Advanced Taxation. Republic of Ireland (ROI) Course Manual. Professional, Practical, Proven.

Transcription

1 Advanced Taxation Repubic of Ireand (ROI) Course Manua Professiona, Practica, Proven

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3 Tabe of Contents FOREWORD...xi SYLLABUS: ADVANCED TAXATION (ROI)...xiii PART A - THE TAXATION SYSTEM...1 CHAPTER 1 - THE TAXATION SYSTEM The formation of TaxaTion poicy forms of TaxaTion Direct Taxation indirect Taxation Types of Taxes source of Tax aw Taxes consoidation act (Tca) VaT consoidation act case aw Tax coection system and The revenue commissioners persons chargeabe To income Tax in ireand residence ordinariy resident Domicie consequences of residence, ordinariy resident and Domicie The Tax year cassification of income for income Tax The scheduar system exempt income...12 iii

4 Tabe of Contents Advanced Taxation (ROI) 1.9 payment of income Tax an overview paye system sef assessment system withhoding Taxes sef assessment system Duties of a chargeabe person issue of assessments proprietary Directors and sef assessment revenue audits Types of audits conduct of a fied audit The charter of rights revenue powers Tax cearance certificates ethics and The accounting Technician...32 PART B: INCOME TAX...37 CHAPTER 2 INCOME TAX COMPUTATIONS cacuation of Tax standard rate Tax bands Tax credits non-refundabe Tax credits refundabe Tax credits aowances and reiefs aowance for empoying a carer permanent heath insurance charitabe contributions reief for investment in corporate Trades investment in fims pension contributions Tax reief at source (Trs) medica insurance premiums mortgage interest reief for charges Deed of covenant patent royaties interest on oans to acquire shares in a company or partnership exempted individuas margina reief...65 iv

5 Advanced Taxation (ROI) Tabe of Contents CHAPTER 3 SOURCES OF INCOME schedue e income from irish empoyment empoyed or sef empoyed scope of charge to schedue e basis of assessment Treatment of expenses benefit-in-kind (bik) investment income schedue D case iii schedue D case iv schedue D case V renta income schedue f...86 CHAPTER 4 TAXATION OF MARRIED COUPLES/CIVIL PARTNERSHIPS singe assessment JoinT assessment separate assessment year of marriage year of DeaTh singe assessment Joint assessment separate assessment separation and DiVorce egay enforceabe maintenance agreement no egay enforceabe maintenance agreement year of separation Divorce CHAPTER 5 PRSI AND UNIVERSAL SOCIAL CHARgE empoyees prsi (cass a) empoyers prsi universa socia charge (usc) PART C: SELF-EMPLOYED INDIVIDUALS CHAPTER 6 CASE I / II INCOME badges of a TraDe adjustments to profits for Tax purposes pre-trading expenses income not taxed under case i/ii Detaied exampe of case i/ii adjusted profit computation v

6 Tabe of Contents Advanced Taxation (ROI) 6.2 schedue D case i/ii basis of assessment continuing business commencement cessation of Trade short ived business change of accounting period CHAPTER 7 CAPITAL ALLOWANCES capita aowances expenditure Quaifying for capita aowances pant and machinery wear and Tear aowances Tax written Down Vaue (TwDV) rates of capita aowances conditions for caiming capita aowances motor Vehices restrictions on cost Detaied capita aowances cacuation method of granting capita aowances - basis period short basis period Disposa of assets - baancing aowances / baancing charges Disposa of a motor Vehice other rues in reation to baancing aowances / baancing charges CHAPTER 8 LOSSES income Tax osses impact of capita aowances on osses caiming oss reief current year oss reief osses carried forward CHAPTER 9 PRSI AND UNIVERSAL SOCIAL CHARgE FOR SELF-EMPLOYED PERSONS sef-empoyed prsi sef-empoyed usc sef-empoyed DeTaieD exampe PART D: CAPITAL gains TAX CHAPTER 10 CAPITAL gains TAX The charge To cgt assets a Disposa chargeabe person administration of cgt ate fiing of returns cgt payment Dates cgt withhoding Tax provisions vi

7 Advanced Taxation (ROI) Tabe of Contents 10.3 computationa rues pro-forma capita gains Tax computation proceeds cost osses restrictions in reation to indexation reief and 6/4/74 market vaue rue annua exemption part Disposas share TransacTions chattes wasting chattes non-wasting chattes margina reief set of chattes part Disposas osses principa private residence reief (ppr) TransacTions between spouses osses and spouses annua exemption and spouses E: CORPORATION TAX CHAPTER 11 CORPORATION TAX charge To corporation Tax pro-forma corporation Tax computation rates of corporation Tax Dividend income basis of assessment for corporation Tax corporation Tax computations Tax adjusted profits Dividends and Distributions capita aowances other sources of income DeTaieD exampe CHAPTER 12 CLOSE COMPANIES participator and associates DisaDVanTages of cose company status CHAPTER 13 CORPORATION TAX LOSS RELIEF case i/ii oss reief vii

