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Tax Treaty Considerations for Expats in Ireland

Submitted: October 2014

Tax treaties exist to protect taxpayers from being taxed twice on certain money flows between two countries. Treaties are particularly important if you have investments outside Ireland, and intend bring money earned from them into Ireland during your stay. They also apply if you build up some investments in Ireland during your stay, and intend to leave them there after you have left Ireland. Ireland has tax treaties in force with over 65 countries worldwide.

Most tax treaties will conform to the OECD Model Treaty and typically will state how the various forms of income are taxed. It will state whether the specific income is only taxed in Ireland; only taxed in your home country, or taxed in both countries. It may also state what rate of tax is applicable in different cases. The treaty will also contain a definition of residence only for the purposes of the treaty; this is not the same as the definition of tax-residence in tax law. This definition of residence is known as the treaty tie-breaker. The agreements laid out in the treaty override the domestic laws in both signatory countries. The types of income covered by a treaty may include:

It is important to recognise that a tax treaty operates on money flows both into and out of the treaty countries. The withholding tax rate in Ireland on dividends sent to a country without a tax treaty is 20%. Where lower rates have been negotiated, they are can be reduced to 5%. The reduction generally only applies if the dividend is paid to a company which owns a significant percentage of the paying company, usually 10% or 25%. Individual residents of other EU member states or countries with a suitable tax treaty in place can apply for a withholding tax exemption.

The withholding tax rate in Ireland on interest sent to a country without a tax treaty is 20%. Where lower rates have been negotiated, they are generally reduced to 5% or 10%. Individual residents of other EU member states are not subject to withholding tax on interest. Other non-resident individuals should be aware that Ireland imposes Deposit Interest Retention Tax (DIRT) of 41% on all interest payment from banks and other financial institutions, unless a valid declaration of non-residence has been made, in which case the treaty rules will apply.

The withholding tax rate in Ireland on royalties sent to a country without a tax treaty is 20%. Where lower rates have been negotiated on certain specific types of royalty, they are generally reduced to 10%. Residents of other EU member states are not subject to withholding tax on royalties.

Ireland’s tax treaties with other countries generally restrict the amount of withholding tax those countries can charge Irish residents. For the complete rules and rates it is necessary to read the treaty itself. A link to each Ireland treaty in force can be found here. The sections dealing with dividends, interest and royalties can usually be found half way through the treaty document.

Prior to arriving in Ireland you may be able to arrange your existing investments so that the maximum advantage is gained from the terms of any treaty. This may involve moving investments from one non-Irish country to one with a more favourable tax treaty, or even to Ireland itself, to reduce the tax rate paid.

If your home country has a generally higher rate of tax than Ireland, you may benefit by becoming tax-resident in Ireland as early as possible. At the end of your stay in Ireland you can also rearrange your affairs to ensure that any on-going income from Irish employment or investments is also taxed at the lowest rate possible in the future.

 

 

 




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