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The personal tax burden in Ireland is average when compared with other countries, although employees must also pay social insurance contributions and corporate executives generally must fund private healthcare and pension provisions. There is no net wealth tax, but individuals are subject to a capital acquisitions tax of 25%.

An individual who is self-employed or in receipt of personal investment income falls within the scope of the self assessment system in Ireland and is referred to as a chargeable person in Irish tax legislation. Under this system, a chargeable person is obliged to file a tax return and pay tax by specified dates.

An individual who is employed in Ireland pays their income tax liability either on a weekly or monthly basis under the P.A.Y.E. (Pay As You Earn) system. Under this system, tax is calculated and withheld from earnings by the employer.

When determining an individual's liability to Irish tax, that individual's residence, ordinary residence and domicile are considered. The Irish income tax year is aligned with the calendar year and runs from 1 January to 31 December.

An individual is treated as being tax resident in Ireland if (1) in a tax year he is physically present in Ireland for 183 days or more; or (2) he spends a combined total of 280 days or more in Ireland in both the current and preceding tax years, provided he will not be treated as resident under the second test for any tax year during which he spends less than 30 days in Ireland.

From 1 January 2009, a day is counted if the individual is present in Ireland for any part of a day, irrespective of the purpose of the day. Before 1 January 2009, a day was counted if the individual was present in Ireland at midnight on that day.

An individual is regarded as ordinarily resident in Ireland in a tax year if he has been Irish resident for each of the three preceding tax years. Once he becomes ordinarily resident in Ireland, he does not cease to be ordinarily resident for a tax year unless he has been nonresident in Ireland for each of the preceding three tax years.

Domicile is a legal concept and is not defined in the Irish tax code. It is a complex term and is primarily a question of fact - based on the notion of an individual's permanent home to which that person intends ultimately to return. A person can be considered domiciled in the country that is the individual's permanent home even when he is temporarily resident in another country. An individual can never be without a domicile. Generally, an individual is domiciled in his country of nationality and in which the greater part of his life is spent, i.e. the domicile of origin. Once an individual has reached the age of majority, "domicile of origin" can be abandoned and a "domicile of choice" can be acquired. In this situation, factors of presence and intention would be required.

Taxable income and rates
Taxable income is based on a "scheduler" system in Ireland, which in turn is based on the source of the income, for example, income from employment, income from the exercise of a trade or profession and investment income.

A tax credit system was introduced in Ireland, with effect from 6 April 2001, to replace the old tax allowance system. Once an individual's income which is liable to Irish tax has been identified, the tax is calculated and any tax credits available are deducted from it.

The rates of income tax in Ireland are 20% (standard rate) and 41% (marginal rate).

A husband and wife may choose to be assessed separately. When a couple chooses a separate assessment, they may transfer unused tax credits. Couples may also opt to be assessed as two single individuals, in which case credits may not be transferred.

The income levy
The income levy, which was introduced on 1 January 2009, is an additional tax on gross income, before relief for capital allowances, losses or pension contributions.

The current rates and thresholds effective from 1 May 2009 are as follows:

Income Levels Rate of Income Levy

EUR 0 - EUR 75,036      2%

EUR 75,037 - EUR 174,980      4%

Over EUR 174,981      6%

All individuals whose gross income exceeds the minimum threshold of EUR 15,028 are liable to pay the income levy. Once an individual's income exceeds the minimum threshold, the income levy is payable on the full amount of their income.

The income levy is a separate charge to income tax and no reliefs or tax credits are allowable against it. Excess or unused tax credits cannot be used to reduce an individual's income levy liability.

Determination of taxable income
An individual who is resident, ordinarily resident and domiciled in Ireland is liable to Irish income tax on worldwide income. An individual who is resident but not domiciled in Ireland or a citizen of Ireland who is not ordinarily resident is liable to Irish income tax in the following manner:

  • Employment income: Such individuals will be liable to Irish income tax on Irish employment income in full and non-Irish employment income to the extent their duties relate to Irish workdays and they remit their income relating to non-Irish workdays to Ireland.
  • Investment income: Such individuals are liable to Irish income tax on investment income from Irish sources. Investment income from other countries will not be taxable as long as the income is not remitted into the State.

