Income Tax in Ireland
Individual - Taxes on personal income:
Irish income tax is imposed on the worldwide income of an individual who is resident and domiciled in Ireland.
An individual who is resident but not domiciled in Ireland is liable to Irish income tax on Irish-source income, foreign-employment income in respect of Irish duties, and on foreign-employment income and foreign-investment income to the extent that it is remitted into Ireland.
A non-resident individual is generally liable to Irish income tax on Irish-source income only.
Personal income tax rates:
Tax at 20%
Tax at 40%
Single and widowed person: no dependent children
Income up to 33,800
Balance of income over 33,800
Married couple: one income
Income up to 42,800
Balance of income over 42,800
Married couple: two incomes
Income up to 67,600
Balance of income over 67,600
An income tax exemption is available for certain individuals aged 65 years or over. These individuals are only liable to income tax if their income is above a specified limit. For 2017, the specified limit is EUR 18,000 for an individual who is single/widowed and 65 years of age. The specified limit is EUR 36,000 for an individual who is married and 65 years of age. These limits are increased in respect of dependent children. Marginal relief may apply where the individual's total income exceeds the specified limit.
Taxable income includes all amounts, whether in cash or non-cash benefits, arising from an office or employment (e.g. salary, wages, fees, overtime, bonuses, commissions, benefits in kind, assignment related allowances).
Non-cash benefits may include the use of a car, accommodation, other assets or loans at low interest rates, medical and life insurance plans and pension plans in certain circumstances.
Irish PAYE must also be applied to earnings (including non-cash benefits) from a non-Irish employment where the duties of that employment are performed in Ireland.
The portion of the income that relates to foreign duties that is not required to be subject to PAYE may qualify for the favourable basis of taxation known as the Remittance Basis where the recipient of the income is a qualifying individual.
Where the duties of the foreign employment are performed in Ireland for not more than 60 days in total in the tax year and the employee is resident in a country with which Ireland has a double taxation agreement (DTA), the Irish Revenue Authorities will not require an employer to operate PAYE, provided certain conditions are met.
Employee PRSI applies to all share based remuneration.
Stock options while taxable are generally outside the scope of Irish PAYE. Special rules apply to the tax treatment of gains arising on the exercise of share options granted while resident outside Ireland.
Self-employment income (i.e. profits or gains of a trade, profession, or vocation) that is carried on within Ireland is subject to Irish income tax whether or not the individual is an Irish resident.
An Irish domiciled individual who is Irish resident or ordinarily resident is liable to Irish CGT on worldwide gains.
A non-domiciled but Irish resident or ordinarily resident individual is liable to Irish CGT on the full amount of gains arising on the disposal of assets situated in Ireland and on the portion of other foreign gains that are remitted to Ireland.
A non-Irish resident individual who is also non-ordinarily resident is liable to Irish CGT on gains arising in Ireland from the disposal of Irish ‘specified’ assets (e.g. land and buildings in Ireland).
The current rate of CGT is 33%. A rate of 40% applies in the case of certain interests in funds and life assurance policies.
In computing capital gains, the base cost is indexed by reference to the level of Irish inflation during the period of ownership up to 31 December 2002 only. Annual gains of up to EUR 1,270 for an individual are exempt from CGT. This exemption is not transferable between spouses.
Dividend withholding tax (DWT) applies to dividends and other distributions made by Irish resident companies, at the standard rate of income tax (i.e. 20%). Exemptions from DWT may apply in the case of certain categories of individuals who are neither resident nor ordinarily resident in Ireland.
Individuals who are resident but not domiciled in Ireland are liable to Irish income tax on foreign investment income to the extent that it is remitted into Ireland.
Interest on most Irish deposit accounts is paid after a deduction of DIRT by the financial institution at the rate of 39%, reduced by 2% as of 1 January 2017. Where interest is paid or credited on other deposit accounts (e.g. where interest is credited at maturity), income tax at the rate of 39% is deducted at source. DIRT effectively satisfies the full liability to tax.
