Taxation is Territorial

1. Taxation is Territorial Each country defines who pays taxes in that country. Lahiff & Company Chartered Certified Accountants & Registered Auditors

2. Who is liable to pay tax in Ireland is determined by three things. Residence Ordinary residence And Domicile Lahiff & Company Chartered Certified Accountants & Registered Auditors

3. Summary of Principal impacts of residence, ordinary residence and domicile on tax status

4. Summary of Principal impacts of residence, ordinary residence and domicile on tax status Lahiff & Company Chartered Certified Accountants & Registered Auditors

5. Summary of Principal impacts of residence, ordinary residence and domicile on tax status Lahiff & Company Chartered Certified Accountants & Registered Auditors

6. Resident In simple terms a person is tax resident in Ireland if: They spend more than 183 days in Ireland in a year. Or They spend on average 140 days or more in Ireland over 2 consecutive years. (being 280 days in aggregate) Where in total 30 days or less are spent in Ireland in a year those days are ignored for the 2 year rule. Lahiff & Company Chartered Certified Accountants & Registered Auditors

7. Example 1. A person who spends 120 days in Ireland in 2010 and 170 days in Ireland in 2011 will be treated as resident for 2011 because the total number of days spent in Ireland in the relevant year (i.e. 2011) and in the previous year (i.e. 2010) is 290 and is therefore caught under the two year test. Lahiff & Company Chartered Certified Accountants & Registered Auditors

8. Ordinarily Resident Once a person has been tax resident in Ireland for three years they then also become ordinarily resident in Ireland. Ordinarily resident implies a greater degree of permanence than simply being resident. Once ordinarily resident in Ireland you must be non tax resident in Ireland for 3 consecutive years to cease being ordinarily in Ireland. Lahiff & Company Chartered Certified Accountants & Registered Auditors

9. Example 1 A person who arrived in Ireland on 1 September 2010 will not establish ordinary residence until the tax year 2014. This is calculated as follows: Tax Year Present in the Two year test Resident? Ordinarily State Resident? 2010 121 days 121 days No No 2011 365 days 486 days Yes No 2012 365 days 730 days Yes No 2013 365 days 730 days Yes No 2014 365 days 730 days Yes Yes Lahiff & Company Chartered Certified Accountants & Registered Auditors

10. Example 2 A person who is ordinarily tax resident in Ireland in 2010 will not lose their ordinarily resident status until 2014. This is calculated as follows: Tax Year Resident? Ordinarily Resident 2010 Yes Yes 2011 No Yes 2012 No Yes 2013 No Yes 2014 No No Lahiff & Company Chartered Certified Accountants & Registered Auditors

11. Domicile Domicile is a legal concept. Every person has a domicile either of origin or choice In simple terms your Domicile of origin is taken from your father. A child of an Irish father will have an Irish domicile. Lahiff & Company Chartered Certified Accountants & Registered Auditors

12. Summary of Principal impacts of residence, ordinary residence and domicile on tax status: Lahiff & Company Chartered Certified Accountants & Registered Auditors

13. There are differences between the treatment for income tax and capital gains tax. Lahiff & Company Chartered Certified Accountants & Registered Auditors

14. Example of Differences Between Taxes Joe lived in Ireland from when he was born until he moved to Saudi Arabia on 1st January 2010 to take up a new 4 year contract job. He intends to return to Ireland after this contract and therefore keeps his Irish domicile. His employer in Saudi Arabia pays him a salary of €150,000 and has a share scheme for employees. Resident in 2011? No – he has not spent any days in Ireland in this or the preceding tax year Ordinary resident in 2011? Yes – he was Irish tax resident in 2009. He was not Irish tax resident in 2010 or 2011 but ordinary residence requires a three year break Domiciled in 2011? Yes What is the taxation of his income in 2011? As he is not resident in Ireland, he is not taxable on his Saudi salary. What is the taxation of his shares? If Joe sells his shares in 2011 and realises a capital gain, he will be chargeable to Irish CGT as he remains ordinarily resident in Ireland. Lahiff & Company Chartered Certified Accountants & Registered Auditors

