Tax 101 – A simple tax guide for immigrants to Ireland
Ireland is an attractive destination for immigration. As an English-speaking EU member state with a world-class education system, transparent and fair State structures, plenty of foreign investment, Ireland is seeing a rise in the number of high-net-worth foreigners seeking Irish residency.
Whether you are planning to move to Ireland permanently or you plan to obtain residency without moving thanks to the flexibility of the IIP, it is important to know what specific tax obligations come with your situation, and if there are actions you may need to take to get your tax affairs in order.
Planning your finances before you become liable for Irish taxes and understanding global income tax can save you a significant amount of money. Taxes can be expensive and burdensome, but there are ways to minimize your tax liability in a legal way.
Income Tax, Capital Gains Tax, Inheritance Tax and other taxes
An individual can only be regarded as an Irish tax resident for a given tax year if he or she spends 183 days or more in Ireland during the tax year, or 280 days or more in Ireland in the current tax year and the previous tax year combined. In other words, given the flexibility of IIP, which requires a minimum stay of just one day in a year, investors spending less than 183 days a year who are domiciled outside of Ireland would not be liable to Irish tax. It is worth noting that investors who stay in Ireland for more than 183 days in a tax year, as long as their earnings are not remitted into Ireland, they may not fall within the Irish income tax net.
There are a variety of different taxes that individuals interested in Irish residency should be aware of. In our video series Immigration Insights with Bartra Wealth Advisors, Jay Cheung, Bartra’s Marketing Director spoke to Kenneth Yeung, a senior accountant and tax advisor from China Consulting Consortium about matters around income tax, capital gain tax, property tax and inheritance tax. Kenneth is a member of the Institute of Chartered Accountants in England and Wales and has been providing accounting and tax services to Chinese residents in the UK and Ireland for the past 30 years. To understand more about Irish tax, watch the episode now.
Personal tax varies and can be complicated. The reference guide below provides basic Irish tax information. Investors should always obtain independent tax advice. Worth noting is that in Ireland there are a large number of exemptions available depending on your type of income and whether the recipient of the income is resident in a country with which Ireland has a double tax treaty.
Income tax rates and rate bands
All individuals whose gross income exceeds the minimum threshold of €13,000 per annum are liable to pay the Universal Social Charge (USC). And most employers and employees (over 16 and under 66 years of age) pay social insurance (PRSI) contributions into the national Social Insurance Fund.
Personal income tax rates in Ireland are in line with other developed countries. For example, looking to Europe (the top rates), the income tax rate in Germany is 42%; the UK is 45%; France is 45%; Portugal is 48%; and the Netherlands is the world’s highest at 52%. Outside Europe and considering popular immigration countries, the rate in the US is 37%; 33% in Canada; 45% in Australia. China’s tax rate is 45%.
Capital Gains Tax (CGT)
The CGT rate in Ireland is 33% for most gains. However, there are other rates for specific types of gains:
- 40% for gains from foreign life policies and foreign investment products
- 15% for gains from venture capital funds for individuals and partnerships
- 12.5% for gains from venture capital funds for companies
Again, for investors who spend less than 183 days a year in Ireland, they may not be taxable for either income or capital gains from other countries.
The thorn in the side of many an inheritance is the tax and in Ireland inheritance tax, or Capital Acquisitions Tax (CAT), is a hefty 33%. A child is entitled to inherit a certain amount (up to €310,000) tax-free, after which 33% is charged.
For those looking to run a business in Ireland, Corporate Income Tax and Value Added Tax (VAT) are the most important to know. In Ireland, corporate tax is 12.5%, one of the lowest in Europe and the normal VAT rate is 23%.
Case study I: In what circumstances would I obtain Irish residency from the IIP and, although not domiciled in Ireland, still be liable to Irish income tax?
There are two types of income: employment income and investment income.
Employment income – you will be liable to Irish income tax on Irish employment income in full and non-Irish employment income to the extent that either your duties relate to Irish workdays or you remit your income relating to non-Irish workdays to Ireland.
Investment income – you are liable to Irish income tax on investment income from Irish sources. Investment income from other countries will not be taxable as long as the income is not remitted into the State. The remittance basis for a non-Irish domiciled individual continues regardless of residence/ ordinary residence status.
Case study II: When investing in nursing home projects, there is a 20% return from the €1million investment (4% per annum) upon maturity of the 5-year investment horizon. Is this 20% taxable to Ireland?
If you reside outside of Ireland and are not spending more than 183 days in Ireland, the 20% investment return from nursing home IIP projects is non-taxable to the State.
Bartra’s Northwood Nursing Home, completed and opened in Spring 2020, is home to 118 single occupancy private ensuite rooms.
Case study III: How would setting up a trust or having Life Insurance help with tax planning?
Some clients are keen to establish an “immigration trust”. The trust may hold cash deposits, shares in private and public companies, bonds, real estate and other types of investments, and provides an opportunity for immigrants to earn foreign investment income on a tax-free basis in the trust for a long period of time.
Clients may wish to consider using a trust for inheritance tax planning. As stated above, children are entitled to inherit up to €310,000 tax-free, after which 33% tax is charged. The assets in a trust are held in the name of a trustee but go directly to the beneficiary, who has a right to both the assets and income of the trust. Transfers into a bare trust may be exempt from inheritance tax.
Immigrants may also benefit from having a life insurance policy or a life insurance trust as the death benefit is typically tax-free. Beneficiaries generally don’t have to report the payout as income, making it a tax-free lump sum that they can employ freely, and potentially use to pay any required inheritance tax in order to receive the assets.
In conclusion, as is evident from the above, immigrants to Ireland can be subject to different tax treatments depending on how their wealth is structured. Great tax benefits can be achieved provided tax planning is in place. However, tax laws may change over time, so it is advisable to revisit your tax plan to avoid being unintentionally caught by any new tax laws and regulations.