In this article, we take a look at non-domiciled tax status in Ireland, what it is, what it means in the broader context of taxation, and how this status differs from that of the UK system.
We also look at some specific criteria used to determine whether you can be considered to be a domiciled or non-domiciled tax resident in Ireland.
Finally, we look at some of the system’s limitations and give examples of where careful planning is required to ensure you don’t unwittingly get taxed on gains you believed were outside of the Irish tax system.
If you’re looking to reduce your taxes, interested in applying for Irish citizenship, looking for the ideal EU-based location to start a business, or perhaps all of the above, get in touch with us today, and we’ll find the best solution for your needs.
Irish Tax Overview
Ireland is a popular destination for high-net-worth individuals (HNWIs).
As the only remaining English-speaking country in the EU, it is the ideal gateway to Europe, which enjoys a high standard of living and reliable infrastructure. It also boasts a skilled, English-speaking workforce, a corporate tax rate of just 12.5%, and no wealth tax.
If you gain employment with an Irish company, you will automatically be included in the Irish income tax system known as the PAYE system (pay as you earn). Otherwise, you must file an annual tax return before October 31st.
The two main factors determining your tax situation in Ireland are your tax residency and your domicile.
Given Ireland’s rate of capital gains tax (CGT), which at 33% is one of the highest rates in Europe, the benefits of insulating your foreign-earned income from taxation through Ireland’s non-domicile tax program are apparent.
But, while most aspects of Ireland’s taxation system are relatively straightforward, the topic of domiciliation is far more complex and nuanced.
There are also some notable differences in the Irish system that set it apart from the UK system.
Thankfully, once you get a better understanding of the reasoning and motivations behind Ireland’s unique implementation of non-dom taxation, you’ll quickly see the benefits while also being aware of the drawbacks so you can prepare accordingly.
Tax Residency Rules In Ireland
Tax residence in Ireland is based on the standard 183-day rule.
To be deemed a tax resident in Ireland, you must physically reside in the country for 183 days of the tax year (from January 1st to December 31st.)
Alternatively, you become a tax resident if you have spent a total of 280 days or more in the country during the current and preceding tax years.
It’s worth noting that a “day” in this case does not mean 24 hours but rather a day where you have been physically present in Ireland for any duration, regardless of the reason.
So, for example, even if you flew in for just a few hours in February, that time is counted as one day.
What Does Being Ordinarily Resident Mean?
If you have been an Irish tax resident for each of the three years prior to the current tax year, you are considered to be ordinarily resident in Ireland in the fourth year.
So even if you leave the country, you continue to be ordinarily resident for three consecutive tax years and must pay tax on your worldwide income, except for any form of employment which is performed outside of Ireland, any trade, profession, or freelance work performed outside of Ireland, or any foreign investment income under €3,810.
If you are not ordinarily resident in Ireland for a given tax year and don’t have an Irish domicile, income derived from Ireland is still potentially taxable, for example, income from employment, a trade or profession performed in Ireland, or any gains arising from Irish specified assets, such as real estate.
It is potentially possible to be taxed in two countries simultaneously, though this can be converted into tax credits under the relevant double taxation agreement.
Benefits Of Being A Non-Dom
If you are resident in Ireland but not Irish-domiciled, you are liable to pay tax on all income and gains which arise from inside the Republic of Ireland.
However, in this situation, Ireland will not tax your foreign income or any gains made from foreign sources unless that money is remitted to Ireland. In other words, provided that income stays outside of Ireland and is not brought into the country, you will not be taxed on it.
This is what is referred to as the remittance basis of taxation. So if you are living in the Republic of Ireland under this tax system, with income that arises from abroad, you will (with some exceptions) only pay Irish tax on the money transferred into the Irish system.
What Does Domiciled In Ireland Mean?
When someone is domiciled in Ireland, it means that Ireland is their permanent home and the country with which they have the strongest connection.
They do not intend to move to another country and are fully committed to living in Ireland permanently.
For example:
- A person who was born, raised, and continues to live in Ireland and does not intend to leave
- A person who was born in Ireland moved abroad but has moved back and plans to live in Ireland permanently
- A person who was born abroad but intends to reside in Ireland permanently and has bought property there
- A person who was born abroad but moved to Ireland to retire
In each case, it is clear that the person has either put down roots in Ireland or is in the process of doing so with the goal of becoming a permanent resident there.
What Is The Difference Between Domiciled And Non-Domiciled?
A non-dom is an individual claiming non-domiciled status; they may be tax resident in Ireland but are not planning on staying in the country permanently.
So, despite having lived in the country for many years, if their ultimate intention is to leave, they can potentially claim to be non-doms for tax purposes.
Some people who visit Ireland are just passing through, while others come on a temporary basis but end up staying longer.
