1. CONNECTION FACTORS
1.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?
Domicile is a very significant connecting factor. Where an individual is tax resident in Ireland (the "State"), the addition of domicile as a connecting factor will mean that all of the individual's worldwide income and gains are subject to Irish tax, subject to any reliefs under existing double tax treaties.
The concept of habitual residence does not exist in Ireland and is not defined under Irish law.
1.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?
There is no statutory definition of domicile under Irish law, it is a legal concept. Every individual is born with a domicile of origin. It is possible for a person to lose their domicile of origin and acquire a domicile of choice or to lose their domicile of choice and revive their domicile of origin.
1.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?
In Ireland, a person's tax liability is determined by the concept of residence. A resident individual's worldwide income and gains are subject to income tax and Capital Gains Tax ("CGT") (save if they are non-Irish-domiciled and being taxed on the remittance basis of taxation as outlined at question 3.2 below). Since 1 December 1999, Capital Acquisitions Tax ("CAT") is charged if either the beneficiary or the disponer is Irish resident or ordinarily resident on the date of the gift or inheritance.
1.4 If residence is relevant, how is it defined for taxation purposes?
Under Irish legislation, a person will be regarded as Irish tax resident if they are:
- present in the State for a period of 183 days or more in the tax year (which is a calendar year); or
- present in the State for a period of 280 days or more in the current and previous tax year, subject to the provision that where a person is present here for 30 days or less, they will not be regarded as resident in that tax year.
The other important issue is that of ordinary residence. Under Irish legislation, an individual becomes ordinarily resident in Ireland for a tax year after he has been resident in the State for three consecutive tax years. An individual who has become so ordinarily resident in Ireland for a tax year shall not cease to be ordinarily resident until a year in which he has not been resident in the State for the previous three consecutive years.
1.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?
Irish nationality does not trigger any tax liability in Ireland.
1.6 If nationality is relevant, how is it defined for taxation purposes?
See question 1.5.
1.7 What other connecting factors (if any) are relevant in determining a person's liability to tax in your jurisdiction?
If assets are regarded as Irish situate under Irish tax legislation (for example, Irish real property), the relevant Irish tax liability will apply.
2. GENERAL TAXATION REGIME
2.1 What gift or estate taxes apply that are relevant to persons becoming established in your jurisdiction?
CAT is a tax imposed on gifts and inheritances ("Benefits"), payable by the beneficiary. The current rate of CAT is 33%, subject to tax-free thresholds which provide monetary value lifetime limits. The thresholds vary depending on the degree of relation between the person making the gift/inheritance and the beneficiary. All gifts/inheritances between spouses or civil partners are exempt from CAT. In the case of gifts/inheritances from parents to children (or to the minor child of a deceased child), the Group A lifetime threshold applies and is currently €320,000. This includes adopted children, step children and some foster children. The Group B threshold applies to gifts or inheritances from grandparents, brothers, sisters, aunts or uncles and is currently €32,500; and the Group C threshold applies to anybody else not covered by Group A or B and is currently €16,250 (Schedule 2 CATCA 2003).
CAT is charged on Benefits if:
- either the donor or the beneficiary is Irish tax resident or ordinarily resident; or
- the subject of the gift or inheritance is an Irish situate asset.
A foreign domiciled person is not considered resident or ordinarily resident in Ireland for CAT purposes unless the person was both:
- resident for the five consecutive years of assessment preceding the date of the Benefit; and
- on that date is either resident or ordinarily resident in Ireland.
2.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?
An individual's tax residence, ordinary residence and domicile status (as referred to in section 1 above) needs to be considered when determining the extent of the individual's exposure to Irish income tax.
- Individual is resident and
The individual is subject to Irish income tax on his/her worldwide income as it arises.
- Individual is resident and
The individual is subject to Irish tax on foreign income under the remittance basis of taxation.
The remittance basis of taxation involves liability for Irish income tax on:
- Irish-source income;
- foreign employment income relating to Irish duties, irrespective of where paid; and
- foreign income remitted to Ireland.
