Tax Changes for International Employees

Remittance Basis of Taxation Abolished for Irish Domiciled Individuals

With effect from 1 January 2010, the remittance basis of taxation applicable to foreign income will only apply to individuals who are not domiciled in Ireland. Prior to this date, Irish individuals who were not ordinarily resident here could also avail of the relief.

This will affect Irish individuals taking up residence in Ireland after being abroad for a number of years. Up to 31 December 2009, these individuals were only taxed on Irish source income, and foreign income to the extent that it was remitted into Ireland for the first three years of residence. From 1 January 2010, such individuals will be liable to Irish tax on their worldwide income from the first year of returning to Ireland.

Non-Domiciled Individuals

Where a non-domiciled individual relocates to Ireland, they are liable to tax on non-Irish source income only to the extent that it is remitted to Ireland (with the exception of foreign source employment income where the duties of the employment are carried out in Ireland). All other foreign source income is subject to the remittance basis. With careful tax planning, capital accumulated prior to taking up residence in Ireland may be used to pay for his/her Irish day to day expenses, leaving unremitted income and gains to accrue free of Irish tax.

From 1st January 2008 UK source income qualifies for the remittance basis, hence UK citizens can relocate to Ireland and minimize or reduce to nil their tax liability, by availing of the remittance basis of taxation.

From 20th November 2008 UK source capital gains qualify for the remittance basis.

Are you due a repayment of tax?

Did you pay Irish income tax or capital gains tax on UK source unremitted income and/or gains during 2006, 2007 and/or 2008? If so, please contact OSK as you may be entitled to a repayment of tax. Following a recent tax appeal case, the Revenue are prepared to examine (on a case by case basis) claims for repayment of tax where it is claimed that a repayment of tax would be due had the remittance basis applied for a relevant year of assessment.

Such claims are subject to the statutory four year time limit for claiming repayment of tax.

Special Assignment Relief (repayment of tax where earnings not remitted)

One of the attractions of Ireland for multi-nationals has been the ability to relocate staff to Ireland in a tax efficient manner. The Finance Act [2006] significantly curtailed the remittance basis of taxation for employment income. This year's Finance Bill extends a limited remittance basis for employment income for residents of EU Member States and countries with which Ireland has a double tax treaty.

The Finance Bill provides an option for non-Irish domiciled individuals relocating to Ireland after 1st January 2010 to cap their Irish tax liability on employment emoluments by limiting the amount of such income that is deemed to be subject to tax. The limit is the greater of:
(a)    the amount of emoluments actually remitted (directly or indirectly) into Ireland or
(b)    an amount equal to €100,000 plus 50 percent of the individual's emoluments in excess of €100,000.

In addition, the time period that an individual must remain in Ireland has been reduced from three years to one year.

Any tax deducted from the relevant emoluments in excess of the tax due shall be repaid on foot of a claim from the relevant employee.

The Key to determining domicile

An individual's domicile is a question of law (and is completely separate from his or her tax residence). An individual acquires a domicile of origin at birth which is derived from the domicile of the father. An individual retains their domicile of origin unless facts and circumstances demonstrate that an individual has acquired a domicile of choice in another territory. Hence, a UK domiciliary coming to Ireland for an indefinite period and not severing all links with the UK will automatically be regarded as UK domiciled unless the Irish Revenue can prove to the Courts that the individual never intends to return to the UK - dead or alive.

For further information please please email Imelda Prendergast - OSK Contracting on e: prendergasti@osk.ie or visit our expatriate taxation section.