8 Tabe of Contents Advanced Taxation (ROI) 13.2 charges case V osses capita osses CHAPTER 14 CORPORATION TAX ADMINISTRATION administration / compiance rues preiminary Tax rues preiminary Tax for a sma company preiminary Tax for a arge company baancing payment corporation Tax payment DaTe on capita gains fiing of corporation Tax returns DiViDenD withhoding Tax PART F: VALUE ADDED TAX CHAPTER 15 VALUE ADDED TAX genera principes VaT rates exempt suppies other rues affecting the rate of VaT charged on irish suppies VaT amount charge To VaT Taxabe persons VaT registration Threshods VaT registration suppy of goods suppy of services pace of suppy rues pace of suppy of goods pace of suppy of services The Taxabe amount input credits non-deductibe VaT (no input credit aowed) methods of accounting for VaT on saes invoice basis cash receipts basis exampe comparing invoice and cash receipts basis bad Debts VaT on goods suppied in To or out of ireand Transactions with other eu countries Transactions with non- eu countries viii

9 Advanced Taxation (ROI) Tabe of Contents 15.9 administration of VaT annua return of Trading Detais invoicing maintaining records VaT account reconciiation APPENDIX : TAXATION REFERENCE MATERIAL INDEX ix

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11 FOREWORD Foreword This text has been deveoped by Accounting Technicians Ireand for use by students participating in our programme of study and preparing for our examinations. Whie every effort is made to ensure that the information outined in this text is accurate, Accounting Technicians Ireand and the Author cannot accept the responsibiity for ack of, or perceived ack of, information contained herein. The text is intended to be a sufficienty detaied synopsis of the current syabus materia (and knowedge eve required thereof) in reation to this modue. Students shoud take particuar note of the weighting attaching to this modue, as ceary outined in the syabus. It is on the basis of this weighting that students shoud prepare their own timetabe for study. On the competion of each chapter, students shoud refer to the reevant questions deaing with that chapter. Ideay, students shoud not continue with subsequent chapters unti they have competed the questions attaching to the chapter currenty under review. The soutions to the questions are provided under separate cover and athough they are the suggested soutions, tutors and students shoud recognise and appreciate that there might very we be different approaches which woud, under examination conditions, be perfecty acceptabe. We recommended that, in order to get the fu benefit of the question and answer concept, students shoud not refer to the soution unti they have made a fu and genuine attempt at each question. We aso recommend that when students have attained an understanding of each chapter studied, in addition to the questions provided, they shoud access the Accounting Technicians Ireand website ( for past papers and sit them under exam conditions. This wi aow students to improve their time management skis and their approach to each type of question. xi

12 Copyright This text is issued by Accounting Technicians Ireand to students taking its examinations. It may not be used in whoe, or in part, for any course of study and/or examination of any other body whatsoever without prior permission in writing from Accounting Technicians Ireand. This pubication, or any part thereof, may not be made avaiabe in any ibrary, and it may not be reproduced, in whoe or in part, stored in a retrieva system or transmitted in any form or by any means photocopying, eectronic, eectrostatic, magnetic, pdf, mechanica, recording or otherwise, without prior permission in writing from Accounting Technicians Ireand, Pearse Street, Dubin 2. Acknowedgement The edition was compied by Ms. Anne Tynan. Anne is an Associate Member of both the Irish Tax Institute and Chartered Accountants Ireand. Referencing For the purposes of consistency, a references to he or she wi be referred to as he in this pubication. No other impication whatsoever is impied from this poicy. For the purposes of presentation, a references to euro or stering wi be referred to as euro in this pubication. No other impication whatsoever is impied from this poicy. xii

13 SYLLABUS: ADVANCED TAXATION (ROI) SyabuS advanced Taxation Mandatory Modue Repubic of Ireand (ROI) xiii

14 Syabus : Mandatory Modue (ROI) Advanced Taxation (ROI) advanced Taxation (ROI) Subject Status Mandatory Termina Exam 100% Modue Pass Mark 50% earning Modes Pre-requisite: Direct Lectures, Workshops, Tutorias, Sef-Directed Learning Financia Accounting, Taxation and either Business Management or Law & Ethics Key Learning Outcome The key objective of this modue is to ensure that earners buid on the competencies gained in Taxation and deveop a knowedge and understanding of more advanced taxation issues for individuas, businesses and corporate entities. Key Syabus Eements and Weightings 1. Administration and Procedures... 15% 2. Persona Tax Management... 45% 3. Business Tax Management... 40% xiv

15 Advanced Taxation (ROI) Syabus : Mandatory Modue (ROI) earning Outcomes inked to Syabus Eements Administration and Procedures On competion of this aspect of the modue, earners wi have acquired the foowing knowedge, competencies and know-how: - (a) (b) (c) (d) An understanding of the roe of egisation and practice, Revenue Authorities, the Accounting Technician and the tax payer in the operationa structure of the tax system incuding ethica and tax compiance issues An abiity to communicate effectivey with individuas and Revenue authorities regarding compiance issues and the issue of tax cearance certificates An appreciation of the Revenue Charter, Revenue powers and audit procedures An abiity to compete appropriate Revenue forms and demonstrate knowedge of the Revenue On-ine System Persona Tax Management On competion of this aspect of the modue, earners wi have acquired the foowing knowedge, competencies and know-how:- (a) (b) (c) (d) An abiity to understand, expain and demonstrate the impact of residence, ordinary residence and domicie on the tax affairs of individuas An abiity to quantify the tax iabiity of individuas to incude computations at an advanced eve An understanding of the principes and scope of the charge to Capita Gains Tax for Irish resident individuas incuding a knowedge of and understanding of appropriate reiefs and exemptions An understanding of the principes and scope of the charge to PRSI under Cass A and Cass S and Universa Socia Charge xv