15. Individual not resident but ordinary resident and domiciled With effect from 6 April 1994 the income of an individual who is not resident but is ordinary resident is taxable on the same basis as a resident (i.e. worldwide income) with the exception of income from: A trade or profession no part of which is carried on in Ireland: An office or employment all of the duties of which are performed outside Ireland (apart from “incidental duties” Other sources which do not exceed €3,810 in the year. The Revenue have stated that the other income not exceeding €3,810, means other “foreign” income not exceeding €3,810. Where an individual who is non resident but ordinary resident has other income exceeding €3,810 the full amount of that other income will be taxable and not just the excess. Lahiff & Company Chartered Certified Accountants & Registered Auditors

16. Example An Irish doctor goes to work in Bahrain on a long term contract earning . €100k per annum. While abroad and still ordinary resident in Ireland he is in receipt of foreign rental income of €2,600 p.a. and other foreign investment income of €1,200 p.a. He has no other sources of investment income. As he does not carry out his profession in the State and his foreign income falls below the €3,810 threshold, he will not have a tax liability in Ireland in respect of the foreign income. On the other hand if the other foreign investment income was €1,300 then he would have an exposure to Irish tax in respect of all his foreign rental and investment income while he remains ordinarily resident. A non resident individual is generally not entitled to personal tax credits and reliefs Lahiff & Company Chartered Certified Accountants & Registered Auditors

17. Individual not resident and not ordinarily resident An individual who is not resident and not ordinarily resident in Ireland is, in general, liable to Irish income tax only on income arising in Ireland. In addition a non resident individual is generally not entitled to personal tax credits and reliefs. He is liable to tax at the standard rate and the higher rate once the low rate tax band is fully utilised. Lahiff & Company Chartered Certified Accountants & Registered Auditors

18. Example Liam has personal tax credits of €1,830 and has the following sources of income for 2010: € Rents arising in Ireland 20,000 UK Dividends 5,000 US Dividends 4,000 Ignore double taxation relief Liam is an Irish citizen but is not resident or ordinarily resident in Ireland. He is single. He is liable on income arising in Ireland, with restricted personal tax credits. Schedule D Case V: Rents 20,000 Taxed as follows: 20,000 @ 20% 4,000 Personal credits 1,830 x 20,000(1,262) 29,000 Tax payable 2,738 Lahiff & Company Chartered Certified Accountants & Registered Auditors

19. Exemption from DWT Individual who are exempt from income tax in respect of distributions made by Irish resident companies are those who are neither resident nor ordinarily resident in the State but are either resident in EU member state or country with which Ireland has a Double Taxation Agreement. It is necessary for the non-resident individual to hold a certificate given by the tax authority of the territory in which he is resident, certifying that the individual is so resident in that territory. Other non residents who do not qualify for this exemption will suffer withholding tax at the standard rate of tax. Lahiff & Company Chartered Certified Accountants & Registered Auditors

20. Residence and married couples The residence position of a husband and wife is considered separately for tax purposes. Thus in a given set of circumstances one spouse may be regarded as resident and the other as non-resident. In such circumstances it is Revenue practice only to grant married credits and married rate bands where the total income of both spouses is chargeable to Irish tax. Where the non-resident spouse has no income this presents no problem as married credits will be granted. However, where the total income is not chargeable to Irish tax then only single credits and rate bands are granted to the resident spouse subject to a claim for aggregation relief. Lahiff & Company Chartered Certified Accountants & Registered Auditors

21. DIRT-free accounts Individuals who are not resident in Ireland can elect to have Irish deposit interest paid to them free of Deposit Interest Retention Tax by making an appropriate written declaration to the bank concerned. Accordingly, individuals who break Irish tax residence are able to avail of this provision. It should be noted that it does not apply in split year residence cases in the years of departure and return. The individual must notify the deposit holder once he becomes resident again. This ensures that an Irish individual who goes on a foreign assignment for a period sufficient to become non resident is able to benefit from the DIRT free accounts. Irish residents are obliged to report the opening of foreign bank accounts on the annual return of income to Revenue. Non compliance can attract a surcharge penalty. Lahiff & Company Chartered Certified Accountants & Registered Auditors