- Individual is non-resident but
ordinarily resident and domiciled
Notwithstanding non-residency, the individual is subject to Irish income tax on worldwide income with the exception of income derived from:
- a trade or profession no part of which is carried on in Ireland; or
- an office or employment all of the duties of which are carried on outside Ireland; and
- other foreign income which is less than €3,810 per annum.
- Individual is non-resident and
non-ordinarily resident (domicile irrelevant)
The individual is subject to Irish tax on Irish-source income and income from a trade, profession or employment to the extent it is exercised in Ireland.
CGT is chargeable at 33% on any person who is resident or ordinarily resident in the State for a year of assessment in relation to chargeable gains accruing on the disposal of chargeable assets made during that year.
In the case of an individual who is resident or ordinarily resident but not domiciled in the State, gains realised on disposals of assets situated outside the State are liable to tax only to the extent that they are remitted to Ireland. Such gains are not chargeable to tax until so remitted.
A person who is neither resident nor ordinarily resident in the State is liable to CGT only in respect of gains on disposals of:
- land and buildings in the State;
- minerals in Ireland including related rights and exploration rights;
- unquoted shares deriving their value, or the greater part of their value, from such assets as outlined above; and
- assets in the State used for the purposes of a business carried on in the State.
2.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?
- Pay Related Social Insurance
PRSI is Ireland's equivalent of social insurance or social security. The amount of PRSI paid by an individual depends on that person's earnings and the type of work they do.
- Universal Social Charge
USC is payable on gross income, including notional pay, after any relief for certain capital allowances but before pension contributions. Currently, income not exceeding €13,000 is exempt from USC.
- Deposit Interest Retention
DIRT, at the current rate of 35%, is deducted at source by deposit takers from interest paid or credited on deposits of Irish residents. It was announced in Budget 2017 that the DIRT rate would decrease by 2% each year from 2018 to 2020 until it reaches 33%.
- Stamp Duty
Stamp duty is charged at 1% on the first €1,000,000 in respect of residential property transactions and 2% on the excess. Residential property for stamp duty purposes means a dwellinghouse with a maximum curtilage of 1 acre (0.405 hectares). The duty is paid by the purchaser. Stamp duty is charged at 6% in respect of all non-residential property transactions.
- Domicile Levy
Irish-domiciled individuals whose worldwide income in the year exceeds €1m, whose Irish property in the year is greater than €5m and whose liability to Irish income tax for the year is less than €200,000, are subject to a levy of €200,000 in respect of that tax year. A credit is available against the levy for any Irish income tax paid in that year.
2.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?
VAT is a tax levied on most supplies made by businesses in Ireland. Generally, the supplier will account for the VAT. The standard rate of VAT is 23%. Some supplies benefit from one of the reduced rates of VAT, which include 13.5%, 9%, 4.8% and 0%. The 13.5% reduced rate applies to supplies including those in the tourism industry, those of building services, certain fuels and certain supplies of immovable property.
The 9% rate applies in respect of certain goods and services primarily in respect of printed and electronic news media, e-books, and subscriptions to digital news content and the provision of sports facilities. The 4.8% rate applies to supplies of livestock. The Zero rate applies to intra-Community supplies of goods to VAT registered persons in EU Member States and supplies of clothing and footwear appropriate to children under 11 years of age. Some goods and services are exempt from VAT. These relate principally to financial, insurance, medical and educational activities.
2.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?
S.806 Taxes Consolidation Act 1997 ("TCA 1997") contains anti-avoidance legislation in relation to the transfer of assets abroad and specifically imposes a tax charge on Irish resident or ordinarily resident persons who have "power to enjoy" income arising to persons resident or domiciled out of the State.
In addition, s.807A TCA 1997 taxes certain income from an offshore vehicle which is payable to Irish resident or ordinarily resident beneficiaries.
