The system of taxation in the Republic of Ireland is broadly similar to the system of taxation in the United Kingdom.
Employees are taxed through the Pay As You Earn (PAYE) system, based on their income (less certain allowances) - the system is quite progressive with little or no tax on low earners and a high rate applied to top earners.
The standard rate of corporation tax is among the lowest in the world at 12.5%.
A large proportion of central government tax revenue is derived from value added tax (VAT), excise duties and other taxes on consumption. The Irish tax system is primarily in place to pay for current expenditure programs, such as universal free education (including third level), taxpayer funded healthcare, social welfare payments such as old age pensions and unemployment benefit and public capital expenditure, such as the National Development Plan.
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Income taxes
Income tax
Income tax is charged on income of individuals, unincorporated bodies, trustees and personal representatives. Income of partnerships is charged on the individual partners.
Ireland operates a calendar tax year (1 January to 31 December).
Rates of income tax
Since 1 January 2009, the tax rates apply as follows:
At 20% (the standard rate): the first €36,400 (if you are an individual), or the first €40,400 (if you are a single parent), or the first €45,400 (if you are a married couple). The balance of your income is taxed at 41% (the higher rate).
If you are a dual-income married couple, your €45,400 rate band may be increased by the lower of:
- €27,400, and
- the income of the second spouse.
Therefore the maximum standard rate band you can have as a dual income married couple in the tax year 2009 is €70,800. However, the maximum part of the standard rate band that may be transferred between the partners of a dual income married couple in a tax year is €45,400.
Rules of residence
If you are resident and domiciled in the Republic of Ireland, you are liable to Irish income tax on your total income from all sources, i.e., your worldwide income.
You are regarded as resident in the Republic of Ireland if you spend:
- 183 days or more in the Republic of Ireland in a tax year, or
- an aggregate of 280 days in the current and preceding tax year.
Presence in the Republic of Ireland of not more than 30 days in a tax year is ignored for the purposes of the two year test. Since 1 January 2009, you are treated as present in the Republic of Ireland for a day if you are present at any time during the day. If you are non-Irish-resident, you are taxed on your Irish source income, i.e., income arising in the Republic of Ireland. If you are non-Irish-resident but ordinarily resident in the Republic of Ireland, you are liable to Irish tax on foreign investment income in excess of €3,810 in the tax year. You are not liable in respect of income from an employment or trade carried on abroad.
You are regarded as ordinarily resident in the Republic of Ireland for a tax year if you were resident in the Republic of Ireland in each of the three immediately preceding tax years. You cease to be ordinarily resident when you have become non-resident for the three immediately preceding tax years.
If you are a resident of a country that has a tax treaty with Ireland, you may be exempt, or due a credit, in relation to tax on Irish source income if that income is also taxed in the treaty country.
Exemption limits
You are exempt from income tax if you are aged 65 or over and your total income is below the appropriate exemption limit: €20,000 per annum if you are single, or €40,000 if you are married and one of you is aged 65 or over.
The 'Pay As You Earn' (PAYE) system
If you are an employee, generally speaking, you need not have to file a tax return unless requested to do so by your local inspector of taxes. However, if you have income from other sources, for example, rental income, then you must file a self-assessment return, even if the rental income is quite low in comparison to your employment income. Each employee qualifies for tax credits based on his or her own circumstances. These will include the standard individual tax credit, for example, and others such as refuse disposal charges, union subscriptions, paying for rented accommodation, etc. After applying for the tax credits, a form will be sent to the employer setting out the applicable cut-off points and rates applicable to the person in question. The employer will then deduct tax directly from the employee according to these instructions, each pay period, and remit the tax directly to the Revenue Commissioners.
Deposit interest retention tax
Deposit Interest Retention Tax better known as DIRT is a retention tax charged on interest earned on bank accounts. It was first introduced in Ireland in the 1980s to reduce tax evasion on unearned income.
DIRT tax is deducted at source by financial institutions, at rates varying from 23% to 26%. If you are aged 64 or over, or incapacitated you may be entitled to reclaim DIRT tax by filling out Form 54D - available from local tax offices.
