For many US citizens, living abroad in Ireland is a dream opportunity. Whether it’s for work purposes, retirement, or simply just for a change of pace, Ireland offers many unique experiences and opportunities for American expats.
Unfortunately, no move abroad is ever without its challenges and one of these challenges can include tax implications. From figuring out where to file tax returns to determining which income requires reporting, it’s normal for US citizens living in Ireland to feel overwhelmed.
Luckily, it’s not all bad news.
The US and Ireland are certainly no strangers to emigration, and the two countries have a strong Double Tax Agreement (DTA) in place to facilitate things.
Designed to ensure fairer tax treatment for those moving between the two countries, the DTA between Ireland and the US helps prevent double taxation on the same income within the same tax year.
But what exactly do you need to know about the US/Ireland DTA to maintain tax compliance and optimize your financial situation?
The team at Expat Taxes is here to help!
What is the US/Ireland Double Tax Treaty?
The most recent US/Ireland Double Tax Agreement is a bilateral treaty aimed at preventing the double taxation of income earned by residents of one or both countries.
DTA tax treaties generally apply to income taxes and capital gains, and they are intended to provide clarity and relief for cross-border taxpayers.
Note: In Ireland, taxes are paid to Revenue Irish Tax and Customs, with the Irish tax year running from 1 January to 31 December.
Why Do DTAs Exist?
In addition to providing clarity and relief to cross-border taxpayers, Double Tax Agreements also exist to promote international trade and investment by eliminating the potential burden of double taxation.
DTAs offer a framework to resolve tax disputes between each treaty country and remove tax barriers, encouraging better economic cooperation and mobility.
Who Do DTAs Usually Apply to?
DTAs apply to various individuals and entities engaging in international activities.
Here are just a few examples of who a DTA between the US and Ireland might be most relevant to:
Expatriates & Cross-Border Workers
DTAs often focus on individuals who live and work in different countries.
In terms of income earned by US citizens living in Ireland, a DTA ensures that tax is only paid once on these earnings, regardless of which tax authority they are paid to. This may mean both countries tax certain income types, but a credit system ensures income is not doubly taxed.
Multinational Companies
DTAs can also benefit businesses operating in multiple countries. A DTA clarifies how profits from international operations are taxed for US companies, ensuring that companies do not face double taxation on their earnings.
Investors & Financial Entities
Investors who hold assets or earn income from investments in foreign countries can also use DTAs to avoid double taxation on dividends, interest, and capital gains. This is particularly relevant for US citizens with investment portfolios that include Irish securities/stocks/fund investments.
Pensioners & Retirees
DTAs can benefit retirees receiving pensions from countries other than where they reside. A DTA can help determine how pension income is taxed and offer guidance on which tax authority to consult regarding pension payments.
Students & Researchers
Students and researchers who receive grants, scholarships, or income from another country may also benefit from DTAs. This is because a DTA often includes provisions to prevent taxation on specific types of income earned when traveling between the US and Ireland during a single tax year.
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What Are Residency and Domicile, and Why Do They Matter to DTAs?
As part of a Double Taxation Agreement (DTA) between Ireland and the US, your residency status and domicile are crucial in determining your tax obligations. These terms help establish where you are considered a resident for tax purposes and influence which country has the right to tax your income.
Residency
Residency typically refers to the country where you spend most of your time and have significant personal, professional, or economic ties.
While the criteria for determining residency can vary between countries, it generally comes down to the number of days spent in the country or the location of your primary home.
For example, you are considered a resident in Ireland for tax purposes if:
- You spend 183 days or more in Ireland in that year
- You spend 280 days or more in Ireland over 2 consecutive tax years (in this case, you will be regarded as a resident for the second tax year but must still be in Ireland for a minimum of 31 days in the second year)
Domicile
Domicile is a more permanent concept and refers to the country you consider your permanent home i.e. the place you intend to return to and remain indefinitely.
It is not necessarily where you currently reside but where you have the deepest connections. It is a subjective concept based on an individual’s specific circumstances and intentions.
For tax purposes, your domicile is crucial because it can determine:
- Long-term tax obligations: Your domicile can affect your Irish tax liability on worldwide income and certain types of capital gains.
- Inheritance tax: Domicile can also play a significant role in determining your tax liability for inheritance taxes in different countries.
- Tax planning: Understanding your domicile is necessary for supporting long-term tax planning and financial decisions, especially concerning assets and investments.