16 Syabus : Mandatory Modue (ROI) Advanced Taxation (ROI) Business Tax Management On competion of this aspect of the modue, earners wi have acquired the foowing knowedge, competencies and know-how:- (a) (b) (c) (d) (e) An abiity to communicate effectivey with individuas and the Revenue Commissioners in a professiona manner regarding the tax and ethica impications of business transactions An appreciation of the impications of empoyment v sef empoyment and an abiity to make a determination using the Badges of Trade An abiity to reconcie information contained in financia statements with tax returns submitted and report on the consequences to incude cacuation of the tax iabiities invoved An understanding of the principes and scope of the charge to Corporation Tax and an abiity to compute tax iabiities of Irish resident companies An understanding of Reevant Contracts Tax and an appreciation of the VAT issues invoved with intra EU transactions, imports and exports xvi

17 Advanced Taxation (ROI) Syabus : Mandatory Modue (ROI) advanced Taxation (ROI) Specific Functiona Knowedge and Competencies understanding appication anaysis administration and PROCEDuRES (15%) a practica understanding of the roe of egisation and practice Overview of tax egisation and procedures Methods and treatment of tax coection mechanisms, direct assessment, sefassessment, and withhoding taxes Communicating with Revenues authorities regarding issues resuting from business transactions incuding compiance issues Procedures for the raising of assessments and coection of taxes Appea procedures and expression of doubt Imposition of penaties for the ate payment of tax and ate fiing of return (excuding crimina procedures) Payment of tax and preiminary tax payments Communication with reevant parties in writing in a professiona manner Issues and impications of business transactions for individuas and corporate entities Requirements regarding notification to Revenue Requirements in respect of maintenance of books and records Taxation consequences arising from business transactions Revenue Charter, Revenue powers and audit procedures Revenue Charter, Revenue powers and Revenue audit at a basic eve Provision of information to Revenue authorities Information requirements of the Revenue and resuting obigations xvii

18 Syabus : Mandatory Modue (ROI) Advanced Taxation (ROI) Specific Functiona Knowedge and Competencies understanding appication anaysis Roe of the accounting Technician incuding ethica responsibiities Reevant professiona ethica issues Tax cearance certificates Administration procedures and use of cearance certificates Requirements necessary for the issue of a certificate Competion of appropriate Revenue forms Competion of main tax forms; Form 11 and 11e, CT1, VAT 3, Return of Trading Detais (VAT) and the use of the Revenue Onine Service (ROS) for the submission of returns and the payment of tax PERSONa TaX MaNaGEMENT (45%) Residence, ordinary residence and domicie Definition of residence, ordinary residence and domicie. Persona tax computations at an advanced eve incuding the impact of caiming oss reief Cacuation of income, the amount chargeabe and the tax payabe incuding margina reief cacuations Charges on income Reiefs, aowances, deductions, tax credits and exemptions Trade osses and caiming oss reief Renta income and osses (Schedue D Case V) incuding premiums on eases and uneconomic ettings Empoyment income and benefit in kind (Schedue E) incuding provision of motor vehices, medica insurance, preferentia oans and iving accommodation Specia treatment for company directors Socia Wefare benefits and pensions incuding unempoyment and disabiity benefits xviii

19 Advanced Taxation (ROI) Syabus : Mandatory Modue (ROI) Specific Functiona Knowedge and Competencies understanding appication anaysis Taxation of married, separated and divorced coupes Taxation of married, separated and divorced coupes incuding year of marriage and separation Year of death in respect of deceased individuas and their spouses PRSI for casses a and S Principes and scope of the charge to PRSI (Cass A and Cass S) and USC Scope and charge to Capita Gains Tax incuding the computation of iabiity resuting from capita transactions Principes and scope of the charge to Capita Gains Tax The charge to tax on Irish resident individuas and companies on gains arising in the State The computation of gains and osses, the amount chargeabe and the tax payabe Reiefs, aowances, deductions and exemptions Residence, ordinary residence and domicie Time of disposa and ocation of assets Capita gains and osses made by married coupes Assets passing on a death Treatment of assets hed at 6 Apri 1974 Part disposas Grants received after 5 Apri 1974 Appication of market vaue rues to connected person disposas Disposas of shares Chattes and wasting chattes Enhancement expenditure Persona exemption xix

20 Syabus : Mandatory Modue (ROI) Advanced Taxation (ROI) Specific Functiona Knowedge and Competencies understanding appication anaysis Capita osses Indexation reief Principa private residence reief business TaX MaNaGEMENT (40%) Communications and ethics Communicating with cients / the Revenue Commissioners in a professiona manner regarding taxation impications of business transactions Deaing with reevant ethica issues Determination of empoyment or sef empoyment incuding badges of Trade Definition of the Badges of Trade Use of the Badges of Trade in the determination of empoyment or sef empoyment. Contracts of empoyment and contract for services Taxation of business profits incuding the cacuation of adjusted profits and the basis periods of assessment Income and osses from trades and professions (Schedue D Case I & II) incuding pre trading expenditure and ease transaction costs (tax adjusted profits) Commencement and cessation rues for Schedue D Case I and Case II Capita aowances for pant and machinery (incuding motor vehices), baancing aowances and charges for assets purchased on or after 4 December 2002 Charges on income PRSI casses A and S Professiona services withhoding tax Reevant Contracts Tax Obigations of a principa contractor with regard to payments to sub contractors xx

