Between COVID-19 and international lockdowns, the last thing anyone wants to worry about is an unexpected income tax bill.
Unfortunately, income tax is one of the few unpleasant certainties in life that always needs to be considered. This is especially the case for international workers.
Whether these workers are Irish citizens, previously based abroad, but returning to Ireland for the period of the pandemic or expatriates, based in Ireland for the short-term but caught up in the storm of the pandemic restrictions, each has something similar in common: under normal circumstances, their exposure to Irish income tax would be minimal.
In general, in order to be exposed to Irish income tax, a tax payer must be tax resident in this country. An individual is Irish tax-resident if they are present in this country for 183 days or more in a single tax year or if they have been present in Ireland for a total of 280 or more days over two tax years, subject to a minimum stay of 30 days in each year.
However, a situation can arise where a person who normally would be taxed in a non-Irish jurisdiction- be this the UK, the US, Europe or the Middle East as an example – has been inadvertently caught in the midst of the COVID-19 restrictions and, whether by choice or accident, find themselves Irish tax resident under these rules.
What can this mean?
For an Irish domiciled individual, becoming an unplanned Irish tax resident very often brings a nasty shock. The reason for this is that their world-wide income is subject to Irish tax. Even if the income arises in another country or from an employment carried out in another country, this becomes subject to Irish tax in the first instance.
In the case of a non-Irish domiciled person, becoming Irish tax resident means that any income remitted to Ireland from their home country or any income arising in Ireland is subject to Irish tax.
With Ireland’s marginal income tax rate at 52% and a rate of capital gains tax of 33%, taxpayers typically resident in such low-tax jurisdictions as the UAE or Dubai may find themselves in receipt of a hefty, unexpected tax bill at the end of 2020 or 2021.
How can tax payers avoid this trap?
- Examine your days
Draw up a detailed list of the days you spent in Ireland. Remember, a “day” for the purposes of calculating residency is viewed as “any part of a day”. If you even spent an hour in Ireland on any given day, that day counts towards your Irish residency.
- Examine your dates
At the start of the pandemic in March 2020, Revenue introduced certain “force majeure” concessions to support any non-Irish tax resident individuals trapped in Ireland as a result of the COVID-19 restrictions. If an individual was present in Ireland on or before 23 March 2020 and the intended date of departure was prevented due to COVID-19 , then the period before 23 March to the earlier of 18 May 2020 or the individual’s actual departure date (if earlier) can be disregarded for determining tax residence.
However this concession only applies up to 1 June 2020 and Irish Revenue have not issued any further clarifications for subsequent periods.
- Examine the relevant Treaty
Ireland has Double Taxation Agreements concluded with more than 73 countries. In general, these Double Taxation Agreements (DTAs) will cover the treatment of employment for a person employed by a company in one country but tax resident elsewhere.
The general treatment of employment income is that the income is taxable in the country in which the employment is exercised. In other words, for example, if you were employed by French tax-resident company but carried out the duties of your employment in Ireland, the income would be taxable under the Irish taxation system.
There can be exceptions to this rule depending on the treaty that is involves. For example, in the case of Ireland’s treaty with the UK, if you are UK tax resident but your time spent exercising the employment in Ireland was for less than 183 days; the related income will be taxable in the UK. It is worth getting a qualified tax advisor to review the details of your employment and the relevant tax treaty to advise you on the exact taxation consequences of your time spent in Ireland.
Therefore, to sum up, while the restrictions on international travel are in place, there is always the danger that a non-resident could inadvertently become Irish tax resident, with all of the adverse financial consequences that this can bring. However, remember, our tax team is always available to offer advice on how to best manage your tax position wherever you might find yourself!