A motive defence provides a carve out from the charging provision where tax avoidance is not the purpose, or one of the purposes, for which the offshore structure was established, assets were transferred offshore or any associated operations were effected. The motive defence is restricted where the non-resident person is resident in an EU/EEA Member State. In that case, it is necessary to show that genuine economic activities are carried on in the EU/EEA Member State in order to avail of a carve out from the charging provisions.
S.590 TCA 1997 operates to apportion gains within a non-resident close company to Irish resident or ordinarily resident and domiciled individuals who are participators in the company (shareholders).
S.579 TCA 1997 which is known as "the settlor charge", operates to attribute gains in an offshore trust to an Irish resident or ordinarily resident settlor who is deemed to have an interest in the settlement, irrespective of their domicile. S.579A TCA 1997 apportions gains in an offshore trust to Irish resident or ordinarily resident and domiciled beneficiaries. There is no longer a motive defence available in respect of the purpose of the establishment of the offshore settlement and the only exception to attribution of gains of offshore trusts is where genuine economic activities are carried on by the settlement in an EU/EEA Member State.
Where the non-resident person is resident in an EU/EEA Member State, it is necessary to show that genuine economic activities are carried on in the EU/EEA Member State in order to fall outside the charging provisions of s.579, s.579A and s.590 TCA 1997.
2.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?
S.811 and s.811A TCA 1997 are general anti-avoidance provisions which are designed to counteract certain transactions which have little or no commercial merit but are orchestrated in such a way so as to result in a tax deduction or to reduce tax liability. The general anti-avoidance rules contained in s.811 and s.811A TCA 1997 apply to transactions commencing on or before 23 October 2014.
The Irish Supreme Court delivered its first judgment on the interpretation of the general anti-avoidance provision in December 2011. The Supreme Court held that when determining whether a transaction, which complies with the strict letter of tax code, may nevertheless be disallowed as a tax avoidance transaction, the Revenue Commissioners should have regard to the form of the transaction, its substance, whether the transaction was undertaken for the realisation of profit in the course of business, and whether it was undertaken primarily for purposes other than tax.
S.811 and s.811A TCA 1997 have now been replaced by s.811C and s.811D TCA 1997 in relation to transactions commencing after 23 October 2014.
S.811C TCA 1997 (similar to s.811 TCA 1997) provides that where a person enters a transaction and it would be reasonable to consider, based on a number of specific factors, that the transaction is a tax avoidance transaction, that person shall not be entitled to benefit from any tax advantage arising from that transaction.
S.811D TCA 1997 provides that where a person enters into a tax avoidance transaction and claims the benefit of a tax advantage, contrary to s.811C TCA 1997, an additional payment in the form of a surcharge will be due and payable.
2.7 Are there any arrangements in place in your jurisdiction for the disclosure of aggressive tax planning schemes?
A Mandatory Disclosure regime operates in Ireland that places an obligation on promoters, marketers and users of 'disclosable transactions' to notify the Irish Revenue Commissioners about the transaction. A disclosable transaction is a transaction which meets the following three conditions and is not specifically excluded:
- it may result in a person receiving a tax advantage;
- the tax advantage is, or might be expected to be, one of the main benefits of the scheme; and
- the scheme matches any one of the specified descriptions set out in the legislation.
The disclosure should include details of the scheme and of any person who will use it. The disclosure must also give enough information to allow the Irish Revenue Commissioners to understand how the scheme works.
In itself, the disclosure of a scheme under the regime will not affect its tax treatment. That said, the scheme will most likely be assessed by Revenue to see if it fits the description of an aggressive scheme and subsequent actions may be taken accordingly.
The Mandatory Disclosure rules impact on certain tax transactions relating to Income Tax, Corporation Tax, Capital Gains Tax, the Universal Social Charge, Value Added Tax, Capital Acquisitions Tax, Stamp Duties and Excise Duties. It does not encompass Customs Duties.
Originally published by International Comparative Legal Guide to Private Client.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.