Understanding Irish Tax Residence
Unlike the concept of domicile, which we have discussed previously, tax residence for Irish tax purposes is specifically defined in Irish tax legislation. It is a very objective test based on the number of days present in Ireland in a tax year. We have seen a trend in other jurisdictions of a movement away from a purely objective days counting test to more subjective tests such as looking at employment, economic and personal relationships and ties to the particular jurisdiction. Ireland has not gone down this road as yet and when it comes to tax residence the focus is very much still on “days counting”. The good news is that Ireland’s tax year aligns to the calendar year so when counting days the focus is on calendar years.
The Three Ways to Become Tax Resident in Ireland
There are three ways in which an individual can be considered tax resident in Ireland:
- Current year basis – An individual is tax resident if they are present in Ireland for 183 days or more in a tax year. This being the “foundation” for the six-month myth.
- Look back rule – An individual is also regarded as tax resident in Ireland if they are present in Ireland for a total of 280 days over two consecutive tax years provided there is a minimum of 30 days in each tax year. Overlook this rule at your peril!
- Election to be tax resident – Notwithstanding that an individual does not satisfy the days counting tests either under the current year basis or the look back rule it is open to an individual to make an election to be tax resident in Ireland.
Why Tax Residence Matters
Residence is a very important concept in Irish tax legislation, along with domicile and ordinary residence. Depending on whether or not an individual is tax resident in Ireland can have an impact on what income and capital gains are within the charge to Irish tax. The three tests above should always be considered. In particular when individuals are leaving Ireland having been tax resident for a number of years, the “look back” rule can come as something of a surprise.
Key Takeaways for Internationally Mobile Individuals
For internationally mobile individuals understanding residence and the impact of same is vitally important. Some useful takeaways:
- Tax residence is not the same as domicile for Irish tax purposes.
- When it comes to tax residence from an Irish income tax perspective, it’s all about days counting. Nothing subjective just the number of days present in Ireland in a tax year.
- “Present” for tax purposes means present for any part of the day. The old rule that focused on being present at midnight is long gone.
- When considering the days counting test there is no requirement that the individual spends a certain amount of time in another particular country. The only focus is on the number of days in Ireland.
- It is possible for an individual to be tax resident in more than one jurisdiction in a tax year based on domestic legislation in Ireland and the other territory. Such individuals are referred to as “dual residents”. This is where double tax treaties come into play.
- Conversely it is possible for an individual to have no tax residence in a particular tax year.
- When it comes to days counting for residence purposes a day can be counted twice i.e. an individual who leaves Ireland on a particular day in a tax year counts that as a day for Irish tax purposes. The arrival in another jurisdiction may mean that the same day is also counted as a day in that other jurisdiction.
- Be aware that whilst you can elect to be tax resident in Ireland (if the days counting tests have not been satisfied) it is not possible to subsequently change that decision, there is no provision in Irish tax legislation to withdraw an election to be tax resident.
- A married couple can each have different tax residence positions. It’s all about their individual days in Ireland.
- In order to rely on a double tax treaty an individual must firstly satisfy the residence requirement in the domestic legislation of the particular jurisdiction they are asserting tax residence in.
- When you trigger tax residence in Ireland you are tax resident not from the date the days counting is breached but from the start of the income tax year. There can be certain reliefs for the year in which an individual becomes tax resident or leaves Ireland but these are limited to certain categories of income and need to be carefully considered
- Citizenship is not relevant for Irish tax purposes when it comes to determining residence
- Owning a house/property in Ireland does not make you tax resident in Ireland.
Planning Ahead is Essential
When coming to Ireland or when leaving Ireland, it is very important to consider whether you will be tax resident and also when you will be tax resident from. Timing is everything. We would always recommend planning in advance of becoming tax resident in Ireland. It is possible to structure your affairs to avoid creating or crystallising unnecessary tax liabilities once you have become tax resident. For temporary visitors to Ireland, make sure that you track your days and can support same in the event of a Revenue compliance intervention. Always get expert advice from a tax advisor.
Disclaimer: While every effort has been made to ensure the accuracy of information within this article is correct at the time of publishing, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this publication and shall have no liability whatsoever. The information contained in this publication is not intended to be an advice on any particular matter. No reader should act on the basis of any matter contained in this publication without appropriate professional advice.
