The Taxes Consolidation Act (TCA) 1997 now brings many non-resident corporate landlords within the charge to Irish corporation tax for the ﬁrst time on “proﬁts and gains accruing on or after 1 January 2022”.
Corporation tax requirements for non-resident corporate landlords
Finance Act 2021 introduced Section 25(2A) TCA 1997, where non-resident corporate landlords (“NRCLs”) are now no longer subject to income tax and instead are subject to corporation tax at the rate of 25% on rental proﬁts arising in Ireland on or after 1 January 2022.
Tax changes for non-resident corporate landlords?
Before 1 January 2022, a company not resident in Ireland for corporate tax purposes was not within the charge to Irish corporation tax unless it was carrying on a trade in Ireland through a branch or an agency. Therefore, NRCLs were subject to income tax at the standard rate of Irish income tax (20%) on their Irish rental (Case V) profits.
From 1 January 2022, NRCLs are now within the Irish corporation tax regime, meaning that these landlords are now subject to Irish corporation tax on these profits at a higher rate of 25%.
What was the regime before 1 January 2022?
Before 1 January 2022, the regime operated such that:
The tenant was obliged to withhold income tax at the standard rate (20%) from rental payments and return this amount to Revenue. The tenant was then obliged to provide the NRCL with Form R185, which evidenced the tax deducted and allowed the NRCL to claim an equivalent credit when filing its own income tax return for the year.
NRCL could have appointed an Irish collection agent (usually an estate agent or management company) to collect the rent, thereby eliminating the withholding requirement by the tenant. The NRCL is assessable and chargeable to income tax in the collection agent's name, which would register under a separate tax reference number. Tax returns would be filed and tax paid on the NRCL’s behalf.
What is the regime from 1 January 2022?
From 1 January 2022 onwards, the regime will be:
Tenants are still obliged to withhold 20% of the rent payable in the absence of a collection agent being appointed by the NRCL. The NRCL can then claim a credit for the tax withheld, similar to the pre-1 January 2022 system. However, the NRCL are filing a corporation tax return under the corporation tax regime.
NRCLs can still appoint collection agents. The NRCL is assessable and chargeable to corporation tax in the name of the Irish collection agent. The collection agent registers for corporation tax and will arrange to file the corporation tax return and pay the corporation tax liabilities on behalf of the NRCL. It is important to note that while the assessment is in the name of the Irish collection agent, the tax to be charged is the amount which would be charged if the NRCL was assessed.
Where collection agents fail to meet their obligations in this capacity (i.e. submit annual corporation tax returns and associated filing obligations and pay any tax liabilities due on behalf of the NRCL), interest, penalties and surcharges, as appropriate, will apply.
However, changes to the administration of Irish withholding tax for NRCLs (subject to a Ministerial order which is currently pending) with the introduction of a new Non-resident Landlord Withholding tax platform is expected to go live from 1 July 2023. Please refer to our Taxation of non-resident landlords article which summarises the potential changes from 1 July 2023.
What are some practical considerations to note for NRCLs?
Filing of corporation tax returns
For Irish tax purposes, regardless of an NRCL’s accounting year-end, a new accounting period will begin for all NRCLs on 1 January 2022 as they will come within the charge to Irish corporation tax for the ﬁrst time (if an NRCL does not already operate a branch or agency in Ireland). Those NRCLs that do not operate a 31 December year-end will likely have at least two corporation tax returns to ﬁle for 2022.
From 1 January 2022, an NRCL is coming within the charge to Irish corporation tax for the first time. Such companies shall not pay preliminary tax for that first period if their corporation tax liability does not exceed €200,000 (or a proportionate amount if the accounting period is less than 12 months). If its corporation tax liability exceeds the limit, NRCL will be deemed a “large company” for preliminary corporation tax purposes, and accelerated preliminary corporation tax payments will arise.
Where an NRCL has paid preliminary tax for the year ending 31 December 2022 under income tax rules, the Collector General’s Division should be contacted to arrange the transfer of the payment from preliminary income tax to preliminary corporation tax, as the payments will not be automatically transferred.
NRCLs (where no collection agent is being used)
NRCLs must now register for corporation tax with effect from 1 January 2022 so, therefore, the income tax registration should be cancelled as of 31 December 2021. However, the income tax registration should be cancelled only after the income tax return for 2021 has been filed and the NRCL is satisfied that all correspondence with Revenue in relation to the same has concluded. Please note that Revenue will consider any cancellation on a case-by-case basis.
NRCLs and collection agents
Where a collection agent is registered for income tax (in respect of tax due by an NRCL), the agent should now cancel their existing income tax registrations and register for corporation tax effective from 1 January 2022 (under the same tax reference number). Once registered for corporation tax, normal ‘pay and file’ rules for companies will apply.
Carry forward of losses and excess capital allowances
To assist with the migration from income tax to corporation tax, where an NRCL has unused rental losses or excess capital allowances at the end of the year of assessment ending on 31 December 2021, these will transfer to the corporation tax regime. These should be claimed on the corporation tax return for the first accounting period ending after 1 January 2022.
Capital Gains Tax (CGT) on disposal
Prior to 1 January 2022, NRCLs that do not trade via a branch or agency in Ireland were subject to CGT payment and filing requirements on disposals of Irish land and buildings. Such chargeable capital gains were subject to a 33% tax rate.
From 1 January 2022 onwards, the capital gain on a disposal of Irish land by an NRCL is subject to corporation tax. By bringing NRCLs within the scope of the corporation tax regime, capital gains are re-grossed in calculating the corporation tax liability. However, the effective rate on such chargeable gains will remain 33%. The impact of this includes changes to file and pay administration/ filing dates.
Interest limitation rules
From 1 January 2022 onwards, NRCLs would be within the scope of the EU Anti-Tax Avoidance Directive (ATAD) interest limitation rules (ILR) which limit interest deductibility for a company that is within the charge to Irish corporation tax, including an NRCL, to 30% of Tax EBITDA (earnings before interest, tax, depreciation and amortisation), subject to a number of exceptions. A review of these rules should be considered.
As NRCLs are now under the corporation tax regime, it is important to be aware of their corporation tax pay and filing obligations. Interest and penalties can arise in cases of non-compliance.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please get in touch with a member of the Mazars corporate tax team below:
Mazars was delighted to participate in the 2023 annual tax advisors survey with the Business Plus, which was published in November. Frank Green, Head of Tax, responds to editor Nick Mulcahy’s questions.