In the 1990s and early 2000s a large amount of tax evasion in relation to DIRT was uncovered in Ireland. Hundreds of wealthy individuals had set up secret off-shore bank accounts (famously, the Ansbacher accounts) to avoid paying DIRT (and perhaps to conceal untaxed income). Thousands more (encouraged by their banks[1]) had opened bogus "non-resident" accounts (and therefore, DIRT exempt under double taxation agreements). Several investigations have led to heavy fines for the people involved, but the main opposition parties still maintain that not enough has been done to punish the banks who encouraged this illegal behaviour. The Allied Irish Bank paid a substantial sum to the Revenue Commissioners without admitting liability.
Deductions from tax liabilities
Some items of expenditure can be deducted from a person's income for tax purposes, generally referred to as getting tax relief. In some cases the tax must be claimed retrospectively, in others it is processed as an increase to tax credits. The vast majority are only allowed at the standard tax rate of 20%.
Medical insurance
A person purchasing private medical insurance is entitled to tax relief at 20%, which is usually given at source - the person pays 80% of the cost, and the government pays the rest directly to the insurance company.
Medical expenses
Tax relief is available on medical expenses, including doctor's visits, prescription medicines (to a maximum of €100 per month, above which the Health Services Executive will repay the entire balance), hospital costs and non-routine dental treatments. While it is only available retrospectively (i.e. by completing a tax return at the end of the year), the relief is awarded at the highest rate of tax that the person is paying. It can be claimed for a person's own expenses, or expenses which they pay on behalf of a relative or dependant.
Self-employed
If you are self-employed, or a company owner-director, under the "self-assessment" system, you must:
- pay preliminary tax on or before the preliminary tax date, i.e., 31 October in the tax year, and
- file an income tax return on or before the return filing date, i.e., 31 October following the tax year to which the return relates.
Therefore, you must:
- pay the preliminary tax for the tax year 2009, and
- file the tax return for the tax year 2008,
on or before the pay and file date, i.e. 31 October 2009.
If you file your return online, using the Revenue Online System (ROS), the deadline is extended till mid-November.
Pay Related Social Insurance (PRSI)
Employee PRSI
If you earn €352 or less per week, your earnings are exempt from PRSI.
If you earn above €352 per week, PRSI does not apply to the first €127 but applies at 4% to the balance, up to a ceiling of €75,036 with effect from 1 May 2009 (previously €52,000 with effect from 1 January 2009) in the tax year.
If you earn €500 or less per week, your earnings are not liable to the health levy (see below).
Therefore, if you earn between €352 and €500 per week, you have a contribution rate of 4% PRSI (but not levies) on earnings above €127 per week.
From 1 May 2009:
If you earn above €500 per week, you have a contribution rate of 8%: 4% PRSI and 4% health levy.
From 1 January 2009 to 30 April 2009:
If you earn above €500 per week, you have a contribution rate of 6%: of 4% PRSI and 2% health levy.
Employer PRSI
You must pay 8.5% on employee earnings of €356 or less per week. This includes a 0.7% training levy.
You must pay 10.75% on employee earnings of more than €356 per week, with no ceiling.
Self-employed PRSI
Your income is liable at 3% with no ceiling. The minimum contribution is €253 per year.
Health levy (employees, self-employed)
If you earn €500 or less per week, i.e., €26,000 per year, your income is not liable to the health levy.
From 1 May 2009:
If you earn more than €500 per week, your income is liable at 4% with no ceiling.
If you earn more than €1,443 per week (€75,036 per annum), the excess above €75,036 is liable at an additional 1% (5% total).
From 1 January 2009 to 30 April 2009:
If you earn more than €500 per week, your income is liable at 2% with no ceiling.
Income levy
From 1 May 2009, the income levy applies as follows: First €75,036: 2% Next €99,944: 4% Balance: 6%
If your income is less than €15,028, you are not caught.
From 1 January 2009 to 30 April 2009, the income levy applies as follows: First €100,100: 1% Next €150,020: 2% Balance: 3%
If your income is less than €18,304, you are not caught.
The levy applies to your gross income before capital allowances and pension contributions. Certain social welfare type payments do not count as income.
Capital gains tax (CGT)
Assets and disposals
You are caught for capital gains tax if you make a "disposal" of an asset, i.e., any form of property including intangible property, such as an option or debt. A disposal includes a part disposal and the deriving of a capital sum from an asset. The tax is applied to your "chargeable gains" in the tax year after deducting allowable losses.