Exemptions and repayments:
The following can apply to have DIRT repaid or to have deposit interest paid to them without the deduction of DIRT:
· Individuals or their spouses or civil partners aged 65 or over who are not liable to income tax.
· Incapacitated individuals.
· Companies that do not have a corporation tax liability.
DIRT relief for first-time buyers:
First-time buyers will be entitled to a refund of DIRT in respect of interest earned on savings to be used either to buy or build a dwelling. The refund applies to DIRT deducted from interest paid on savings up to a maximum of 20% of the purchase price or the completion value. The relief will apply in respect of purchases or builds completed and suitable for completion between 14 October 2014 and 31 December 2017.
Net profit arising from a rental property is taxed at an individual's marginal rate of tax. Deductions in arriving at net profit include rates, management fees, maintenance, insurance, certain legal and accountancy fees, wear and tear on furniture and fittings, and repairs. A deduction is also allowed for interest on money borrowed for the purchase of, or repair to, the property. In the case of a rented residential property, interest relief is restricted to 80%, and the tenancy must be registered with the Private Residential Tenancy Board (PRTB).
In general, a net rental loss can be offset against profit from another property or carried forward against future rental profits. Foreign rental income losses can be offset against foreign rental income only.
If the landlord is not resident in Ireland, the tenant is obligated to withhold tax at the standard rate from the payment of the rent unless the landlord has appointed an Irish resident collection agent.
Rent a room scheme:
Income from the letting, as residential accommodation, of a room in a person's principal private residence is exempt from tax where the gross annual rental income is not greater than EUR 14,000, with effect from 1 January 2017.
The relief does not apply where the letting is between connected parties.
Rent relief for private accommodation:
In relation to new tenancies, relief for rent paid is no longer available. For individuals who were paying rent in respect of a tenancy on 7 December 2010, relief is still available but will be abolished by 2018. Relief is given by way of a tax credit at 20% on the actual rent paid. The maximum credit available for 2017 is as follows:
55 or over (EUR)
Under 55 (EUR)
Civil partnership/surviving civil partner
Certain income tax exemptions exist depending on the personal circumstances of the taxpayer or the source of income. These include income from the following sources that may be exempt from income tax, subject to conditions:
· Childcare income: Income tax is not payable on the earnings of an individual from taking care of up to three children in the individual’s own home, provided the gross amount received is less than EUR 15,000 a year. Certain conditions apply.
· Artist exemption: The amount of profits and gains of certain writers, composers, and artists is treated as exempt from income tax subject to a limit of EUR 50,000 in 2015. The exemption is also extended to non-resident artists who are resident or ordinarily resident in another member state or in another European Economic Area (EEA) state.
· Profits from occupation of certain woodlands: The total profits and gains are treated as exempt from income tax if the woodlands are managed on a commercial basis with a view to realising a profit. Profits and gains from the occupation of woodlands are being removed from the High Earners Restriction.
· Profits from lotteries: The total profits from lotteries (granted under certain licences) are exempt from income tax.
An individual is regarded as tax resident for a particular tax year if present in Ireland for 183 days or more in that year, or 280 days or more in that and the preceding year combined, including at least 30 days in each year. An individual will be regarded as present in Ireland for a day if present for any part of the day.
There are also specific tax rules in relation to split year relief which may have relevance to individuals arriving in or departing from Ireland.
Ordinary residence is specifically defined under Irish tax law. An individual obtains ordinary residence after a continuous period of tax residence and generally lasts for a period after normal tax residence has ceased. Ordinary residence begins after an individual has been tax resident in Ireland for three consecutive years (i.e. at the beginning of the fourth year). Ordinary residence ceases when the individual has been a non-tax resident for three consecutive years.
Domicile is essentially the country which is considered to be one’s permanent home, and is distinct from legal nationality and residence.
Individual - Tax administration:
The Irish tax year is aligned with the calendar year.
Under the self-assessment system, individuals with non-PAYE income and directors controlling 15% or more of the share capital of certain companies are obligated to file a tax return for the tax year by 31 October, following the year end. Tax returns can be filed with the Revenue Authorities by paper submission or using the Revenue Online Service (ROS).