The remittance basis for a non-domiciled individual continues regardless of residence/ordinary residence status.

An individual who is ordinarily resident but not resident or domiciled in Ireland is liable to income tax on Irish-source employment or trading income and investment income exceeding EUR 3,810. Expatriates who have returned to their home country are unlikely to be affected unless they have retained major investments in Ireland.

An individual who is nonresident in Ireland is liable to income tax on Irish-source income but may be subject to relief available under a double taxation agreement.

Benefits in kind
Benefits in kind received from an employer by an employee whose remuneration (including benefits in kind) is less than EUR 1,905 in a tax year can be received tax free. Benefits in kind received by an employee whose remuneration is EUR 1,905 or more in a tax year are taxable. In general, an employer must calculate the tax liability on the benefit in kind and deduct this through the PAYE system.

There are a number of Revenue-approved share schemes that allow favourable tax treatment for employees:

  • Where an employer grants an employee an option to subscribe for shares through a Revenue-approved share option scheme, the employee will not be chargeable to income tax on the exercise of the option, but will be chargeable to capital gains tax on the full gain on disposal of the shares. Also, there is no PRSI, health levy or income levy liability for the employee on the exercise of the option. The costs associated with establishing the scheme are an allowable tax deduction for the employer and there is no associated employer PRSI liability.
  • Where an employer grants an employee an option over shares through a Revenue approved Save As You Earn (SAYE) share option scheme, the employee will not be chargeable to income tax on the exercise of the option, but will be chargeable to capital gains tax on the full gain on disposal of the shares. Through a Revenue-approved SAYE plan, an employee saves a fixed sum out of net pay for a predetermined period after which the employee has enough capital to fund the exercise of the option and acquire shares in the company. Through these types of schemes, shares can be acquired by employees at a discount of up to 25% of the market value of the share at the beginning of the plan and tax free interest is payable on savings.
  • A Revenue-approved profit scheme allows an employee to receive shares up to a maximum value of EUR 12,700 per annum from an employer without triggering an income tax liability. Contributions made by the employer to an approved scheme are treated as an allowable trading expense. The shares must be awarded to all employees on similar terms. The shares must be held by the employee for a period of at least three years so that an income tax liability can be avoided.
  • Relief is available for expenditure incurred by an employee on the purchase of new ordinary shares issued by their employer. The maximum lifetime deduction is limited to EUR 6,350. The employer must be incorporated and resident in Ireland and the shares must be held by the employee for a period of at least three years to qualify for full relief.

Dividend/interest income
A 20% withholding tax is levied on dividend and interest payments made by Irish resident companies to Irish resident and nonresident individuals, unless the rate can be reduced under an applicable tax treaty. An exemption is granted to residents of tax treaty countries and EU countries.

Business expansion scheme
Once certain conditions are met, tax relief is available for investment in business expansion schemes. The investment is subject to minimum and maximum limits of EUR 250 and EUR 150,000 respectively. Tax relief on investments may only be claimed by individuals who are not connected with the company. A husband and wife can each obtain relief on EUR 150,000 in a year where they both have sufficient income to absorb the relief.

Other tax reliefs
Tax relief on mortgage interest repayments is deducted at source by the mortgage provider, thus reducing an individual's mortgage interest repayments. Similarly, medical insurance premiums paid to recognised health insurers are reduced by an amount equal to the standard rate of tax and the insurer reclaims the benefit of the tax relief from the Revenue Commissioners.

Capital gains tax
An Irish resident, ordinarily resident and domiciled individual is liable to Irish capital gains tax on the gains arising on the disposal of worldwide chargeable assets.

