post-Covid and with the rise in remote working, it is still the case that ‘digital nomads’ often struggle to determine their tax liability.
In terms of taxation, a key concept is source. For example, if you work in Ireland, the income takes on an Irish source (even if paid by a foreign employer). This income is therefore taxable in Ireland, irrespective of your tax residency position. This is particularly applicable to someone who may not have a tax residency in any particular location, but who may work in Ireland throughout the year. N.B. Assuming no relief under a Double Tax Agreement.
Some countries such as Estonia are trialling different methods of taxation for digital nomads. This includes Estonia’s E-residency programme that allows you to apply for a Visa giving you the right to work, reside and be a temporary tax resident of Estonia. While programmes such as this one are very much still in development, there are positive signs towards more flexible taxation policies being a possibility in the near future.
When it comes to living and working between two different countries, it’s important to not rely on your employer for advice in relation to your tax liability.
While some employers might be well-versed in having flexible workers, your tax situation is still unique to you and should be discussed on a one-to-one basis with a tax expert.
Additionally, this article only touches the surface in terms of the complexity of this topic — there may be other reliefs/exemptions that apply to your personal situation which we have not discussed.
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 or refraining to act. 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 or any of the articles in our blog series