Non-domiciled status in Ireland is not based on duration but rather on intent. If it can be demonstrated that an individual’s roots are elsewhere, they can be considered as non-doms for tax puposes.
To become Irish domiciled, a non-dom must first take up permanent residence in Ireland with the intention of remaining in the country permanently rather than returning to their home country.
How To Demonstrate Foreign Domicile
Initially, it can be difficult to determine whether or not an individual is Irish-domiciled. After living in Ireland for a number of years, however, the case becomes clearer.
Therefore it becomes necessary to take steps to demonstrate that you do have a foreign domicile rather than an Irish one. Some methods of demonstrating this include:
- You maintain strong economic/business ties with your foreign domicile country, such as significant business interests and investments within the country.
- You also maintain strong personal ties to the country, including family ties and other close relationships, which you strengthen with regular visits to the country.
- You maintain membership in key organizations in your country of domicile, such as business associations or other clubs or organizations with which you have a personal connection.
- Your will has been prepared in your country of domicile, and/or you have a burial plot there, demonstrating that you wish for that country to be your final resting place.
When taking measures to prove your country of domicile it is important to structure everything carefully so that you can prove your connection to your country of domicile but without triggering tax residence there.
Ireland Non-Dom Example
John (a fictional example) is a 56-year-old citizen of Canada and the US. He and his spouse previously lived in Colorado with three kids. Having sold off their business and now living off their investments, and with growing dissatisfaction with US politics and society, John and his wife decided to leave the US and settle in Ireland.
John considered renouncing US citizenship. His primary goal was to remove himself from the US system, both financially and culturally, and settle in a country that they felt better reflected his values and those of his family, so they picked Ireland.
However, since John already had a significant amount of assets, we employed an exemption known as “clean capital,” an Irish clause related to the income and assets obtained before becoming a non-domiciled tax resident in Ireland.
Using this approach, any money brought to Ireland before becoming a non-domiciled tax resident would not be taxed in Ireland.
As a non-dom, John may continue owning most of his passive assets and can continue investing through investments and brokerage accounts. Also, he can live in Ireland with his spouse and have health insurance there. But this situation meant he needed to demonstrate his family’s domicile in another country in order to retain his non-dom status.
Due to his desire to expatriate and only hold Canadian citizenship, Canada was the logical choice for his place of domicile. Luckily, he already owned a small family house in Canada, and to further highlight his Canadian ties to the Irish authorities, he purchased burial plots in Canada for himself and his wife.
What Are Non-Doms?
The concept of non-doms dates back to colonial times and was originally used to help determine the tax residence of individuals traveling and working throughout different parts of the British Empire.
When Ireland gained its independence in 1922, it retained a legal system based on English common law. So anyone already familiar with the UK’s non-dom system, and indeed British law generally, will find the Irish system quite similar in many ways.
Irish Versus UK Non-Doms
Changes to the British non-dom system in 2017, plus further complications arising from Brexit, has meant that the number of non-doms in the UK is dropping. This is due to individuals either losing their non-dom status or simply deciding to move elsewhere following Brexit.
Ireland makes for a welcome alternative to the UK system with the additional benefit of free access to markets within the European Economic Area.
Under the new laws, the UK added a remittance basis charge which the Irish system does not have.
The UK’s deemed domicile rule also limits how long an individual can claim non-dom status before their worldwide income becomes taxable. In this case, you then have to leave the UK for a period of six years before returning.
One of the main benefits of the Irish system is that it does not have a remittance basis charge and doesn’t have any expiration period on being non-domiciled.
What Does Remittance Mean?
Remittance is the name given for money earned in one country and then sent to another. In this case, it refers to money earned abroad, which is then sent (remitted) to Ireland.
Ireland’s non-dom tax system works on a Remittance basis. This means non-doms are taxed only on Irish source income or foreign income that they move from abroad into Ireland.
Examples of Remittances
- Using foreign funds to make purchases in Ireland.
- Using a foreign credit card to make purchases in Ireland.
- Using a foreign card to make ATM withdrawals in Ireland.
- Any money which is brought into Ireland from abroad, such as passive income or employment income deposited in an Irish bank account.
- Any assets which you import into Ireland are considered a remittance. One example often cited is that of valuable artwork purchased with foreign earnings which is then brought into the country, this would be considered to be proceeds of income which has been remitted into the country, unless the artwork was later sold in Ireland, in which case it would be taxed as a capital gain.
- As a follow on from the above example; if the artwork is not sold in Ireland but is instead sold abroad, but the proceeds of that sale are brought into the country, that’s also considered a remittance.
Does This Remittance Basis Rule Apply To All Foreign Income?
No.
Although in Ireland remittances are generally considered as income from foreign sources, there are some notable exceptions to this rule. Therefore it is always recommended that you seek advice beforehand to ensure you don’t need to pay Irish tax on other foreign gains.