Payment of tax:
Payment of tax under the self-assessment system is made in two instalments. Preliminary income tax for any year is due and payable by 31 October in that year. The tax paid must represent at least 90% of the individual’s final liability for that year, or 100% of the ultimate liability for the prior year. Alternatively, a taxpayer may elect to make a preliminary income tax payment payable in equal monthly instalments by way of direct debit equal to 105% of the ultimate liability for the pre-preceding year.
Any balance of income tax due for a year is payable by the following 31 October provided the individual has met their preliminary income tax liability. For individuals who file their tax return and pay their liability using the ROS, an extension to the payment and filing deadline of 31 October may be available.
Any income tax, PRSI, and USC due on the exercise of stock options must be paid by the employee within 30 days following the date of exercise via the RTSO1 procedure.
Payment of CGT:
For the tax year 2017, where chargeable gains are realised in the period 1 January 2017 to 30 November 2017, the CGT will be due for payment by 15 December 2017. Where chargeable gains are realised in the period 1 December 2017 to 31 December 2017, the CGT will be due for payment by 31 January 2018.
Tax audit process:
The tax authority in Ireland is the Office of the Revenue Commissioners. An audit of an individual’s annual tax return can be conducted. The primary objective of a Revenue audit is to promote voluntary compliance with tax obligations. The functions of a Revenue audit include checking the accuracy of a tax return, checking the declaration of a liability or a claim for repayment, collection of tax, and the collection of interest and penalties.
Possible triggers of a Revenue audit include the selection by a random audit programme, computerised case selection based on risk analysis and profiling and a proactive system of intelligence gathering.
Statute of limitations:
If the Inspector of Taxes in the Irish Revenue Commissioners considers that a complete tax return has not been made, or if no return was made where one should have been made, the Inspector may issue an assessment which includes estimates of the tax which is considered due. The assessments cannot be issued more than four years after the end of the tax year in question.
If the taxpayer disagrees with an assessment issued by the Inspector of Taxes, an appeal may be lodged by writing to the Inspector of Taxes within 30 days from the date of the Notice of Assessment. On receipt of an appeal the Inspector of Taxes may either revise the assessment having reviewed the grounds of the appeal or may list the case for a hearing before the Appeal Commissioners if the Inspector does not wish to revise the assessment.
In certain circumstances there is no time limit within which the Inspector can issue an assessment, for example if the Inspector considers that a return did not contain a full and true disclosure of relevant facts.
Taxes on corporate income:
Corporation tax is chargeable as follows on income and capital gains:
Standard rate on income ('trading rate')
Higher rate on income ('passive rate')
Capital gains rate
Resident companies are taxable in Ireland on their worldwide profits (including gains). Non-resident companies are subject to Irish corporation tax only on the trading profits of an Irish branch or agency and to Irish income tax (generally by way of withholding) on certain Irish-source income.
Non-trading (passive) income includes dividends from companies resident outside Ireland (with some exceptions), interest, rents, and royalties. Legislation provides that certain dividend income (e.g. income from foreign trades) is taxed at 12.5%. The higher rate (i.e. 25%) also applies to income from a business carried on wholly outside Ireland and to income from land dealing, mining, and petroleum extraction operations.
An additional ‘profit resource rent’ tax applies to certain petroleum activities. Depending on the profit yield of a site, the tax rate applicable can range from 25% to 40%.
Close companies may be subject to additional corporate taxes on undistributed investment income (including Irish dividends) and on undistributed income from professional services. Examples of professional services include professions such as solicitor, accountant, doctor, and engineer.
Irish trading profits are computed in accordance with Irish Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS), subject to any adjustment required by law. Prior-year adjustments may arise on the first-time adoption of IFRS, which may result in double counting of income or expenses or of income falling out of the charge to tax. Generally speaking, in order to avoid such an outcome, transitional adjustments exist whereby amounts of income or expenses that could be double-counted or that would fall out of the charge to tax are identified and the amounts concerned are taxed or deducted as appropriate over a five-year period.