Remittance Basis of Tax
If you are domiciled outside of Ireland but resident in Ireland, you may be able to use the remittance basis of tax. This means you are only taxed on income and gains you bring into Ireland.
This can provide significant tax advantages for expatriates with foreign income and investments. However, consulting with a tax advisor is essential before making assumptions about your entitlement to the remittance basis of tax.
How Does the US/IE DTA Work?
The DTA between Ireland and the US eliminates double taxation by allowing you to claim credits for taxes paid in one country against taxes due in the other.
But, because each case is different, your entitlement to Foreign Tax Credits (FTCs) and relief — as well as the type of income being taxed — should always be discussed with a tax expert specialising in US and Irish taxes.
How Different Types of Income Are Taxed
Regardless of the conditions of the DTA, as a US citizen living in Ireland, you might still need to file a US tax return in the same way US residents do.
While certain rules and exemptions do exist, our advice is to assume that the US tax authorities need to be notified of income and capital gains unless otherwise stated. US citizens generally remain taxable in the US even when no longer residing there.
Additionally, the Double Tax Agreement application can vary for US and non-US citizens.
That said, even with uncertainty regarding tax filings, the US/Ireland DTA provides a structured framework to ensure fair tax treatment.
Here’s how different types of income might be taxed under this agreement:
Employment Income
Under ordinary circumstances, employment income is generally taxed in the country where the work is performed. However, if you are a resident of one country but mostly work in the other country, the DTA can help you avoid double taxation.
For example, a US citizen, Sarah, works for an American company but is temporarily assigned to a project in Ireland for six months.
Under the DTA, Sarah can claim a Foreign Tax Credit (FTC) on her US tax return for any income tax paid in Ireland, preventing double taxation. She may also be entitled to domestic reliefs in the US.
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Business Profits
Business profits are generally taxed in the country where the business activities are conducted. However, the company’s residence status (and other factors) must also be considered under a DTA to ensure fair tax treatment.
For example, John, a US citizen living in Ireland, owns a consultancy company. If John’s company is considered Irish resident, it must pay Irish corporate tax on worldwide profits.
However, if the company is considered non-resident under the DTA, it would typically only be subject to Irish corporation tax on the trading profits of an Irish branch or agency and to Irish income tax on certain Irish-source income.
This is just one example of why tax residency and domicile are so important for clarifying tax obligations, even under a DTA.
Rental Income
While rental income from property is usually taxed in the country where the property is located, depending on your circumstances, it may also be subject to tax in your country of residence.
For example, Emily, a US citizen living in Ireland, rents out property in the US. If Emily is considered an Irish tax resident — who is also domiciled in Ireland — she must pay Irish tax on the rental income from her US property.
However, if Emily is considered an Irish tax resident but is not domiciled in Ireland, she may only have to pay Irish tax on the foreign rental income she brought (remitted) into Ireland.
Regardless of her domicile status, Emily must consider reporting requirements for both Irish and US tax authorities regarding this rental income.
When tax must be paid to US authorities, a foreign tax credit may be available under the DTA to avoid double taxation.
Investment Income
Investment income, such as dividends and interest, is a complex subject for expats. In many cases, this type of investment income needs to be reported to both the country of source and the country of residence.
For Americans living in Ireland, it’s important to remember that, under the DTA, US dividends paid to an Irish resident shall be treated as taxable income in Ireland. This means both the US and Ireland have the right to tax dividend income. A credit system prevents double taxation.
For example, a US citizen living in Ireland, Michael receives dividends from US stocks. The dividends are subject to withholding tax in the US.
However, when reporting this income to Irish authorities, Michael may be entitled to claim a foreign tax credit, ensuring he doesn’t pay tax twice on the same income.
Pensions
Pensions are typically taxed in the country where the recipient resides. However, your residency status and domicile may affect this.
For example, Linda, a retired US citizen living in Ireland, receives a pension from her former US employer.
As an Irish resident who intends to live permanently in Ireland, Linda’s pension will likely be subject to Irish tax. However, in certain cases, the US may still have taxing rights over US citizens—something that will require consultation with a tax advisor to determine.
Tip: Social Security benefits are usually taxed only in the country where the recipient resides. However, for US citizens living temporarily in Ireland and still receiving US Social Security benefits, it’s crucial to keep detailed records and consult with a tax advisor to ensure proper reporting and compliance with both US and Irish tax laws.
