Ireland: Personal Taxation

In Ireland the main tax on individuals is income tax. There is also capital gains tax, capital acquisitions tax (which includes inheritance tax), rates (property taxes) and stamp duties on transfers of various types of property. As a member state of the EU, Ireland levies VAT. As of January 1, 2010, the VAT rate is 21%, down from 21.5% previously.

In January, 2004, then Finance Minister Charlie McCreevy signed an Act to incorporate the provisions of the European Savings Tax Directive into Irish law. Although the Directive itself did not become fully effective until July 1st 2005, the European Communities (Taxation of Savings Income in the Form of Interest Payments) Regulations 2003 required domestic banks to establish the identity and residence of beneficial owners of all new bank accounts opened in Ireland from January 1st 2004.

Irish banks are now obliged to pass on details of savings income for taxation purposes to the Revenue Commission who are tasked with passing this information on to the tax authorities of the EU member state where the customer resides.

Ireland Residence and Liability for Taxation

In Ireland the taxation of individuals is based on a mixture of the concepts of residence and domicile.

As in many countries, residence is consequent on presence in Ireland for more than half of a tax year, or for 280 days in two consecutive years. An individual's domicile is in the country where he maintains his permanent home, in the country where he regards himself as belonging. Domicile in Ireland is acquired from an Irish-domiciled father, but can be changed to another country by establishing a life there. Resident foreign employees will thus not normally be domiciled in Ireland.

An individual resident and domiciled in Ireland pays tax on his world-wide income; an individual resident but not domiciled pays tax on his foreign income only if it is remitted to Ireland. A non-resident individual pays income tax only on Irish-sourced income, and is liable to capital gains tax only on gains arising in Ireland or remitted to Ireland, unless he is domiciled in Ireland in which case he is liable on all capital gains.

In the 2009 budget, the residence rules were tightened so that all visits to Ireland by those non-resident for tax purposes will be counted against their permitted days in the country.

Until December 2000, Irish tax-payers were assessed annually to tax on gains in investment funds, at the rate of 20% for Irish-resident funds and 40% for foreign funds. Now there is instead an 'exit tax' of 26% (increased from 23% in the Finance Act 2009) on encashment or maturity, for domestic and foreign funds alike. For non-residents this tax will apply only to Irish-source income.

In his budget speech in December 2009, Finance Minister Brian Lenihan announced the introduction, effective from the 2010 tax year, of an ‘Irish domicile levy’ of EUR200,000 on Irish nationals and domiciled individuals whose worldwide income exceeds EUR1m and whose Irish-located capital is greater than EUR5m, regardless of where they are tax resident.

To help pay for a new jobs package, the government announced a pension levy in May 2011, which will be payable by pension funds and plans approved under Irish legislation, namely occupational pension schemes, Retirement Annuity Contracts, and Personal Retirement Savings Accounts. The 0.6% levy is to take the form of a stamp duty on all capital value assets under management, which is calculated on figures from January 1, 2011, or the last date of the accounting period ending in the 12 months preceding that date, effectively backdating the tax's imposition. The tax will not affect the provision of retirement benefits to non-residents; and will not apply to those funds which had already formally resolved to wind up before May 10, 2011, when the scheme was announced.

The standard rate of Irish income tax for individuals in 2011 is 20% on the first EUR32,800 of taxable income, rising to 41% on the balance. For a married couple (one earner), the 20% band is increased to EUR41,800, and if there are two earners, to EUR65,600.

As from 2001 Ireland operated a tax credit system for most personal allowances. There is a personal allowance of EUR1,650 (2011), it is doubled for a married couple. There are some other permitted deductions, including mortgage interest and pension contributions.

Income is comprehensively defined and includes employment income and benefits, income from property, income from a trade or profession, and investment income. An important exemption for one class of individuals applies to the earnings of Irish-resident artists from works of cultural or artistic merit. Overseas workers can deduct a proportion of income relating to the overseas work.

Ireland operates a self-assessment scheme for income tax, except in relation to employees, whose tax is deducted through a 'PAYE'-style scheme by their employers. As from 2001, the fiscal year in Ireland marches with the calendar year.

Since new tax rules came into force in 2006, all employees working in the Republic became subject to Irish PAYE, even if they were already paying PAYE in their home country. An announcement in late September 2007 by the Irish Revenue Commissioners has relaxed this; provided some reasonable conditions are met by their employers, workers on assignments of up to six months in the Republic will not be liable for Irish PAYE. Employees normally living and working in Northern Ireland will pay PAYE as usual under the UK tax rules, provided their spell of employment in the Republic does not exceed six months.

In the 2009 budget a 2% levy was introduced for incomes in excess of EUR100,100 (EUR1,925 per week), with a further 1% on incomes in excess of EUR250,120 (EUR4,810 per week). An exemption of EUR18,304 ensured that persons on low income were exempt from the income levy. An exemption of EUR20,000 and EUR40,000 for single and married pensioners respectively, was also to be introduced to ensure that persons aged 65 and over who are exempt from tax under the age exemption limits will be exempt from the levy.

In an interim budget announced by Finance Minister Lenihan in response to the financial and economic crisis, the income levy rates were doubled to 2%, 4% and 6%. The exemption threshold was lowered to EUR15,028. From May 1, 2009, the 4% rate applies to income in excess of EUR75,036 and the 6% rate to income in excess of EUR174,980.

The health levy rates were also doubled to 4% and 5%. The entry point to the higher rate is EUR75,036.

From the tax year 2011 onwards a Universal Social Contribution (USC), replacing the health and income levy, was introduced for all employed and self-employed individuals if their annual income exceeds €4,004. The USC rates range from 2% for income up to EUR10,036, 4% from EUR10,037 to EUR16,016 and 7% on income above EUR16,016. The maximum rate for those aged 70 or over and for medical card holders is 4%.

A special 20% rate which applied to the trading profits from dealing in or developing residential development land was abolished by the April 2009 interim budget. The income is now be charged at the person’s relevant marginal rates of income tax or the 25% rate of corporation tax. This change applied as regards Income Tax for the year of assessment 2009 and subsequent years and as regards Corporation Tax for accounting periods ending on or after January 1, 2009 (with accounting periods straddling that date being deemed for this purpose to be separate accounting periods).

Curbs on tax relief available to Ireland’s highest-paid taxpayers were announced in the December 2009 budget so that their effective income tax rate cannot fall below 30%, from 20% previously. The entry point to the restriction will now occur at adjusted income levels of EUR125,000 with the full restriction applying at EUR400,000.

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Ireland Capital Acquisition Tax

Ireland Customs Duties

As a full member of the EU, Ireland applies the common external tariff of the Single Market.

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Ireland Deposit Interest Retention Tax

Interest paid on bank deposits is subject to the Deposit Interest Retention Tax, at a rate of 27% (25% until December 31, 2010 and 23% prior to April 8, 2009).

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