Each item of inventory is valued for tax purposes at cost or market value, whichever is lower, and this will normally accord with the accounting treatment. The method used in arriving at cost or market value of inventory generally must be consistent and must not be in conflict with tax law. The first in first out (FIFO) method is an acceptable method of calculation for tax purposes. The base-stock method has been held to be an inappropriate method for tax purposes, as has the last in first out (LIFO) method.
Companies are subject to capital gains tax in respect of gains arising on the disposal of capital assets. The taxable gain is arrived at by deducting from the sales proceeds the cost incurred on acquiring the asset (as indexed to reflect inflation only up to 31 December 2002). The resulting gain is taxable at 33%. In cases of disposals of interests in offshore funds and foreign life assurance policies, indexation relief does not apply; while a tax rate of 33% applies to non-corporate shareholders in respect of funds and policies located in EU/European Economic Area (EEA)/DTT countries, and a rate of 33% or 40% applies to funds or policies located in all other jurisdictions. A reduced rate of 25% exit tax applies to Irish corporate shareholders investing in Irish funds. Special rules apply to gains (and losses) from the disposal of development land in Ireland.
Companies that are tax resident in Ireland (i.e. are managed and controlled in Ireland or incorporated in Ireland and not qualifying for exclusion from Irish residence by virtue of being resident in a DTT territory) are taxable on worldwide gains. Non-resident companies are subject to capital gains tax on capital gains arising on the disposal of Irish land, buildings, mineral rights, and exploration rights on the Irish continental shelf, together with shares in unquoted (unlisted) companies, whose value substantially (greater than 50%) is derived from these assets. Non-resident companies are also subject to capital gains tax from the realisation of assets used for the purposes of a business carried on in Ireland.
Losses arising on the disposal of capital assets may be offset against capital gains in the accounting period or carried forward for offset against future capital gains. No carryback of capital losses is permitted. There is no facility to offset capital losses against business income or to surrender capital losses within a tax group.
Irish capital gains tax legislation facilitates corporate reorganisations on a tax-free basis in situations where there is a share for share exchange. Assets can be transferred within certain company groups without capital gains tax applying.
Participation exemption from capital gains:
A participation exemption is available to Irish resident companies on the disposal of a shareholding interest if:
· a minimum of 5% of the shares (including the right to profits and assets on winding up) is directly or indirectly held for a continuous 12-month period
· the shares have been held for a period of 12 months within which the date of the disposal falls or for a period of 12 months ending in the 24 months preceding the date of disposal
· the company whose shares are sold is resident in an EU member state (including Ireland) or in a country with which Ireland has a DTT at the time of the disposal (this includes tax treaties that have been signed but not yet ratified), and
· a trading condition is met at the time of the disposal whereby either: (i) the business of the company whose shares are disposed of consists wholly or mainly of the carrying on of one or more trades or (ii) taken together, the businesses of the Irish holding company and all companies in which it has a direct or indirect 5% or more ownership interest consist wholly or mainly of the carrying on of one or more trades.
If the Irish holding company is unable to meet the minimum holding requirement but is a member of a group (that is, a parent company and its 51% worldwide subsidiaries), the gain arising on the disposal should still be exempt if the holding requirement can be met by including holdings of other members of the group. Thus, the Irish company may be exempt from capital gains tax on a disposal of shares even if it does not directly hold a significant shareholding. The exemption also applies to a disposal of assets related to shares, such as options and convertible debt. However, it does not apply to a sale of either shares or related assets that derive the greater part of their value (more than 50%) from Irish real property, minerals, mining rights, and exploration and exploitation rights in a designated area. Shares deriving their value from non-Irish real property, minerals, and mining rights qualify for exemption if the other conditions are met.
Capital losses arising on the disposal of a shareholding where a gain on disposal would be exempt under the participation exemption are not deductible.
Capital gains tax entrepreneur relief:
Capital gains tax entrepreneur relief allows for a reduction in the capital gains rate to 10% on the disposal of chargeable business assets from 1 January 2017, up to a lifetime limit of EUR 1 million. This allows entrepreneurs to free up more capital for reinvestment and builds on Ireland’s focus to drive investment in new businesses.
