Residence, ordinary residence and domicile
The extent to which an individual finds himself within the charge to Irish income tax will depend on his Irish tax residence status, ordinary tax residence status and his domicile. When an individual moves abroad his residence status will change and possibly even his domicile. Therefore, as a consequence, his charge to Irish income tax will also change.
Residence
An individual is regarded as tax resident in Ireland if he is present in the State for 183 days in that income tax year, i.e. from 1 January to the following 31 December. This is known as the ‘183 day rule’.
Alternatively, an individual is regarded as tax resident in the State if he spends 280 days or more in Ireland in aggregate in that income tax year and the preceding income tax year. This is known as the ‘280 day rule’.
An individual will not be regarded as resident in an income tax year in which he spends a period in the whole amounting to 30 days or less in the State and no account shall be taken of such a period for the purpose of the 280 day test.
In determining days present in Ireland, an individual is deemed to be present if he is in the country at any time, during the day.
Ordinary Residence
An individual becomes ordinarily tax resident in Ireland if he has been tax resident here for each of the three immediately preceding tax years. Once a person becomes ordinarily tax resident, he will continue to be ordinarily tax resident here until he has been non tax resident for 3 consecutive income tax years.
Domicile
The concept of domicile is not defined in tax legislation. There is significant case law on the concept and some general rules have been established. Basically, domicile is considered the place where an individual has his natural home.
Each person acquires a domicile at birth which in most cases is that of his father. This original domicile is retained throughout your life unless you acquire a domicile of choice. It should be noted that you cannot simply abandon your domicile of origin – it can only be replaced by the proactive acquisition of a domicile of choice.
Establishing that a person has abandoned his domicile of origin for a domicile of choice can be difficult. It must be shown that the taxpayer has taken positive steps to acquire the new domicile of choice e.g. settled himself and his family in the new country, made a will in the new country, acquired a burial plot and established property ownership there.
In addition to this the individual must have cut ties with his domicile of origin e.g. sold his property there. A combination of the individual’s acts and omissions will ultimately decide whether or not he has abandoned one country to take up domicile in another. A person cannot be without domicile nor can he have more than one place of domicile at a time.
Effect of Residence, Ordinary Residence and Domicile
Resident and Domiciled
As a general rule, an individual who is tax resident, ordinarily tax resident and domiciled in Ireland is liable to Irish income tax on worldwide income e.g. an Irish salary, rental income from a Spanish Villa and interest from a UK bank account.
Resident but not Ordinarily Resident or Domiciled
This may include, for example, a U.S. citizen sent to work in Ireland for a few years. Such an individual is liable to Irish income tax in full on his income arising in Ireland and on his foreign employment income to the extent that he performs the duties of his employment in Ireland. Any foreign non employment income is only liable to Irish tax to the extent that the income is remitted into Ireland.
Domiciled, Ordinarily Resident but not Resident
For example, an Irish person who leaves Ireland after a number of years will continue to be ordinarily resident here for the first three years. A domiciled, ordinarily resident but non-resident person is liable to Irish tax on worldwide income with the exception of:
- income from a trade or profession no part of which is carried on in Ireland;
- income from an employment the duties of which are carried on abroad;
- other foreign income provided it does not exceed €3,810. (If it does exceed €3,810 then the full amount is taxable in Ireland, not just the excess).
Not Resident and not Ordinary Resident
In general, a person who is neither resident nor ordinarily resident in Ireland is taxable on Irish source income only. This would include, for example, a US individual who rents out his Irish holiday home during the months he is not here. In some circumstances the provisions of a Double Taxation Agreement may determine that the income is not liable to Irish tax.
Remittances
As outlined above, certain individuals are liable to Irish tax on the remittance basis, i.e. liable to Irish income tax on all Irish source income (e.g. rental income from a rental property in Cork or dividends from an Irish company) and foreign income (including UK income) is taxable only to the extent that it is remitted into Ireland. Significant anti avoidance legislation exists to prevent the abuse of the remittance basis for the avoidance of Irish tax.
Structure
An individual who secures a contract abroad may be obliged or may wish to provide his services via a company. It may be desirable to utilize an Irish company and maintain the company’s Irish tax residency for different reasons e.g. the Irish corporation tax rate of 12.5%. This may well be a wise move if the foreign contract is a valuable one.
If the individual is moving to the new country as an employee / director of his own company or simply leaving an Irish employment to take up a foreign one it should be possible to ensure the smooth transition from the Irish taxation system to the new country’s regime by using the reliefs under the Irish tax code (e.g. split year residence relief or a PAYE exclusion order) or under a tax treaty.