Traditional value - the remittance basis of tax in Ireland.

Tuesday, 01 May 2012

Ireland’s Finance Bill 2012, published on 8 February, proposes to introduce a special assignee relief programme (SARP), which aims to reduce employers’ costs for assigning skilled individuals in their companies from abroad to take up positions in the country. Under the scheme, foreign employees of multinational firms can transfer to the Irish operations of their firms and benefit from special tax relief. Employees who are engaged for at least one year, and a maximum of five years, will be exempt from income tax on 30 per cent of their salary between EUR75,000 and EUR500,000. The SARP scheme should therefore restore some of the benefits of the remittance basis to employment income.

This is a similar scheme to those operated in other jurisdictions that compete with Ireland for investment. The Irish government envisages that skilled individuals who come to Ireland and benefit from the scheme will build teams, and therefore jobs, around them, and expects that the scheme will be a persuading factor for multinationals choosing the jurisdictions in which to invest or retain operations.

Remittance basis

There’s also Ireland’s remittance basis of tax, which continues to make it an attractive location for high-net-worth individuals (HNWIs) seeking alternative residence. Under the remittance basis, Irish resident individuals who are not Irish domiciled are only liable to Irish tax on Irish source income and gains, and foreign income and gains to the extent that they are remitted into Ireland. Therefore, careful planning can structure HNWIs’ overseas income and gains to mitigate being exposed to Irish tax.

The remittance basis of tax in Ireland is broadly similar to the UK system, but there is a significant distinction. Ireland has not introduced any alternative tax charge on non-domiciled residents who take advantage of the remittance basis to shield offshore income and gains from Irish tax. The UK remittance tax charge was introduced by HMRC in 2008 at an annual rate of GBP30,000.

The remittance basis in Ireland has been extended in recent years. This concerns sources of income and gains that fall within the remittance basis, and the UK source income and gains included in the remittance basis since 2008, having previously been fully taxable for all Irish residents, whether remitted into Ireland or not.

Tax residence

An individual is resident in Ireland for tax purposes in a tax year if they spend 183 days in the state during that tax year, or 280 days in aggregate during that tax year and the preceding tax year. An individual who is present in Ireland for 30 days or fewer in a tax year will not be treated as resident for that year, and that period is ignored for the purposes of the aggregate test at 280 days. An individual is deemed to be present in the state for a day – this can be at any time.

Employment income previously qualified for treatment under the remittance basis, which provided a significant incentive for multinational companies operating in Ireland, particularly US companies, which regularly use split contracts of employment. However, applying the remittance basis of tax to employment income, where the duties of employment are performed in Ireland, was abolished in 2006. Many commentators have said that Ireland appeared to lose its competitive edge partly as a result of this, and attracting key talent became more challenging.

The remittance basis in ireland has been extended in recent years

Ireland and the UK are among a small group of countries that operate the remittance basis of taxation. While the remittance basis in Ireland is attractive for HNWIs who have some flexibility in terms of where they call home, traditionally it has also been an important element of economic activity in Ireland. It remains to be seen whether the new SARP scheme for foreign executives will have the desired effect of job creation, but it will constitute a step further back to Ireland’s traditional position of a full remittance basis for foreign income.

Author block
Cormac Brennan, Susan O’Connell

Cormac Brennan TEP is a Partner at O’Connell Brennan Solicitors, Dublin.
Susan O’Connell is a Partner at O’Connell Brennan Solicitors, Dublin.

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