Foreign Earned Income Exclusion (FEIE)
For US citizens living abroad, it’s also important to be aware of the Foreign Earned Income Exclusion (FEIE). The FEIE allows qualifying individuals to exclude a certain amount of foreign-earned income from their US taxable income.
The exclusion amount is adjusted annually for inflation; $107,600 for 2020, $108,700 for 2021, $112,000 for 2022, and $120,000 for 2023.
However, you must meet strict criteria to qualify — something a reputable tax advisor will be able to assist you with.
Why Is the DTA So Valuable to US Citizens Living in Ireland?
While the DTA between the US and Ireland offers clear benefits in terms of providing tax clarity and reducing the risk of double taxation, its value becomes even more prominent as part of a US citizen’s tax planning strategy.
Especially when living in Ireland, understanding a DTA and incorporating it into an effective tax planning strategy can be useful for:
- Maximising tax credits
- Clarity and compliance purposes
- Optimizing pension and social security benefits
- Effective planning for investments and savings
- Optimizing business operations
What Happens if There’s a Dispute Applying the Treaty?
Tax disputes can arise for US citizens living in Ireland when there is a disagreement on how the DTA applies to specific income or situations. The Mutual Agreement Procedure (MAP) is a system provided by the DTA to help resolve such disputes.
The MAP allows tax authorities from both countries to communicate and resolve issues arising from the DTA’s application. This ensures taxpayers do not face double taxation due to differing treaty interpretations.
For example, suppose a US citizen faces double taxation on employment income due to differing views of the DTA by US and Irish tax authorities. In that case, they can initiate the MAP to resolve the issue.
However, for this to happen, all necessary documentation must be provided to support the case, and as always, direct consultation with a tax expert is always advised. It is worth noting that the process can be lengthy and MAPs should not be initiated without consulting a professional.
How Is Tax Information Between Both Countries Exchanged?
Under the US/Ireland DTA, both countries can share tax information while still upholding international data protection and security measures. This is possible due to The Foreign Account Tax Compliance Act (FATCA), an information-sharing agreement between the United States of America and approved foreign institutions.
By exchanging information, tax authorities in Ireland and the US can verify the accuracy of income reported by taxpayers and ensure that all tax obligations are met. This collaboration helps maintain the integrity of both countries’ tax systems.
Tax Compliance Tips for US Citizens Living in Ireland
Regardless of which State taxes need to be paid, taxpayers are always responsible for tax compliance.
This is why it’s essential for US citizens living in Ireland to:
- Ensure accurate and transparent reporting at all times: Always provide complete and honest information to tax authorities to avoid penalties and audits.
- Keep your knowledge of reporting requirements up-to-date: Tax laws and reporting requirements can change, so stay informed to remain compliant.
- Consult with a tax adviser to ensure full compliance with reporting requirements: A tax adviser can provide expert guidance tailored to your unique situation.
- Track foreign income meticulously: Maintain detailed records of all income earned abroad to accurately report it on your US tax return.
- Understand your filing deadlines: Both the US and Ireland have specific tax filing deadlines. Ensure you know and adhere to them to avoid late filing penalties.
Seek Support With Your Tax Compliance Journey
Whether you’re an Irish citizen or an American living in Ireland, getting expert tax support from partners you can trust is essential for your peace of mind.
That’s why at Expat Taxes and Greenback Expat Tax Services, we’re here to handle all aspects of your tax position — whether you reside in Ireland or the US!
Our team of experts can provide tailored advice and support to help you navigate the complexities of international tax laws.
For further information on tax obligations and compliance in Ireland, book a consultation with the Expat Taxes team to discuss your Irish tax filing obligations.
Or, for tax queries relating directly to those living in the US, get in touch with Greenback Expat Tax Services for support.
Irish Tax is complicated and hard to understand. Our FREE guide demystifies what you can do to save money TODAY. Download the guide now and learn how to keep more money in your pocket.
DISCLAIMER: The material in this article is for general information purposes only and does not constitute legal or taxation advice. Legal, financial, investment and taxation advice should be sought before acting or refraining from acting. All information and taxation rules are subject to change without notice. Expats Taxes accept no liability for any action taken based on the information in this article or any of the articles in our blog series. Expat Taxes Limited does not provide financial planning, investment, or mortgage advice; this article is provided only for general information. We are not authorised/licensed to provide financial advice, and this article should not be considered to constitute advice of this type in any respect.
