Remittance Basis of Taxation in Ireland
Foreigners moving to Ireland may have come across the term ‘Remittance Basis of Taxation’, but it may be unclear what this can mean and whether or not it may apply to yourself.
Foreigners moving to Ireland may have come across the term ‘Remittance Basis of Taxation’, but it may be unclear what this can mean and whether or not it may apply to yourself.
This article is to help those understand the key elements to this type of taxation, and exactly how and when it ties in with their Irish tax residency status.
What is Remittance Basis of Taxation (RBT)?
Put simply, Remittance Basis of Taxation can provide a type of favourable treatment for those who are non-Irish domicile, for the purposes of their foreign income and investment gains.
This taxation law means that despite your worldwide income becoming taxable in Ireland when you trigger Irish tax residency, as a foreign domiciled expat you will not be required to pay income tax on any of your foreign sourced income or gains unless these funds are ‘remitted’ to Ireland.
This applies to Foreign Employment Income, Foreign Investment Income and Foreign Capital Gains.
What qualifies as a ‘Remittance’?
As a general rule, a remittance is classed as when any foreign income that you earn while you are an Irish tax resident is brought into Ireland in (pretty much) any capacity.
This includes things such as certain assets purchased overseas that are brought into Ireland for resale, as well as money withdrawn from overseas bank accounts at an Irish bank.
The resale of assets in Ireland that were purchased overseas would mean that the proceeds of that sale are automatically considered a taxable remittance and would make you liable to pay Irish income tax on that sale.
Will the Remittance Basis of Taxation benefit me while I hold Irish tax residency status?
The law of remittance basis is mainly designed to better structure non-domiciled foreigners’ tax affairs while living in Ireland as tax resident.
This type of taxation ultimately limits your overall tax exposure and manages it at acceptable levels in order to benefit you as an individual.
When will I be classed as resident in Ireland for tax purposes?
Your Irish tax residency status will depend on the number of days that you are present in Ireland during the tax year.
You will be classed as resident for tax purposes if any of the following apply to you:
- You have spent 183 days or more in Ireland in a tax year
- You have spent 280 days or more in Ireland over a period of two consecutive tax years (you will be classed as resident for the second year)
You will be classed as ordinarily resident in Ireland for the tax year when you have been an Irish resident for three consecutive tax years.
What other terms should I be familiar with when handling RBT?
‘Split-Year’
It is possible that where an individual is tax resident in two countries for the same tax year, they are liable to tax on the same income.
Irish legislation provides a relief referred to as “split-year” residence which essentially means you are not taxed on your employment income to the extent it relates to work completed in the foreign country you are arriving from up to the date of arrival in Ireland.
The relief can also apply in the year of departure from Ireland subject to certain conditions.
Pre-residency Capital -
This type of capital refers to any foreign income or gains that may have been earned before your Irish tax residency was triggered.
Pre-residency capital can be kept in foreign cash-savings accounts.
Income Generating Accounts -
This type of account can be any type of bank account but is solely used for the purpose of depositing any foreign-earned income or gains.
Mixed Funds Accounts -
The clue is certainly in the name, in that these accounts can hold funds from a mixture of sources.
This can include your pre-residency capital, as well as taxable foreign income in Ireland and any post-residency capital gains.
What sort of advice do I need to understand RBT going forward?
Between residency rules, transaction limitations and the general concept of the remittance basis, this process is far from simple.
It’s therefore vital to seek professional advice and can benefit largely from doing so as far in advance as possible.
If you are planning a relocation to Ireland, about to become Irish tax resident (or unsure if you are about to), it is crucial to understand how to best protect your finances and protect yourself from unnecessary taxation as and where you can.
Irish tax experts will provide you with clear guidance on the following, allowing you to plan the most beneficial route according to your unique circumstances as an individual:
- How to navigate the complexities of Irish tax legislation
- How to clarify your tax residency position
- How to understand your domicile status and what your Irish tax obligations will incur
- How to successfully navigate and separate different bank accounts before triggering tax residency in Ireland
Our trusted Irish tax partners can ultimately make sure that you full understand how the remittance basis works.
Our free introduction service will connect you with a trusted Irish tax specialist who will invite you to book an initial 30 minute consultation for €255. During the consultation, the specialist will be able to provide formal Irish tax advice and detail any other services or options you may need to get you Irish tax matters in shape, including:
- Establish your current Irish tax residency status, including recommendations on how you could reduce your tax burden
- Understand and apply any relevant double tax treaties
- Identify opportunities to make your income and gains more tax efficient