22. Split-Year Residence Relief With effect from 6 April 1994, for the purpose of a charge to tax on employment income, where an individual is resident for a tax year and: He satisfies the Revenue that he is leaving other than for a temporary purpose; and With the intention and in such circumstances that he will not be resident for the following year; Then he will only be regarded as resident up to and including the date of his departure, for the purposes of a charge to tax on employment income. Revenue have indicated that where an individual leaves with the intention and in such circumstances that he will be non-resident in the year following the year of departure, he will be considered to be out of the country “other than for a temporary purpose”. Where an individual is treated as resident for part of a year then the employment income which arises during the period before the individual’s departure will be treated as income arising for a year of assessment in which the individual is resident in the State. Income arising in the remaining part of the year in relevant cases, will be treated as arising in a year in which the individual is not resident. Lahiff & Company Chartered Certified Accountants & Registered Auditors

23. Example of Split Year Treatment Liam is single with Annual salary of €60,000 and no income other than salary from employment. Employment earnings to 31st July 2011 €35,000. Leaves Ireland on 1st August 2011 with the intention of not being tax resident in Ireland in 2012, then split year relief can beclaimed. € Gross Salary 35,000 Income Tax 32,800 x 20% 6,560 2,200 x 41% 902 7,462 Tax Credits Personal (1,650) PAYE Tax Credit (1,650) Net Income Tax Due 4,162 PAYE deducted by employer to 31/07/11 8,407 Refund Due – Income Tax 4,245 This income tax refund arises as Liam receives a full 12 months tax credits and low rate tax band while he is only assessed on 7 months salary income. Liam will also be entitled to a €283 refund of Universal Social Charge. There is a four year time limit for the making of claims. Lahiff & Company Chartered Certified Accountants & Registered Auditors

24. Claiming of Split-Year Relief Claiming of relief will generally produce a refund of income tax paid. You can claim any such refund by providing your local tax office with a completed Form P.50 a Form P45, if you are leaving your existing employment a completed return of income from (either form 11 (self assessed) of form 12 (employed persons) and – a statement to the effect that you are going to live abroad permanently or in such circumstances that you will not be resident in the State for at least the tax year following the year of your departure from Ireland Lahiff & Company Chartered Certified Accountants & Registered Auditors

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26. Rental of Residence in Ireland If you intend to let your home while abroad then regardless of your residence status, you will have a liability to Irish tax on the rent you receive form letting your home. If you do not appoint an agent to collect your rent while you are non-resident, your tenant is obliged to deduct an amount equal to the standard rate of income tax (currently 20%) from the rent payable to you and remit this amount to Revenue. Lahiff & Company Chartered Certified Accountants & Registered Auditors

27. Whoever is appointed as agent then has the responsibility of ensuring that the annual non-resident landlord tax return is filed and any taxes arising on same are paid. Should no agent be appointed the tenant on deducting the 20% standard rate tax should provide to the landlord a certificate (form R185) confirming the amount of tax deducted. The R185 certificate is needed in order for the landlord to claim credit for the tax deducted. Lahiff & Company Chartered Certified Accountants & Registered Auditors

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30. The taxable profit from the letting is the rental income less all expenses incurred. Common examples of such expenses are; property insurance letting fees repairs and maintenance accountancy fees mortgage loan interest on loan used to purchase, construct, repair the property. wear and tear on contents at an annual rate of 12½% per annum for 8 years. Lahiff & Company Chartered Certified Accountants & Registered Auditors

31. It is important to note that in order to qualify for a tax deduction from the rental income of the mortgage loan interest the tenancy must be registered in compliance with the requirements of the Private Residential Tenancies Board (www.prtb.ie) Since 7th April 2009 only 75% of the loan interest is tax deductible in the case of a rental residential property. Lahiff & Company Chartered Certified Accountants & Registered Auditors

32. Example: Rent account € Gross Rent 15,000 Less: Mortgage Interest(10,000x75%) 7,500 Insurance 800 Ground Rent 300 Electricity/Heating 1,200 Repairs 1,900 Wear & Tear €7,000 x 12.5% 875 Total deductions 12,575 Rental Profit 2,425 Lahiff & Company Chartered Certified Accountants & Registered Auditors