21 Advanced Taxation (ROI) Syabus : Mandatory Modue (ROI) Specific Functiona Knowedge and Competencies understanding appication anaysis Administrative procedures, competion of forms and payment of reevant taxes Conditions necessary for the issue of a sub contractors certificate VaT issues regarding suppy of goods and services, intra Eu transactions, imports and exports Principes of the operation of Vaue Added Tax Pace and time of suppy of goods and services Taxabe persons and registration Eection to register Intra EU transactions, imports and exports Exemption and VAT rates Accounting for VAT, saes and cash receipts basis Cacuation of VAT iabiity incuding input credits and output VAT 2/3 rue, cocktai rue, gifts and sef suppy Reconciiation of VAT returns to financia statements Reconciiation of VaT /PayE returns and financia statements Extraction and reconciiation of reevant information from financia statements Quantification of tax iabiities arising from discrepancies highighted Principes and scope of the charge to Corporation Tax for Irish resident companies incuding cose company provisions Principes and scope of the charge to Corporation Tax for Irish resident companies Accounting periods Dividend income received (FII) Dividends and distributions paid Definition and effect of cose company provisions xxi

22 Syabus : Mandatory Modue (ROI) Advanced Taxation (ROI) Specific Functiona Knowedge and Competencies understanding appication anaysis Taxation treatment of directors oans and current account baances an understanding of the basic residency rues for companies Impications of a company being resident or non resident Preparation of corporation tax computations for private imited companies The computation of income and chargeabe gains, the amount chargeabe and the tax payabe Reiefs, deductions and exemptions Schedue D income and osses (with same excusions as for Income Tax) Capita aowances for pant and machinery (incuding motor vehices) incuding baancing aowances and charges for assets purchased on and after 4th December 2002 Dividend withhoding tax xxii

23 Advanced Taxation (ROI) Syabus : Mandatory Modue (ROI) assessment Criteria assessment Techniques Format of Examination Paper 100% Assessment based on the fina exam. The Paper Consists of SEVEN Questions which wi examine a key syabus eements to ensure that earning outcomes are achieved SECTION a THREE Compusory Questions SECTION b FOUR Questions - Answer TWO A Questions carry equa marks. There wi be one (ony) mutipe choice question in Section B. Sampe Paper Each of the 3 sampe papers wi examine appropriate parts of this syabus Essentia Reading Advanced Taxation (Repubic of Ireand) (Second Year) author: Accounting Technicians Ireand Suppementary Reading Martyn, J. and Reck, P. Taxation Summary, Irish Taxation Institute (Edition based on Finance Act 2013) Web Resources Other Resources Business and Finance Accountancy Ireand, ICA Ireand Irish Times Business Section Sunday Business Post Irish Tax Review Revenue E Brief xxiii

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25 PART A - THE TAXATION SYSTEM Part a the taxation System Taxation is a major economic too and the operation of an efficient tax system is essentia. This section ooks at the Irish tax system, incuding: The rues that determine who is iabe to pay Income Tax in Ireand How tax aw is formuated and impemented An outine of the various systems used to coect Income Tax A detaied anaysis of the sef assessment system. LEARNING OUTCOMES Upon competion of this section you shoud be abe to: 1. Determine individuas chargeabe to Income Tax in Ireand using the rues of residence, ordinariy resident and domicie. 2. Expain the sources of tax aw and the functions of the divisions of the Revenue Commissioners. 3. Expain the systems used to coect Income Tax. 4. Advise in reation to the Sef Assessment system, the cacuation of preiminary Income Tax and penaties for non-compiance. 5. Expain the system of Revenue Audits. REVISION RESOURCES EXAM QUESTIONS: Sampe and Past papers are avaiabe from the website of Accounting Technicians Ireand and are essentia aids when studying Advanced Taxation topics. 1

26 Chapter 1 - the taxation System Advanced Taxation (ROI) ChaPter 1 - the taxation SyStem 1.1 the formation of taxation PoiCy As taxation poicy changes on an annua basis, with the introduction each year of a new budget, some of the rues in taxation wi change from one year to the next. This is what makes studying taxation chaenging and interesting. However, it aso means that when preparing any tax cacuations it is important to ensure that you refer to the rues that are appicabe to the tax year that the computation is required for. In order to understand the broader issues in reation to taxation it is important to be famiiar with the forms of taxation and the types of taxes that fa under these forms of taxation. 1.2 forms of taxation Direct taxation This refers to taxation that is evied directy on an individua or a business and is proportionate to their earnings or gains. The main taxes that fa under this heading are Income Tax, Corporation Tax, Capita Gains Tax and Capita Acquisition Tax indirect taxation These taxes are evied on transactions, primariy the sae of goods and services. The most commony known indirect tax is Vaue Added Tax, a tax that is charged on the sae of goods and services. Other indirect taxes are Stamp Duty, Customs Duties and Excise Duties. 1.3 types of taxes The foowing is a brief outine of each of the main taxes: Income Tax Corporation Tax Capita Gains Tax Capita Acquisition Tax Vaue Added Tax (VAT) Charged primariy to individuas on income earned Charged to companies on profits earned Charged on capita profits on the disposa of assets Charged to individuas on gifts or inheritances received Tax charged primariy on saes of goods and services Stamp Duty Charged primariy on documents transferring assets (e.g. property / shares) Customs Duty Excise Duties Charged on the importation of goods into the EU Charged on certain goods (e.g. acoho, tobacco, fue) Income Tax, Corporation Tax, Capita Gains Tax and VAT are examinabe in Advanced Taxation (ROI). 2