Dividends from Irish resident companies are exempt from corporation tax. Dividends paid out of the trading profits of a company resident in an EU member state or a country with which Ireland has a DTT (or a country with which Ireland has ratified the Convention on Mutual Assistance in Tax Matters) may be taxed at the 12.5% rate, provided a claim is made. The 12.5% corporation tax rate applies to the same type of dividends received from companies resident in non-treaty countries, provided the company paying the dividend is a listed company or is part of a 75% listed group the principal class of the shares of which are substantially and regularly traded on the Irish Stock Exchange, a recognised Stock Exchange in an EU member state or a country with which Ireland has a DTT, or on such other Stock Exchange as is approved by the Minister for Finance for the purposes of this relief from double taxation.
As outlined above, the 12.5% corporation tax rate is also applicable to foreign dividends paid out of trading profits of a company resident in a country that has ratified the Convention on Mutual Assistance in Tax Matters.
Foreign dividends received by an Irish company where it holds 5% or less of the share capital and voting rights in that foreign company are exempt from corporation tax where the Irish company would otherwise be taxed on this dividend income as trading income.
Dividends from Irish resident companies are not liable to further tax, other than a surcharge on close company recipients where the dividend is not redistributed. Broadly speaking, a close company is a company that is under the control of five or fewer ‘participators’. Participators can include individual shareholders, corporate shareholders, loan creditors, any person with a right to receive distributions from the company, etc. Where not less than 35% of the shares of a company (including the voting power) are listed, a company will not be regarded as a close company.
A close company surcharge of 20% is payable on certain non-trading income (e.g. rental income, certain dividend income, interest income) if it is not distributed to shareholders within 18 months of the accounting period in which the income was earned. A close company making a distribution and the close company receiving a distribution have the option, jointly, to elect to have the dividend disregarded for surcharge purposes. This can give close companies the option of moving ‘trading income’ up to a holding company without incurring a surcharge. Generally speaking, close companies avoid the surcharge through the payment of dividends within the prescribed period. Capital gains accruing to a non-resident company that would be close if it were resident can be attributed to Irish resident participators in certain instances.
Stock dividends taken in lieu of cash are taxed on the shareholder based on an amount equivalent to the amount that would have been received if the option to take stock dividends had not been exercised. If the recipient is an Irish resident company and it receives the stock dividend from a quoted (listed) Irish company, then there will be no tax. For a quoted (listed) company paying the stock dividend, dividend withholding tax (WHT) with the appropriate exemptions and exclusions applies. Other stock dividends (bonus issues) are generally non-taxable.
Interest income earned by Irish companies is generally taxable at the rate of tax for passive income of 25% (interest may be regarded as a trading receipt for certain financial trader companies). It is possible to offset current-year trading losses against passive interest income arising in the same year on a ‘value basis’. It is not possible to offset prior-year trading losses against current-year interest income unless that interest constitutes a trading receipt of the particular company.
Royalty income earned by Irish companies is generally taxable at the rate of tax for passive income of 25%. However, where an Irish company is considered to be carrying on an IP trade, that company’s royalty and other similar income may be subjected to Irish tax at the corporation tax trading rate of 12.5%. Similarly to passive interest income, it is possible to offset current-year trading losses against passive royalty income arising in the same year on a ‘value basis’. It is not possible to offset prior-year trading losses against current-year royalty income unless that royalty constitutes a trading receipt of the particular company.
Resident companies are liable to Irish tax on worldwide income. Accordingly, in the case of an Irish resident company, foreign income and capital gains are, broadly speaking, subject to corporation tax in full. This applies to income of a foreign branch of an Irish company as well as to dividend income arising abroad.
In general, income of foreign subsidiaries of Irish companies is not taxed until remitted to Ireland, although there are special rules that seek to tax certain undistributed capital gains of non-resident close companies.
Foreign taxes borne by an Irish resident company (or Irish branch of an EEA resident company), whether imposed directly or by way of withholding, may be creditable in Ireland.