33. In this case the taxable rental profit is €2,425. If the landlord had failed to comply with registering the tenancy with the PRTB the loan interest of €7,500 would be disallowed and the taxable rental profit would then increase to €9,925. If you own residential property in Ireland which is not in use as your sole or main residence you may also require to register the property with www.nppr.ie and pay the annual local government charge which is currently €200 per year. For 2011 the date of charge of the Non Principal Private Residence charge was 31st March 2011. Lahiff & Company Chartered Certified Accountants & Registered Auditors

34. A property which was your principal residence on 31st March 2011 but which was let later in 2011 would not be subject to the charge in 2011 but would be subject to it if not occupied as your principal residence by the assessable date in 2012. Late payment of the local government charge attracts a penalty of €20 per property per month. Lahiff & Company Chartered Certified Accountants & Registered Auditors

35. CGT on Sale of Principle Private Residence (PPR)- Home A capital gain made on the disposal of a PPR is exempt from CGT, once it has continuously been in use as the individuals PPR. A period of absence from the PPR through which the individual worked in an employment or office all the duties of which were performed outside the State can be treated as a period of deemed occupation provided the individual occupied the property as their PPR before and after the period of deemed occupation. Lahiff & Company Chartered Certified Accountants & Registered Auditors

36. Stamp Duty Clawback Where a First Time Buyer (FTB) availed of the FTB stamp duty exemption on purchase of their residence they will become liable to the stamp duty if they receive rental income (other than exempt rent a room scheme rent) at any stage within 2 years from the date of execution of the stamping instrument. If emigrating within the 2 years limit the clawback can be avoided by either • sale of property • deferring travel date until after 2 years are up or • leave the house unoccupied until 2 years are up . Once 2 years end then no claw back arises even if then let.

37. Common questions regarding tax treatment on return to Ireland Q: When I come back to live in the State, how will my employment income be treated in the year of my return? A: If you are resident in the State for the tax year during which you return to the State, and intend to be resident for the following tax year, employment income earned before the date of your return will not be taxable. This arrangement is known as split year treatment. As a resident for the tax year of your return to the State, you will be entitled to personal tax credits for the full tax year, and the full low rate tax cut off point. You will be regarded as being resident in the State for a tax year if you satisfy either of the residence tests. Should you not satisfy either of these tests you can, if you wish, elect to be resident for the tax year of your return. A condition of making an election is that you must be resident here for the following tax year under either of two residence tests. Once an election is made it cannot subsequently be cancelled. If you are non-resident in the year of your return you will be taxable on earnings from an employment, the duties of which are exercised in the State. As a non-resident you may be entitled to a proportions of tax credits and reliefs. This proportion is determined by the relationship between your income for the tax year which is subject to Irish tax and your income from all sources (in other words, Irish income divided by all income). Lahiff & Company Chartered Certified Accountants & Registered Auditors

38. Q: Whilst I was non-resident for tax purposes I saved some of my foreign employment earnings attributable to working abroad. How are these savings treated for tax purposes when I return? A: If the savings were from employment income earned in a tax year or years when you were non resident and attributable to duties exercised outside the State those savings will not be taxable when you bring them home. However, income (e.g. deposit interest) from the investment of those savings that arises in a year in which you resident or ordinarily resident may be taxable in the State. Lahiff & Company Chartered Certified Accountants & Registered Auditors

39. Q: Can I reclaim from the Irish Revenue Commissioners, foreign tax deducted from my income or gains? A: No Irish Revenue can only refund Irish tax deducted . A refund of foreign tax – if such is due – should be claimed directly from the revenue authorities in the relevant country. Please note also that any foreign tax that has been refunded cannot be claimed as a credit against an Irish tax liability. Lahiff & Company Chartered Certified Accountants & Registered Auditors

40. Contact Details • Name: Ciaran Lahiff • Company Lahiff & Company Tax Advisors • Address: Block C, Cashel Business Centre, Cashel Road, Dublin 12. • Email: ciaran@lahiff.ie • Telephone: 01-4924481 Lahiff & Company Chartered Certified Accountants & Registered Auditors

41. While every effort is made to ensure that the information outlined in this seminar is accurate, the author can accept no responsibility for loss or distress occasioned to any person acting or refraining from acting as a result of the material published herein. Lahiff & Company Chartered Certified Accountants & Registered Auditors