27 Advanced Taxation (ROI) Chapter 1 - the taxation System 1.4 SourCe of tax aw Tax aw goes back many years and the announcements in each year s budget are the primary amendments to that egisation taxes Consoidation act (tca) 1997 This egisation combines a sources of tax aw in reation to Income Tax, Corporation Tax and Capita Gains Tax. It is updated annuay for a changes to the aw. This means that there is a different version of the TCA 1997 pubished for every tax year, with each version containing the rues that are appicabe for that particuar year. The egisative process which gives rise to the annua revision to the TCA 1997 is achieved in the foowing way: 1. Each year after the government announces its budget, the changes to the tax egisation are incorporated by way of the Finance Bi. 2. The Finance Bi wi then be debated in the Houses of the Oireachtas and some amendments may be made to the draft Finance Bi at the committee and report stages. Therefore, what is announced in the budget wi not aways end up being the fina rues for a tax year. 3. The Finance Bi wi eventuay be voted through the Dái, signed by the President and become the Finance Act. 4. The Finance Act is then incorporated into the TCA 1997 and other tax acts. Therefore, the TCA 1997 is updated each year to take account of changes to the taxation system as they are introduced Vat Consoidation act 2010 The other primary tax egisation is the VAT Consoidation Act VAT was first introduced as a condition of Ireand s entry into the EU at that time, athough simiar taxes did exist before VAT was introduced. VAT egisation was originay contained in the Vaue Added Tax Acts together with VAT reguations issued. However, simiar to the TCA 1997, the Acts and Reguations were combined into the VAT Consoidation Act 2010 (VATCA 2010). This is now the primary VAT egisation and is aso updated each year to incude any amendments to tax aw incuded in the annua Finance Act. There are other pieces of egisation covering the other taxes but the two Acts discussed above dea with the areas to be covered in this syabus Case aw Decisions from court cases invoving tax issues can impact on tax egisation, incuding decisions from the European Court of Justice. 3

28 Chapter 1 - the taxation System Advanced Taxation (ROI) 1.5 tax CoeCtion SyStem and the revenue CommiSSionerS The management of the taxation system is the responsibiity of the Office of the Revenue Commissioners. This is a division of the Department of Finance and is utimatey under the contro of the Minister for Finance. The Office of the Revenue Commissioners is divided into a number of sections, each with their own area of responsibiity. The core business is the assessment and coection of taxes and duties. The Revenue Commissioner s mandate derives from obigations imposed by statute and by the Government and as a resut of Ireand s membership of the European Union. In broad terms the work of the Revenue Commissioners incudes - 1) Assessing, coecting and managing taxes and duties that account for over 92% of Exchequer revenue. 2) Administering the Customs regime for the contro of imports and exports and coection of duties and evies on behaf of the EU. 3) Working in co-operation with other state agencies in the fight against drugs and in other cross departmenta initiatives. 4) Carrying out agency work for other government departments. 5) Coection of PRSI for the Department of Socia Protection. 6) Provision of poicy advice on taxation issues. The Mission Statement of the Revenue Commissioners is To serve the community by fairy and efficienty coecting taxes and duties and impementing Customs contros. 1.6 PerSonS Chargeabe to income tax in ireand Before discussing (and revising) the rues in reation to the cacuation of Income Tax, it is important to understand who is iabe to pay Income Tax in Ireand. There are certain rues that are used to decide where (what country) an individua shoud pay Income Tax. Each country has its own rues, and the foowing are the rues that appy in the Repubic of Ireand. The iabiity to Income Tax wi be based on three different factors: 1. Residence 2. Ordinariy Resident 3. Domicie residence An individua wi be considered resident in Ireand when he is present in the State (the Repubic of Ireand) for either: 183 days in a tax year, or 280 days over two tax years, the current and the preceding tax year (known as the 280 day rue). 4

29 Advanced Taxation (ROI) Chapter 1 - the taxation System However, when an individua spends ess than 30 days in Ireand in a tax year, he wi not be resident in that tax year, even if he otherwise meets the 280 day rue. A day is counted as a day present in the State where the individua is present here at any time during that day. Exampe 1 An individua eaves Ireand on 10 January 2013 after iving here for a number of years. Number of days spent in Ireand: days days Under the two year rue, he has spent days = 375 days in Ireand. He woud therefore be considered Irish resident in 2013 under the 280 days rue. However, the 30 day rue wi override this and he wi be non-resident in 2013 as he has spent ess than 30 days in Ireand in Exampe 2 An individua is present In Ireand for the foowing number of days: days days In 2012 he is considered resident as he is present in the State for more than 183 days. In 2013 he is not considered resident in the State. Athough he is present in the State for more than 280 days in 2012 and 2013, he is present for ess than 30 days in 2013 and therefore he wi not be resident in the State in Exampe 3 An individua is present In Ireand for the foowing number of days: days days In 2012 he is considered resident as he is present in the State for more 183 days. He has spent a tota of 260 days in Ireand in the two years 2012 and He is not resident in the State in 2013 as he is not present in the State for more than 280 days in 2012 and 2013 combined 5

