Countries and states provide rules in relation to how far national tax rules apply. The rules are broadly common through “Western” countries. These principles are reflected in Double taxation Treaties entered between states. The OECD model Double Taxation agreement provides certain common principles of taxation which are reflected in the tax law of counties.
One key principle is that the State has the prime right to tax income within that state. Another key principle is that a resident in a State pays tax on his or her worldwide income. Because of the above principles, an individual or business may be taxed in both the state where he or it is resident and the state where the income is earned or arises.
Double tax treaties usually provide that the state where the income arises has the prior right to tax. The state of residence usually gives credit against tax paid in the state where the income arises.
An individual who is resident in Ireland, is liable to Irish income tax on all of his worldwide income. A person is deemed resident, if he spends 183 days or more in the State in one tax (calendar) year or if he spends 280 days or more in the State in that year and the previous year. If he spends less than 30 days in the State in a year this period is ignored for the purpose of the 280 day test.
Until 2008, presence at midnight determined the position. Because of the so-called “Cinderella” practice of people leaving the State before midnight, presence for part of a day counts as presence for the whole day. By concession Revenue allow persons in transit who remain airside to not be deemed resident on that day.
A person can choose to be resident if he arrives with the intention is being resident in the next year and if he so elects. This would entitle him to allowances, reliefs and credits.
A person becomes ordinarily resident in Ireland, once he has been resident for three consecutive tax years. He will remain ordinarily resident until he ceases to be resident for three consecutive tax years. Ordinary residence is an intermediate position between being non-resident and resident. A wider category of income is taxable than in the case of a non- resident.
A person who is ordinarily resident and domiciled (i.e. has ceased to be resident) is subject to tax on his worldwide income in the same way as a resident individual. However this does not apply to the following;
- income of a trade or business carried out entirely outside Ireland;
- income of an office or employment, all of the duties of which are performed outside Ireland (other than minimal or incidental duties);
- other Irish source income not exceeding €3810; Where the foreign source income exceeds this mount the whole income is taxable.
An individual who is not resident and not domicile but is ordinarily resident is treated in the same way as a resident non-domiciled individual. he is liable to tax on Irish source income and foreign remittances.
Persons who are neither resident nor ordinarily resident in Ireland but are resident in a double taxation treaty state or EU state, may receive dividends from an Irish resident company, free of tax.
The residence status of spouses is considered separately in most cases. Revenue grant the unmarried tax credits and bands, where both spouses are subject to Irish tax.
Persons who are non-resident, may receive interest income, otherwise subject to DIRT, without deduction of tax. They must make an application in order to prove their non-residence.
The European Union Treaty requires that EU citizens cannot be treated less favourably than Irish citizens. Under the principles in caselaw, it is difficult to justify discriminatory treatment in tax codes, unless there is a good demonstrable objectively justifiable reason consistent with the Treaty.
Individuals who are neither resident nor ordinarily resident in Ireland are taxable on income from an Irish source. This would include income from an employment or trade conducted in Ireland an income from Irish property companies etc
The income of a business which is conducted within Ireland is taxable in Ireland. The income will be fully taxable irrespective of whether the sole trader or partners are Irish resident or not.
An Irish resident is entitled to full tax credits and allowances. Generally a non-resident is not entitled to tax credits.
Certain such persons are entitled to part of the tax credits and reliefs, based on the proportion that their Irish income bears to their worldwide income. This treatment is available to EU citizens, persons so entitled under a double tax agreement, citizens of Ireland and persons who live outside of Ireland, for reasons of their health or a family member’s health, who have been previously Irish resident.
In the case of EU citizens, where 75% or more of their total income is chargeable to tax in Ireland, they are entitled to full reliefs.
Non-residents, persons who were not ordinarily resident are not liable to income tax on certain prescribed government securities
A special relief was introduced in 2008 for employees assigned from abroad to work in Ireland for over three years. In order to qualify, the employee must not be Irish domiciled and must be employed in a country outside the EEA with which Ireland has a tax treaty (e.g. USA)
He must be employed by an associated entity of the Irish entity prior to arrival and continue to be paid by the overseas employer. He must have been tax resident and exercised the employment in the overseas jurisdiction
The relief operates by only assessing the higher of the following; the amount remitted to Ireland and €100,000 plus 50% of the excess salary over €100,000. The employer must operate PAYE.
Transfer Asset Abroad
The transfer of assets abroad legislation extends to non-Irish domiciled individuals who are tax-resident and or ordinarily resident in Ireland. Accordingly, such income may become taxable for Irish tax resident or ordinarily resident, non-domiciled individuals regardless of whether the income is remitted. The remittance basis does not apply to this class of income.
The purpose of the legislation is to counteract structures, which seek to avoid Irish income tax and employment income where duties are exercised in the State. Prior to the 2015 Act, the transfer of assets abroad anti-avoidance provisions did not apply to non-Irish domiciled individuals
The legislation does not apply if the individual could show to the Revenue that it would not be reasonable to conclude that in the circumstance that the purpose of tax avoidance is the purpose or one of the purposes for which the transfer was undertaken.
Similarly, the anti-avoidance provisions do not apply if all transactions were genuine commercial transactions, and it would not be reasonable to draw the conclusion from the circumstances that any one or more of them was more than incidentally designed for the purpose of tax avoidance.
. A new exclusion was introduced as and from I January 2016. Where the entity to which income is payable, is tax resident or domiciled within the EU, other than Ireland and carries on a genuine activity in that State, the provisions do not apply to the income payable to the non-resident.
Where a person is prevented from leaving the State because of extraordinary natural occurrences or exceptions are which could not be foreseen, Revenue by concession may regard a person is not being present during the days he or she is unavoidably present due to the circumstances.
At the commencement of the Covid 19 health crisis, Revenue confirmed that presence in the State due to Covid 19 would be considered force majeure and the person could potentially not be regarded as being present for the period after intended departure.
In early 2021 Revenue published a list of reasons which have consider as sufficient to prevent an intended departure from the state.
- The individual has COVID-19 or a family member or partner with whom they are travelling has COVID-19
- The individual quarantining or self-isolating in a particular location due to suspected COVID-19
- The individual self-isolating whether on advice from a health professional or public health guidance or self-imposed
- The individual has received medical advice not to travel
- An employer requests that individual not to travel
- Border controls or entry restrictions in a home country of that individual
- The non-availability of commercial flights
Revenue indicated the maximum period that might be disregarded for residence purposes would depend on whether the person was present in the state before 23 March 2020 or travelled to the State after that date before 5 May 2020.
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