The remittance basis of taxation in Ireland applies to income which becomes taxable only when it is brought into the State. Therefore, for certain individuals, income can be earned abroad but not taxed in Ireland unless it is remitted. A number of changes have been made to the remittance basis of taxation over the years, most recently in Finance Act 2010. These include:

• Abolition of the remittance basis of taxation for non-ordinarily resident Irish citizens;
  
• Relaxation of conditions for non Irish citizens to qualify for remittance basis

An interesting e-brief was also issued by the Irish Revenue Commissioners reminding certain individuals to apply for a repayment of tax in relation to tax paid on UK source income which should have been taxed only on the remittance basis.

Abolition of the remittance basis of taxation for non-ordinarily resident Irish citizens

Prior to Finance Act 2010, non-ordinarily resident Irish citizens i.e. Irish citizens who are non-resident for at least three consecutive years, and non domiciled individuals were taxed in Ireland on Irish source income, and foreign source income but only if this foreign source income was remitted into the State. It was a common tax planning tool used by Irish citizens to avoid taxation for the first three years of residence on foreign income by simply not remitting it.

This, however, was addressed by Finance Act 2010 which abolished the remittance basis of taxation for Irish citizens who are not ordinarily resident in Ireland.

With effect from 1 January 2010 the remittance basis of taxation on foreign income will only apply to non-domiciled individuals. This should be taken into consideration for any Irish citizens who are planning to return to Ireland after a long period abroad as they will now be taxable on worldwide income from the commencement of their Irish residence.

Relaxation of conditions for non Irish citizens to qualify for remittance basis

In Finance Act (No.2) 2008, a relief was introduced to encourage key employees from overseas companies to work in Ireland. The scheme is known as “Special Assignment Relief”.

The relief operates by restricting the amount of employment income liable to tax in Ireland to the greater of the earnings received or remitted into Ireland, and €100,000 plus 50% of the employment income exceeding €100,000. Where tax has been paid on earnings in excess of the determined greater amount, a rebate will be issued.

When first introduced, the scheme was quite limited in that it only applied to non-Irish domiciled individuals who were resident in a non EEA country with which Ireland has a double tax treaty prior to becoming resident in Ireland. The contract of employment had to be entered into under a non EEA contract lasting at least three years and the foreign employer must pay the employee and operate PAYE on all earnings attributable to duties performed in Ireland.

The Finance Act 2010 provides for a relaxation of the above provisions by reducing the employment contract requirement from three years to one year. In addition, the condition for the employee to be from a non EEA country has been removed. This will clearly be a welcome amendment and will hopefully encourage multinational companies to assign key employees to work in Ireland.

Revenue E-Brief 11/10 and 47/10

Following on from the above, the Irish Revenue Commissioners recently published an e-brief “The remittance basis of assessment as regards UK source income and chargeable gains” which might be of interest to individuals who would have suffered tax on their UK source income in previous years.

As noted above non ordinarily resident Irish citizens and non domiciled individuals were taxed on Irish source income and “foreign income” to the extent it was remitted into Ireland until the amendment contained in Finance Act 2010.

Prior to Finance Act 2008, non ordinarily resident Irish citizens and non domiciled individuals were taxed on Irish and UK source income, and foreign income on a remittance basis. Following an opinion from the European Commission in 2007, this treatment of UK source income compared to the treatment of other EU State source income was considered inconsistent with EU law. This resulted in Finance Act 2008 extending the remittance basis of taxation to UK source income effective from 1 January 2008. Finance (No.2) Act 2008 also extended the remittance basis of taxation to chargeable gains arising in the UK to non domiciled individuals as and from 20 November 2008.

Therefore, certain individuals who had UK source income and chargeable gains may have paid tax on the arising basis of assessment rather than the remittance basis of assessment. Following a recent tax case, the Revenue have stated they are prepared to examine on a case by case basis, claims for repayments of tax paid on UK source income and chargeable gains where it can be shown that a repayment of tax would be due had the remittance basis of taxation been used.

It is highlighted in the e-brief that, as with other claims for repayment of tax, the above claims will be subject to the statutory time limit of 4 years. Also, if the UK source income and gains had actually been remitted in a future tax year to Ireland then there is no entitlement to claim a repayment of tax.

Submissions to the Revenue should contain sufficient detail on the income and chargeable gains assessed and the amount of remittances in respect of which the claim refers.

Finally, the e-brief also highlights that Finance Act 2006 provided for the discontinuance of the remittance basis of taxation in respect of non Irish sourced employment income where that income was attributable to the performance of duties in Ireland. This includes UK sourced employment income and is effective from 1 January 2006.