Tax Changes for Irish Expats and Those Living in Ireland

A series of significant taxation changes have been proposed in the latest Irish Commission on Taxation report.  The report is produced ahead of the next Budget in Ireland in December, by which time the Minister of Finance will have decided upon which proposals to implement, which to amend and which to dismiss.

The tax changes proposed in the Commission on Taxation for Irish expats as well as those living in Ireland are really quite significant and may well affect Ireland’s considered standing as a low taxation nation in which to live and work for example.  However, there are a couple of very positive proposals that might benefit the construction sector and the overall housing market in Ireland…so it’s not all bad news.

In this report we’ll discuss some of the most significant tax change proposals that may well affect you if you’re an Irish citizen residing abroad, or an expatriate living and working, earning your income and paying taxes in Ireland.  Additionally, if you’re an owner of property in Ireland or you want to enter the market, the proposed tax changes affecting the construction industry will be explored as well.

The first thing to note is that these are simply proposals, they are not yet legislation.  But they are proposals that have been requested by the government to help Ireland sort out its poor economic standing at the present time, to enable the construction sector to get back to work, to generate more taxation and to make the tax playing field in Ireland slightly more level and fair in international as well as national terms.

The report emphasises the fact that the government is trying to be fairer in its taxation system, and that the proposed changes will make tax in Ireland easier to understand…however, how do the suggestions stack up for the ‘real people’ who the changes will affect.  Looking at the position for Irish expatriates living overseas for example, the so-called ‘Cinderella clause’ that allows a day in Ireland to be discounted in terms of residency if the person in question leaves Ireland by midnight has already been cracked down on…and now Irish people living abroad may well have to face a whole load of new eligibility tests for non-residency status if they want to remain abroad and avoid all forms of Irish taxation.

For example, they may have to work hard to prove their tax exile status and show where their ‘centre of vital interest’ is, that they have a permanent home abroad, and that their ties to Ireland are not so significant to make them resident.

Those expatriates who are living in Ireland as their new home may well be displeased to learn that if they’re earning over €250,000 they will likely have to face a tax rate rise to 20%.  Of course, that’s nothing compared with what you pay in other nations such as the UK, France or Germany for example, but it’s a real change for Ireland in terms of the tax rate payable.  Foreign workers who have benefitted from the remittance relief on taxation may well see that phased out over the coming 3 to 5 years as well, which on the whole may make Ireland a less attractive place to move to live in.

However, it has been suggested that corporation tax be left alone at 12.5% to continue to encourage business development and job creation in Ireland.  Also, it’s proposed that there should also be a retention of the Research and Development tax credit and that this credit be allowed as an offset against employers’ PRSI.

In terms of Ireland’s housing market, it’s highly likely that stamp duty on a principal and private residence will be zero-rated.  This is expected to kick start the market again, however, because in the short-term it could freeze any home sales at all as everyone will want to wait until this proposal becomes law, it is expected that the Finance Minister will give guidance as to his intentions with relation to this point well in advance of the Budget.  And according to a spokesperson from KPMG in Galway: “In a move that is likely to be welcomed by the construction sector, the commission recommends a review of the Relevant Contracts Tax rate of 35 per cent to ensure that it does not lead to taxpayers suffering withholding tax in excess of the final tax liability. In addition, the report recommends that greater flexibility be given to revenue in relation to imposing interest and penalties for non operation of RCT where there is no loss of revenue to the exchequer.”

Of course we will have to wait until the beginning of December to see which proposals make the Budget, but to be forewarned is to be forearmed as they say!