The following is a brief summary of the charge to income tax and capital gains tax under Irish tax legislation in the case of individuals.
LIABILITY TO IRISH INCOME TAX AND IRISH CAPITAL GAINS TAX
An Irish resident (or ordinarily resident) and domiciled individual is liable to Irish income tax on his worldwide income and to Irish capital gains tax on his worldwide gains, whether such income or gains are remitted to Ireland or not. An Irish resident (or ordinarily resident) but not Irish domiciled individual is liable to Irish income tax on his Irish and UK income and to Irish capital gains tax on all Irish and UK gains whether or not such income or gains are remitted into Ireland and also on his foreign income and gains, but only to the extent that such "foreign" income or gains are remitted into Ireland while the individual is Irish resident. An individual who is not resident or ordinarily resident or domiciled in Ireland is only liable to Irish income tax (subject to any available double taxation relief) on his Irish sourced income, for example interest from an Irish bank account or dividends from an Irish resident company. In the case of capital gains tax an individual who is neither resident nor ordinarily resident in Ireland nor Irish domiciled may nevertheless be liable to Irish capital gains tax on a disposal of certain specified Irish assets including land and/or buildings in Ireland and unquoted shares deriving their value or the greater part of their value from such land or buildings.
DEFINITIONS OF RESIDENCE, ORDINARY RESIDENCE AND DOMICILE
For Irish tax purposes, an individual will be regarded as resident in Ireland if:-
(i) he spends more than 183 days in Ireland in any tax year (ie 6th April to 5th April);. or
(ii) he spends a total of 280 days or more in Ireland in any current or previous tax year taken together, provided at least 30 days are spent in Ireland in each of those tax years.
An individual may also elect to be Irish resident for tax purposes.
An individual will be regarded as ordinarily resident in Ireland if he has been resident in Ireland for each of the three preceding tax years. At the end of a consecutive three year period during which that individual has not been resident in Ireland, he will cease to be ordinarily resident.
Domicile is not defined in Irish tax legislation. Domicile is a more permanent concept than that of residence and, in summary, is the place which an individual considers to be his genuine home. There is much case law on the meaning of domicile and each individual's case must be looked at in the light of that individual's particular circumstances.
TAXATION OF INDIVIDUALS
The year of assessment for income tax and capital gains tax purposes runs from 6th April to 5th April in the succeeding year. Therefore the current tax year (ie 1996 / 1997) commenced on 6th April, 1996 and will end on 5th April, 1997. For the current tax year each Irish resident individual is entitled to a tax free allowance of IRœ2,650. The standard rate of tax is currently 27% and is chargeable on the first IRœ9,400 (after allowances have been claimed), while the higher rate is 48% and is chargeable on the balance. Double allowances apply to married persons.
There are various allowances and entitlement to rebates available including a rent allowance in respect of private rented accommodation, an entitlement to reclaim medical expenses etc. A self-employed individual is entitled to deductions for expenses incurred wholly and exclusively in the performance of that persons' trade or profession. Employees are entitled to similar type deductions in rather move restrictive circumstances. An employee is chargeable to income tax on benefits-in-kind such as cars, free accommodation etc received from an employer.
Irish residents who work abroad for a specified portion of the tax year are entitled to a special deduction.
Certain individuals who are not resident in Ireland for a tax year are entitled to a proportion of personal allowances and reliefs. The exact proportion of allowances is determined by the ratio between the individual's income which is subject to Irish tax and the individual's total income.
The standard rate of capital gains tax is 40%, although a lower rate of 27% is available on the disposal of certain shares. An indexation factor is applied when calculating a chargeable gain to take into account inflation. An annual capital gains tax exemption amounting to œ1,000 is available to each individual. There are various reliefs and exemptions available in the case of certain disposals such as the disposal of an individual's principle private residence or of an individual's family business etc.
RELIEFS AND EXEMPTIONS
There are various reliefs and exemptions available to Irish residents such as the artists exemption. Also investments by individuals in certain approved schemes can be very tax effective.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
For further information contact Caroline Devlin, Arthur Cox, Dublin; telephone +(353) (1) 676 4661; or telefax +(353) (1) 676 6905 or enter a text search 'Arthur Cox' and 'Business Monitor'.