With more people travelling for both work and lifestyle an individual’s tax status can be affected without them being aware of it. An individual’s tax residence and domicile status affect what income will be subject to Irish tax.
As such individuals need to be aware of the implications concerning their tax residence and domicile. One’s tax residence and domicile status will also determine if they will have a capital gains tax (CGT) liability on the sale of an asset, and a requirement to pay capital acquisitions tax (CAT) on the receipt of a gift or inheritance or if they make a gift or inheritance.
Irish tax residence
An individual is regarded as a tax resident in Ireland in a tax year if they spend:
- 183 days or more in Ireland in that tax year, or
- 280 days or more in Ireland taking into account the number of days spent in Ireland during a tax year and the preceding tax year.
The tax year in Ireland is the calendar year i.e. 1 January to 31 December.
Where an individual is present in Ireland for 30 days or less in a tax year, the individual will not be regarded as tax resident in Ireland for that particular tax year. An individual will be regarded as present in Ireland for a day if he or she is present at any time during that day in Ireland.
Shane arrived in Ireland on 1 March 2018 and remained in Ireland (without travelling abroad) until 15 January 2019 when he returned to Spain. Shane will be resident in Ireland for 2018 and 2019 are as follows;
Shane is resident in Ireland for 2018 because he has spent at least 183 days in Ireland during the year. He is not resident for 2019 because although his aggregate number of days spent in Ireland between the two tax years, i.e. 2019 and the previous year 2018, is at least 280, the 2019 days are less than 30. Shane is not tax return in Ireland for 2019.
An individual may also elect to be tax resident in Ireland if certain circumstances apply.
A person may possibly be tax resident in a number of jurisdictions as the tax residence rules vary from country to country. Therefore, it is important to track days spent in each country and seek expert advice to determine an individual’s residence position. If an individual is also tax resident in another jurisdiction, than the double taxation agreement in place between Ireland and the other tax jurisdiction may be beneficial.
In the event of the Revenue Commissioners querying your tax residence position evidence of the days that you spent outside of Ireland both for the current year and prior year may be required. Examples of such evidence would be plane tickets and boarding passes, hotel bills or evidence of stays in your non-Irish properties, copies of credit card statements showing the use of personal credit cards outside of Ireland and copies of mobile phone bills showing the use of personal mobile phones outside of Ireland. It is important that these details are retained in the event of the Revenue Commissioners requesting them.
Ordinary tax residence
An individual is regarded as an ordinarily tax resident in Ireland in a tax year if they have been tax resident in Ireland for each of the three preceding tax years.
Similarly, an individual will cease to be ordinarily tax resident in Ireland at the end of the third consecutive tax year for which they are not tax resident in Ireland.
Ruth arrived in Ireland in February 2016 for a five-year assignment from her Portuguese employer to its sister Irish company and will leave in December 2020. She will spend all of her time in Ireland except for 2 weeks of holidays each summer.
Based on this Ruth will be resident in Ireland for 2016, 2017 and 2018 and therefore she will become ordinarily resident in Ireland from 1 January 2019 i.e. the tax year following three successive years of Irish residency. Ruth will remain ordinarily resident until 2024.
“Domicile” is not defined in legislation. It is a legal concept based upon the notion of the individual’s permanent home. Generally, a person is domiciled in the country of which they are a national and in which they spend their life. However, it is not always possible to equate domicile to home, as in certain circumstances an individual may be domiciled in a country which is not and has never been their home.
A person may have two homes, but he can only have one domicile.
There are three general principles in relation to domicile to note:
1. No person can be without a domicile.
2. No person can at the same time have more than one domicile, at any rate for the same purpose.
3. An existing domicile is presumed to continue until it is proven that a new domicile has been acquired.
Why is domicile important?
One of the reasons why domicile is so important is that an individual who is tax resident and not domiciled can avail of the remittance basis of tax. The remittance basis applies where an individual is tax resident but not domiciled in Ireland and so, that individual’s foreign income and gains are only taxed to the extent that they are remitted into Ireland which is a very favourable tax statue.
Tax implications of residence/ ordinary residence/ domicile
If you are tax resident, ordinarily resident and domiciled in Ireland for 2019 you will be liable to Irish tax on your worldwide income and worldwide gains.
If you are non-tax resident but still ordinarily tax resident and domiciled in Ireland for 2019, you will be liable to Irish tax on your worldwide income with the exception of any foreign employment and foreign trade/professional income where all the duties are performed outside Ireland, or if you have any foreign investment income up to €3,810.
Finally, if you are non-tax resident and non-ordinary tax resident in Ireland in the tax year, you will only be liable to Irish tax on your Irish source income and capital gains on specified assets. Ireland has Double Taxation Agreements (DTA) in place with numerous other countries and such treaties can reduce or eliminate double taxation of the same income.
Capital Acquisitions Tax
The charge to gift or inheritances tax can be affected by an individual’s tax residence status. If the person who receives or gives a gift or inheritance is Irish tax resident or ordinarily tax resident then Irish CAT must be considered.
If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Mazars private client team below:
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01 449 6480
01 449 6418