If you’re not sure where to start, get in touch with our team, who can assist with everything from Irish immigration to tax structuring, to ensure you can take full advantage of Ireland’s numerous tax benefits.
As mentioned previously, Ireland offers many tax advantages, but the Irish CGT rate of 33% is certainly not one of them. So if you have assets situated abroad, be sure to seek advice on any of the following:
Funds and EFTs
ETFs and funds generally may not be treated the same as other forms of investment income, such as share dividends, or other passive income sources, such as foreign rent.
Because there are generally more moving parts to consider, such as where and how a particular fund is regulated, they may fall under the umbrella of Irish CGT, so you will need to investigate and plan accordingly.
Crypto Investments
By default, crypto investments are taxed in Ireland under the country’s income tax and capital gains tax rules. For non-doms, this again becomes an issue because with crypto assets, by their very nature, it’s not always easy to determine where they reside.
If they are deemed Irish-sourced income, you will be taxed on that income, and any profits will also be subject to CGT.
The onus is on the non-dom to prove otherwise, which can be tricky. And there’s also the future possibility that Irish Revenue will enact new anti-avoidance rules to plug up any loopholes which may arise. So getting the right advice from a tax professional is particularly important in this instance.
Gift And Inheritance Taxes
After moving to Ireland, a non-dom will be exempt from Irish gift tax and inheritance tax on foreign assets for five years.
After which point they will be liable to pay gift and inheritance taxes at a rate of 33% though specific exemptions exist. So again, you are advised to discuss these matters with a tax professional first to explore all your options.Knowing these things in advance can help stave off tax-related headaches further down the road. So if you have any questions, including those related to Irish or European taxes, get in touch with our team of advisors today.
Share Options
Imagine you’re an Irish-based employee working for a foreign multinational who receives stock options.
As this stock is deemed part of your employment income you will be liable for income tax on the stock.
If, on the other hand, you decide to sell those shares, you won’t get taxed unless you subsequently bring that money into the country.
Even if you are not an actual employee, but instead a freelancer who receives a stock option, you may still have to pay Irish tax. So again, you are advised to discuss the matter with a tax professional.
Questions about Irish Taxes?
Are you a HNWI with specific questions related to the tax system in Ireland or European tax in general? Our team is standing by to answer any questions you may have. By becoming a Nomad Capitalist client you gain access to our team of international experts who can advise on multiple jurisdictions to help find the best offshore solution for your needs.
Irish Domiciliation FAQ
Being domiciled in Ireland means that Ireland is the country you retain your primary connection to and is the country where you intend to live in permanently.
If Ireland is your country of birth and you reside there, you are considered to have an Irish domicile by default. If you are a permanent resident but born elsewhere and still retain a greater personal and practical connection to your home country, then your home country is your place of domicile.
Having non-domiciled status in Ireland means you are only taxed on Irish source income, and generally, any income earned from abroad will not be subject to Irish income tax.
Some of the factors which would determine whether or not you are domiciled in Ireland or in another foreign country include:
Were you born in a foreign country and/or have you lived there for an extended period of time?
Do you maintain personal or professional connections to people in the foreign country – e.g. family visits, networks of friends, business networks, business organizations, events, clubs, charities, etc.?
Do you maintain economic ties with the country – e.g., investments or business interests?
Do you own a home, property, or properties in the country?
Do you have bank accounts, credit cards or other financial connections to the country?
Have you created a will in that foreign country?
Do you have a burial plot there?
The first five points show a residual connection to the foreign country in the here and now. While the last two items, in particular, clearly demonstrate a desire to live out one’s life in a foreign country and not in Ireland.
Together these factors all make a strong case for being considered a non-domiciled individual in Ireland.
Before you can qualify as a non-dom, you must first apply for residency in Ireland for the purposes of immigration.
Then, if you meet the above criteria (see the bullet points in the previous section) demonstrating that you have a deep connection to a foreign country, which can be considered your home country, you can then apply for non-dom status.
There is no time limit on non-dom status.
To qualify as Irish domiciled, you would need to take up permanent residence in Ireland and demonstrate a clear intention of remaining for an indefinite period, with no intention of returning to your previous country of domicile.
The UK invented the concept of a non-domiciled individual though it has recently changed its non-dom laws, which makes the UK status less attractive.
Malta and Cyprus, two low-tax jurisdictions and former British colonies, also retain elements of the UK’s non-domiciled tax system.
We always recommend looking at all the options on the table first before deciding to move to another country. By reviewing your options first, you can ensure your move is both tax-effective and hassle-free.
Whether you are considering a move to Ireland specifically or Europe generally, the Nomad Capitalist team is standing by to create an action plan tailored to your exact needs.