30 Chapter 1 - the taxation System Advanced Taxation (ROI) Exampe 4 An individua is present In Ireand for the foowing number of days: days days days In 2012 he is resident as, even though he has ess than 183 days in 2012, he has in excess of 280 days (295 days) in 2011 and 2012 combined. In 2013 he is not resident as he is not present in the State for more than 183 days in 2013, or for more than 280 days combined in 2012 and Eect to be resident / Spit Year caim An individua can eect to be resident from the date that he arrives in Ireand in one tax year, with the intention of being resident in the foowing tax year. This can be avaied of where an individua woud not satisfy either the 183 day or 280 day residence rues above but wants to be considered resident in the year if appied ony to an empoyment. An eection to be resident wi mean that the individua wi be considered tax resident in Ireand from the date that he arrives in the State. This reief appies in respect of empoyment income ony. An individua may wish to eect to be resident in order to caim tax credits when cacuating his Income Tax iabiity in the year in which he moves to Ireand. Exampe John arrives in Ireand on 1 October 2013 to ive here for three years. As he is ony present in Ireand for 92 days in 2013 he is not resident. However, he can eect to be resident from 1 October 2013 as he intends to be resident in 2014 aso ordinariy resident Ordinariy resident is inked to the definition of residence but is of a more ong-term or permanent nature. An individua is treated as ordinariy resident when he has been resident in Ireand for the three preceding tax years. Exampe 1 If an individua is resident for 2010, 2011 and 2012 he wi become ordinariy resident on 1 January An individua wi not cease to be ordinariy resident unti he has been non-resident for the three preceding tax years. Exampe 2 If an individua is ordinariy resident in 2009 and is non-resident in 2010, 2011 and 2012 then he wi cease to be ordinariy resident on 1 January Therefore, he wi remain ordinariy resident for three years after he eaves Ireand. If he was resident in Ireand in 2012, he woud not cease to be ordinariy resident in

31 Advanced Taxation (ROI) Chapter 1 - the taxation System Domicie Domicie is a ega concept that is not defined in the TCA Generay, a person is regarded as domicied in the country which he considers to be his natura home. The principes of domicie are: No person can be without a domicie No person can have more than one domicie at one time An existing domicie is presumed to continue unti it is proven that a new domicie has been acquired. Therefore, a domicie cannot simpy be abandoned without intentionay acquiring a new domicie. There are three types of domicie: 1. Domicie of Origin a person is born with a domicie of origin, normay that of the father. A domicie of origin cannot be abandoned. It can ony be ost by the acquisition of a new domicie of choice. 2. Domicie of Dependence the domicie of a minor (chid under 18) is dependent on his father (or his mother where the parents are not married). 3. Domicie of Choice An individua can acquire a new domicie by a combination of residence and intention. They must estabish a residence with the new country with no intention of returning to the od country. A person is born with a domicie of origin and the ony way that this can be changed is to show that he has estabished a new domicie of choice. The person has to be abe to ceary demonstrate that he has permanenty moved to a new country and has no intention of ever returning to his country of origin. It is quite difficut to prove a change of domicie and where an individua does not change his domicie he wi aways revert to his domicie of origin Consequences of residence, ordinariy resident and Domicie Once an individua s status in reation to each of the above (residence, ordinariy resident, domicie) has been estabished it is then possibe to determine what sources of income are iabe to Income Tax in Ireand. They are broken down into a number of categories as foows: Category 1 Resident and Domicied An individua who is resident and domicied in Ireand is iabe to Income Tax in Ireand on their wordwide income. If an individua is resident and domicied, ordinariy resident status does not impact on the income iabe to Irish Income Tax. Exampe Jack is domicied and resident in Ireand. Jack is sef-empoyed and carries on his trade in Ireand. He aso has a number of investments abroad from which he receives an annua income. These investments incude renta income from a property in Portuga, dividend income from sharehodings in Austraian and US companies and interest income from an Ise of Man bank account. Jack is subject to Income Tax in Ireand on his wordwide income. Therefore, a of the sources of income above are required to be incuded in Jack s Irish Income Tax computation and return. 7