A non-Irish domiciled individual who is resident or ordinarily resident in Ireland is liable to capital gains tax on gains arising on the disposal of Irish chargeable assets and on the gains from the sale of non-Irish assets to the extent that the proceeds are remitted into Ireland.

An individual who is not resident and not ordinarily resident in Ireland is liable to capital gains tax on gains arising on the disposal of Irish specified assets, i.e. land and buildings in the State.

The first EUR 1,270 of a gain is exempt from capital gains tax for each individual. The exemption is not transferrable between spouses. A gain accruing to an individual on the disposal of tangible moveable property where the consideration is EUR 2,540 or less is exempt from capital gains tax. Gains on the sale of an individual's principal private residence are not subject to capital gains tax provided the qualification criteria are met.

The standard rate of capital gains tax is currently 25% (effective from 7 April 2009). In order to adjust the original cost of the asset in line with inflation, indexation relief is available for periods of ownership up to 31 December 2002.

Special expatriate tax regime
Business travelers to Ireland, who spend less than 183 days in the country ("day" meaning any part of a day), are resident in a country with which Ireland has a double taxation agreement and who satisfy other conditions may be exempt from both PAYE and income tax in Ireland. An application to the Irish Revenue is required to avail of the exemption from PAYE.

Business travelers to Ireland who are resident in a country with which Ireland has a tax treaty and who spend less than 60 work days in Ireland in a tax year (and in any event for a continuous period of not more than 60 workdays) are exempt from PAYE and income tax and no application to the authorities is required.

The remittance basis of taxation can allow an individual who is resident but not domiciled in Ireland, or a citizen of Ireland who is not ordinarily resident, to be taxed on his non Irish employment income relating to non Irish duties and his foreign investment income only to the extent that these types of income are remitted to Ireland.

Where an individual who is resident but not domiciled in Ireland, or a citizen of Ireland who is resident but not ordinarily resident, is employed under a foreign contract of employment and performs duties of that employment in Ireland, they are liable to income tax in Ireland on the foreign employment income referable to those duties. The foreign employment income relating to duties performed outside Ireland is only liable to Irish income tax if it is remitted to Ireland.

The income tax due on the foreign employment income relating to the duties performed in Ireland is collected through the Pay As You Earn system (PAYE). The foreign employer is responsible for remitting the PAYE due to the authorities.

From 1 January 2009, an Irish resident and non domiciled individual exercising a non-Irish employment in Ireland may be entitled to a refund of PAYE, subject to a number of conditions being satisfied. An employee may make a claim on their tax return for the appropriate year for their taxable income to be determined based on the higher of:

  • The actual amount attributable to Irish duties that was remitted in that year; or
  • EUR 100,000 plus 50% of the balance attributable to Irish duties.

It is important to note that the refund can only be claimed by individuals assigned to perform the duties of their non-Irish employment in Ireland from non-EEA counties with which Ireland holds a double taxation agreement.

Capital taxes
Capital duty was abolished by Finance Act 2006 and is no longer levied on contributions of cash and other assets to the share capital of a limited company or limited partnership.

Capital acquisitions tax (CAT) is a tax on gifts and inheritances. CAT is calculated at a rate of 25%. Various exemption thresholds apply, depending on the relationship between the disponer of the gift or inheritance and the beneficiary.

Gifts or inheritances of Irish situated property remain within the charge to CAT regardless of the domicile or residence of the disponer or beneficiary. Shares in Irish incorporated companies constitute Irish property for this purpose.

In general, a charge to CAT arises on gifts or inheritances of foreign located assets if either the disponer or the beneficiary is resident or ordinarily resident in Ireland in the tax year in which the date of the gift or inheritance falls. However, where they are not Irish domiciled, neither the disponer nor the beneficiary will be considered resident for this purpose where they have not been resident in Ireland for each of the five tax years preceding the tax year in which the date of the gift or inheritance falls.

Source: Deloitte

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