Liability to Irish income tax for individuals - the concept of residence/ordinary residence

You can be resident, ordinarily resident, domiciled or any combination of the three.

If you are resident and domiciled in Ireland for tax purposes, you are chargeable to tax in Ireland on your worldwide income. Worldwide income is the total income that you earn anywhere in the world in a tax year. This is subject to any relief due under the terms of a relevant Double Taxation Agreement.

The concept of Irish residence

Liability to Irish tax is determined by the residence & ordinary residence status of the individual. Irish tax residence is determined by reference to the amount of days a person spends in Ireland in each tax year. A tax year runs from 1st of January to 31st of December. An individual becomes resident in Ireland if either of the two tests is satisfied:

the individual is physically present in Ireland for 183 days or more in the tax year, or
the individual is physically present in Ireland in the current and previous tax year for a total of 280 days or more provided that is present in Ireland for at least 30 days in each tax year.
If the individual does not meet either of the two tests above, he or she would be deemed non-Irish resident for tax purposes.

An individual is present for a full day in Ireland for residence purposes if he or she is present in Ireland at any time during a day.

Revenue will accept certain exceptions in relation to individuals in transit. These are individuals who will not be regarded as being present in the State for any period during which he or she arrives in, and departs from, the State and throughout which remains "air-side" which is in a part of the airport or port not accessible to members of the public. In "force majeure" cases such as where an individual is prevented from leaving the State on his or her intended day of departure because of extraordinary occurrences or a third party failure or action - none of which could reasonably been foreseen and avoided - the individual will not be regarded as being present in Ireland for tax residence purposes for the day (days) after the intended date of departure, provided he or she is unavoidably present in the State on that day(s) only due to "force majeure". Some examples of extraordinary circumstances are natural occurrences, adverse weather conditions, lockdowns etc. Exceptional third-party failure or actions include breakdown of an aircraft or a labour strike.

An individual is entitled to elect to be tax resident in the current tax year in Ireland even if they have not spent the requisite period in the State, providing they intend to be resident in Ireland the following tax year. This may be beneficial where the individual intends to obtain credits or qualify for reliefs which are only applicable to Irish residents (such as artists' exemption). The individual must apply to Revenue to make the election by either filing a tax return or online, through "My Account" if registered on ROS.

What is Ordinary Residence?

If an individual has been Irish tax resident for three consecutive tax years, he or she becomes ordinarily tax resident in Ireland in the fourth tax year. For example, if an individual’s first year of residence is 2020 and he continues to be Irish tax in 2021 & 2022 he will become ordinarily resident in 2023. After becoming ordinarily resident for Irish tax purposes it will take 3 years of non-residence to lose the ordinary resident status.

Why is residence and ordinary residence relevant for income tax liability?

A non-resident but ordinarily resident individual is not liable to income tax in the State in regards of:

·         A trade or profession carried on wholly outside the State.

·         An office or employment the duties of which are performed outside Ireland.

·         Other foreign income which does not exceed €3,810 in the tax year.

An ordinarily resident individual may maintain Irish fiscal domicile which means may be a resident of Ireland for the purposes of a double tax agreement. This is subject to the tie breaker rules provided there is a “fiscal domicile” article included in the relevant tax treaty. According to Revenue Tax Briefing 25/97 other income which does not exceed €3,810 means other foreign income.

What is Split Year Residence?

Where an individual is resident in the same year in two countries, pending to their personal circumstances, they may be taxed twice on income arising in that tax year. The relief applicable in these circumstances is the split year residence which limits Irish tax on employment income from the point of arrival and up to the date of departure subject to certain conditions. For example, you arrived in Ireland on the 5th of June 2020 (i.e. the tax Year 1) to work for three years in a subsidiary of a US company. You satisfy the inspector that you will be resident in the State for the tax year (2020) and Year 2 (2021). For the tax year 1 (2020), you are taxed on your Irish earnings from 5th of June 2020 in year 1. Your foreign earnings up to that date are ignored. In the year of departure, the qualifying conditions require that the individual is leaving for more than a temporary purpose and intends not to be resident in Ireland for the following year. The relief ensures that foreign employment earnings after the date of departure and any remittances of the employment income are not subject to Irish tax. In practice, by Revenue concession, the individual will be allowed to perform not more than 30 days of incidental duties in Ireland.

A particularly important point to note is that the relief under the split year residence applies only to the individual’s income, profits, and gains from any employment in the tax year. Any other income received in the year of arrival remains taxable as the individual becomes tax resident in Ireland subject to the double taxation agreements.

Where an individual entitled to split year relief ‘s is resident in Ireland for the full tax year he or she will also be entitled to full personal tax credits.

As we can see from the above analysis, the residence status of individuals is the element which will determine the scope of Irish income tax liability. Revenue’s leaflet RES1 is a good point of reference for an introduction to the concept of residence. It is also a good place to get some answers to commonly asked questions for persons going to work or live abroad on temporary or long-term basis as well as for individuals coming to work or live in Ireland. The residence and ordinarily residence status of an individual is a complex matter and is the basis of establishing their Irish tax liability. If you require guidance in establishing your residence and ordinary residence, contact us either by email at info@vodaforde.com or call on 086 784 4566. Details of our services and special offers are on our website www.voda-forde.ie .