32 Chapter 1 - the taxation System Advanced Taxation (ROI) Category 2 - Not Resident but Ordinariy Resident and Domicied An exampe of this is an Irish person who moves abroad to work. In the first three years after he eaves he wi continue to be ordinariy resident. The individua wi be subject to Irish Income Tax on wordwide income except income from a foreign empoyment, trade, profession which is whoy exercised / carried on outside of Ireand and foreign income which does not exceed 3,810. Exampe Stephen is Irish domicied. He moved to Canada in January 2012 and has not returned to Ireand since then. He is therefore not resident in Ireand in 2013 but continues to be ordinariy resident. Stephen is empoyed in Canada and carries out a of his duties reating to that empoyment in Canada and occasionay in the US. Stephen had purchased a property in Ireand in 2002 and has rented this whie he is abroad. He receives renta income of 700 per month from this property. He aso receives an annua dividend from a sharehoding in a UK company. The dividend is approximatey 200 per annum. Stephen is ordinariy resident and domicied in Ireand in He is subject to Irish Income Tax on the renta income from the Irish property. He is aowed to excude the empoyment income received in Canada on the basis that a of the duties are carried on outside of Ireand. He can aso excude the UK dividend income as it is ess than 3,810. Category 3 Ordinariy Resident, but Not Resident and Not Domicied An exampe of this is a foreign person who ived in Ireand for more than three years. After he eaves he wi continue to be ordinariy resident for a further three tax years. Individuas in this category wi be iabe to Income Tax on Irish source income and foreign income remitted (brought into) to Ireand with the exception of: Income from a trade, profession or empoyment where a of the duties are carried on outside the State Any foreign Investment income up to 3,810. Exampe John, who is domicied in Austraia, moved from Austraia to Ireand on 5 March He ives in Ireand unti 4 January 2013 when he returns to Austraia. A of his income in 2013 arises from either an empoyment or a trade that he carries on outside of Ireand. He wi therefore not be subject to Income Tax on this income in Ireand on the basis that he does not remit any of this income to Ireand. In addition if he has foreign investment income up to 3,810 he wi have no Irish Income Tax iabiity on this. If the foreign investment income exceeds this amount, a of the investment income remitted to Ireand is taxabe in Ireand. 8

33 Advanced Taxation (ROI) Chapter 1 - the taxation System Category 4 Resident, Ordinariy Resident but Not Domicied An exampe of this is a foreign nationa who has been resident in Ireand for more than three years and continues to ive in Ireand. A of the individuas in this category wi be iabe to Income Tax on the remittance basis. Where this appies, the individua is taxed on the foowing: A Irish source income A other foreign income ony to the extent that it is brought into Ireand (with the exception of certain empoyment income) Empoyment Income where the duties of an empoyment are exercised in Ireand the saary reating to the duties is taxabe in Ireand, even when paid outside of Ireand and not remitted. Exampe Peter is US domicied. He moved to Ireand in He has been resident in Ireand since 2006 and became ordinariy resident in Peter is empoyed by a US mutinationa company in Ireand. A of the duties of the empoyment are exercised in Ireand. He receives a sma amount of deposit interest from an Irish bank account. He aso has interest from a US bank account, dividend income from shares in the US mutinationa company and renta income from a property in the US. During 2013, Peter bought shares in a number of Irish companies. To fund the investments he transferred 10,000 of his US renta income to his Irish bank account. Peter s Irish Income Tax computation for 2013 wi incude his Irish empoyment income, Irish deposit interest and the 10,000 remitted into Ireand. The interest income from his US bank account and the dividend income from the US mutinationa company wi not need to be incuded in his Irish Income Tax computation for 2013 on the basis that the income was not remitted into Ireand. Category 5 Not Resident, Not Ordinary Resident An individua in this category wi be iabe to Irish Income Tax on Irish source income ony. Domicie of the individua is not reevant. Irish source income woud incude income from a renta property situated in Ireand, interest from an Irish bank account and dividends received from an Irish company. Exampe Wiiam is UK domicied and has never ived in Ireand. He is empoyed by a arge financia services company in London. He is very successfu and has a number of investments across the word. These incude investments in a number of commercia properties in Ireand from which he receives annua renta income. He aso hods shares in two Irish pc companies from which he receives dividend income on an annua basis. He aso has investments in the UK, US, Austraia and China from which he receives income. Wiiam is not resident or ordinariy resident in Ireand. He is therefore ony subject to Income Tax in Ireand on Irish source income. His Irish Income Tax computation wi therefore incude ony the income from the Irish renta properties and the sharehodings in the Irish pc companies. 9

34 Chapter 1 - the taxation System Advanced Taxation (ROI) Summary The chart beow gives a summary of these rues: resident ordinariy resident Domicie income subject to irish tax 3 N/A 3 Wordwide Income X 3 3 X 3 X 3 3 X Wordwide Income excuding: Trade, profession empoyment income where a of the duties carried on outside the State. Foreign Investment income up to 3,810. Irish Source Income + Foreign Income remitted excuding: Trade, profession empoyment income where a of the duties carried on outside the State. Foreign Investment income up to 3,810. X X N/A Irish source income ony Irish source income + Foreign income remitted to Ireand + Empoyment income where the duties are carried out in Ireand Domicie evy The annua domicie evy in the amount of 200,000 wi appy to reevant individuas. To be considered a reevant individua the foowing conditions must be met: 1) The individua is domicied in Ireand in that tax year, 2) The word wide income of the individua for the tax year is greater than 1m, 3) The individua s fina Irish Income Tax iabiity is ess than 200,000, and 4) The market vaue of Irish property owned by the individua on 31 December of the tax year is greater than 5m. Wordwide income is determined before any deductions and exemptions as if the individua was resident in Ireand in that tax year. No account is taken of foreign tax paid. Irish Income Tax paid wi be aowed as a credit against the domicie evy payabe. However, Universa Socia Charge paid is not aowabe as a credit in cacuating the evy payabe. The evy is payabe by 31 October (under the sef assessment system) foowing the vauation date. 10