In an effort to further enhance Ireland's tax regime's transparency, Finance Act 2014 announced changes to Ireland's corporate tax residence rules. Broader corporate tax residence reform was introduced from 1 January 2015 to ensure that Irish incorporated companies can only be considered non-Irish resident under the terms of a double tax treaty (DTT). These provisions are effective from 1 January 2015 for newly incorporated companies. In order to give certainty to companies with existing Irish operations (i.e. incorporated prior to 1 January 2015), the changes include a transition period to the end of 2020. While current Irish companies should not need to take immediate action, in the transitional period to 31 December 2020, all groups with Irish operations need to carefully monitor the corporate tax residence position of Irish incorporated, non-resident companies that do not satisfy the sole exception contained within the Finance Act 2014 provisions. This includes, for example, considering the impact of any proposed merger and acquisition (M&A) transactions involving both change in ownership and business changes/integration measures.
For companies incorporated before 1 January 2015, a company incorporated in Ireland or that has its place of central management and control in Ireland will be regarded as resident in Ireland for the purposes of corporation tax and capital gains tax. However, the link between incorporation and residency does not apply if (i) an Irish incorporated company is considered non-Irish tax resident under the terms of a DTT ('treaty exemption') or (ii) where the incorporated company or a related company carries on a trade in Ireland and either the company is ultimately controlled by a tax resident of a European Union (EU) member state or a country with which Ireland has a DTT, or the company or related company are quoted companies ('trading exemption'). Where the conditions of the trading exemption are met, the company's location of tax residence is determined by the jurisdiction where the company has its place of central management and control. However, the trading exemption does not apply if an Irish incorporated company's place of management and control is in a jurisdiction that only applies an incorporation test for determining residency (and the company would thus not be regarded as tax-resident in any jurisdiction).
Permanent establishment (PE):
Non-resident companies are subject to Irish corporation tax only on the trading profits attributable to an Irish branch or agency, plus Irish income tax (generally by way of withholding, though this is not the case with Irish-source rental profits) on certain Irish-source income.
Subject to the terms of the relevant DTT, a non-resident company will have a PE in Ireland if:
· it has a fixed place of business in Ireland through which the business of the company is wholly or partly carried on, or
· an agent acting on behalf of the company has and habitually exercises authority to do business on behalf of the company in Ireland.
A fixed place of business includes (but is not limited to) a place of management; a branch; an office; a factory; a workshop; an installation or structure for the exploration of natural resources; a mine, oil or gas well, quarry, or other place of extraction of natural resources; or a building, construction, or installation project. A company is not, however, regarded as having an Irish PE if the activities for which the fixed place of business is maintained or which the agent carries on are only of a preparatory or auxiliary nature.
The tax accounting period normally coincides with a company’s financial accounting period, except where the latter period exceeds 12 months.
Corporation tax returns must be submitted within nine months (and no later than the 23rd day of the ninth month) after the end of the tax accounting period in order to avoid a surcharge (maximum of EUR 63,485) or a restriction of 50% of losses claimed, to a maximum of EUR 158,715.
Payment of tax:
Corporation tax payment dates are different for ‘large’ and ‘small’ companies. A small company is one whose corporation tax liability in the preceding period was less than EUR 200,000. Interest on late payments or underpayments is applied at approximately 8% per year.
For large companies, the first instalment of preliminary tax totalling 45% of the expected final tax liability, or 50% of the prior period liability, is due six months from the start of the tax accounting period (but no later than the 23rd day of the month).
The second instalment of preliminary tax is due 31 days before the end of the tax accounting period (but no later than the 23rd day of the month). This payment must bring the total paid up to 90% of the estimated liability for the period.
The balance of tax is due when the corporation tax return for the period is filed (that is, within nine months of the end of the tax accounting period, but no later than the 23rd day of the month in which that period of nine months ends).
Small companies are only required to pay one instalment of preliminary tax. This is due 31 days before the end of the tax accounting period (but no later than the 23rd day of the month).
The company can choose to pay an amount of preliminary tax equal to 100% of the corporation tax liability for its immediately preceding period or 90% of the estimated liability for the current period. As is the case for large companies, the final instalment is due when the corporation tax return is filed.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.