35 Advanced Taxation (ROI) Chapter 1 - the taxation System Exampe Ian is Irish domicied but moved to Barbados a number of years ago. In 2012, he has wordwide income of 1,200,000, incuding Irish income of 100,000. The market vaue of his Irish owned property on 31 December 2012 is 10m. Ian s tax adviser has prepared his Irish Income Tax computation for 2012 and advises Ian that his Irish Income Tax iabiity for 2012 is 40,000. As this is ess than 200,000 and Ian meets the criteria of a reevant individua, he must pay the domicie evy. The domicie evy payabe by Ian for 2012 is 160,000 (domicie evy of 200,000 ess credit for Income Tax payabe of 40,000). The evy is payabe by 31 October 2013 (31 October foowing the vauation date of his Irish property, 31 December 2012). 1.7 the tax year The current Income Tax year runs in ine with the caendar year from 1 January to 31 December each year. The tax year from 1 January 2013 to 31 December 2013 is referred to as the 2013 tax year. Prior to 2001, the tax year ran from 6 Apri to the foowing 5 Apri. Therefore, the tax year from 6 Apri 1995 to 5 Apri 1996 was known as the 1995/96 tax year. In 2001 the tax year ran from 6 Apri 2001 to 31 December This was referred to as the 2001 tax year, or the short tax year. This aowed for the transition to the caendar tax year. 1.8 CaSSifiCation of income for income tax the SCheDuar SyStem Different sources of income are cassified in different categories and different rues appy to each category of income. The rues can vary for each category in reation to the cacuation of the income, the aowabe expenses and the basis of assessment for that income. The main cassifications of income are as foows: Schedue Cassification Case I Case II Case III Case IV Case V Schedue E Schedue F income Source Income from a trade (a sef empoyed carpenter) Income from a profession (a sef empoyed soicitor) Investment income not subject to tax at source Foreign income foreign empoyments, foreign renta income and foreign investment income Irish deposit interest subject to DIRT Covenant income received Other misceaneous income Irish renta income Irish empoyments, pensions and directors fees Dividends from Irish resident companies 11

36 Chapter 1 - the taxation System Advanced Taxation (ROI) The foowing chapters wi revise each source of income in more detai and the cacuation of the tax iabiity that arises in respect of each source exempt income Certain income is exempt from Income Tax. The foowing exemptions are the most common: An individua or married coupe whose tota income is within certain specified exemption imits Socia Wefare Chid Benefit Statutory Redundancy Payments Lottery and Betting winnings Life Assurance Proceeds Interest paid on An Post Saving Certificates and Instament Saving Scheme. Quaifying Artists Income up to a certain imit Income from Chidcare Services up to 15,000 per annum Rent a Room reief (covered under Case V, see section ). 1.9 Payment of income tax an overview IncomeTax was the argest contributor to the State finances in 2012, contributing approximatey 15.2bn to the Exchequer. (VAT was the second argest contributor with Exchequer returns of 15.2bn incuding customs and excise duties). In order to coect the taxes it is necessary to have in pace an efficient system. For Income Tax, the two main ways in which tax is coected by the Revenue Commissioners are (1) the PAYE system and (2) the Sef Assessment system Paye System Pay As You Earn (PAYE) is deducted at source from a income earned from empoyment. The empoyer has a responsibiity to deduct the correct amount of Income Tax from an empoyee s earnings and pay this amount to the Revenue Commissioners each month. Where an empoyee has no other sources of income, a of their tax wi be paid through this system. The PAYE system was covered in detai in Taxation (ROI) Sef assessment System This appies to a income not covered by the PAYE system. It is where the taxpayer makes direct payments to the Coector Genera. This is deat with in detai ater in this chapter withhoding taxes In addition to the above two coection systems there are withhoding taxes that are appied to certain payments. These are amounts of tax deducted from payments at source (by the person making the payment) and are generay deducted at a fat rate. When deducted they are normay avaiabe as a tax credit for the individua receiving the payment against their tota Income Tax iabiity for the year. The use 12

37 Advanced Taxation (ROI) Chapter 1 - the taxation System of withhoding taxes as tax credits wi be covered in Chapter 2, but the foowing are the most common withhoding taxes Deposit Interest Retention Tax (DIRT) This is deducted from interest paid on deposit accounts by banks and buiding societies in Ireand. A payments of interest on deposit accounts are subject to DIRT, uness specificay exempt. The current standard rate of DIRT was increased to 33% from 1 January The foowing individuas are entited to receive interest without deduction of DIRT; Individuas or their spouses who are 65 years of age or over at any time during the tax year and their tota income does not exceed the reevant tax exemption imit, Or Individuas or their spouses who are permanenty incapacitated by physica or menta infirmity from maintaining themseves. The operation of DIRT and the cacuation of Income Tax on interest income are covered in more detai in Chapter Professiona Services Withhoding Tax (PSWT) This is aso referred to as Professiona Services Retention Tax (PSRT). This is a withhoding tax on professiona services fees paid by government and government bodies. Where an accountabe person makes a payment to an individua or a company in respect of professiona services he must withhod 20% of the payment and pay it over to the Revenue Commissioners. Accountabe Person The deduction must be made by an accountabe person in order for the withhoding tax to appy. Generay this covers any payments out of pubic funds from state bodies. It incudes payments from: A government departments HSE RTE ESB An Bord Bia Semi state bodies State sponsored bodies Centra Bank of Ireand Professiona Services The withhoding tax is ony deducted from payments for professiona services. This incudes fees for the foowing services: Medica, denta, pharmaceutica, optica, veterinary Architectura, engineering and surveying 13