Rate of tax
Since 7 April 2009 the rate is 25%.
Between 14 October 2008 and 7 April 2009 the rate was 22%.
Prior to 14 October 2008 it was 20%.
Indexation relief is allowed up to 2003, whereby the purchase price is multiplied by a fixed inflation factor derived from the Consumer Price Index. Direct costs of purchase and sale can also be deducted, and losses on one asset can be offset against gains on another.
Exemptions
The main exemptions are:
- Annual exemption. The first €1,270 of your chargeable gains for a tax year is exempt.
- Chattel exemption. If the proceeds you received from the disposal of durable chattel (“tangible movable property” other than wasting assets) do not exceed €2,540, the gain is exempt.
- Gains on government securities.
- Gains realised by pension funds and charities.
- The following gains are also exempt: instalment savings scheme bonuses, prize bond winnings,profits from forestry sales, compensation for damages or personal injury, lottery and betting winnings, and a gain on the disposal of pension rights.
- Transfer of residential site from parent to child, provided the site is to construct the child’s principal private residence, and its market value does not exceed €500,000.
- Transfers on death are exempt, although they are subject to Capital Acquisitions Tax (see below).
Tax on gains realised in the first nine months of the year is payable by October 31 that year, and tax on gains realised in the final three months of the year is payable by January 31 the next year.
Value added tax (VAT)
A European tax
Ireland's value added tax (VAT) is part of the European Union Value Added Tax system and is a major source of revenue for the Irish government, contributing over €10bn to the exchequer in 2004. It is collected by VAT-registered traders.
Registration thresholds
You must register for VAT if:
- your turnover from the supply of taxable goods exceeds, or is likely to exceed €75,000 (effective 1 May 2008, €70,000 before that date) in any continuous 12 month period,
- your turnover from the supply of taxable services exceeds, or is likely to exceed €37,500 (effective 1 May 2008, €35,000 before that date) in any continuous 12 month period.
If your turnover is below these limits may "elect" to register. Those registering for VAT must complete either Form TR1 (for individuals, partnerships, trusts or sole traders) or Form TR2 (for companies).
VAT rates
VAT rates range from 0% on books, children's clothing and educational services and items, to 21.5% on the majority of goods. The 13.5% rate applies to many services, and the 5.2% "flat rate" applies to the agricultural sector. A comprehensive list is available from the Revenue Commissioners.
Traders collecting VAT can deduct the VAT incurred on their purchases against their VAT liability. This is to avoid cumulative taxation. The VAT period is currently two calendar months. A VAT return is made on the 19th day of the following month. Once a year a detailed breakdown of VAT returns most be prepared by traders and submitted to the government - traders may choose their own date for this. Traders with low VAT liabilities may opt for an annual payment instead of the standard bi-monthly one.
Stamp duties
Stamp duty is charged on the conveyance of residential property, non-residential property, long leases, company share transfers, bank cheques and cards (i.e. ATM cards and credit cards), and insurance policies.
On residential property
If you are a first time buyer (i.e. someone who has not purchased a house before in Ireland or in any other jurisdiction) you are exempt. You may also qualify as a first-time buyer if you are newly divorced or separated. New owner-occupied houses or apartments with a floor area of less than 125 m² may also be exempt.
Since 5 November 2007, the rates are:
- the first €125,000: nil,
- the next €875,000: 7%,
- the balance: 9%.
On non-residential property
Since 14 October 2008, conveyances of non-residential property are charged at an increasing rate starting at 0% for a property under the value of €10,000 rising to 6% for transactions over €80,000.
Bank cards and cheques
Credit card accounts are subject to a €30 annual duty, and Automatic teller machine and Debit cards are subject to €5 each annually. Cards which perform both functions are subject to the tax twice, i.e. €10 total. Cards that are unused in the entire year are not chargeable.
Cheques incur a €0.15 tax. Insurance polices are subject to a 2% levy.
Capital acquisitions tax (CAT)
Rates of tax
The rates of tax applicable to gifts and inheritances are as follows:
Threshold amount: Nil
The balance: 25%. This rate applies from 8 April 2009. Between 22 November 2008 and 8 April 2009 the rate was 22%. Before that it was 20%.
Gifts and inheritances
Capital acquisitions tax is charged on property that has been acquired gratuitously, i.e., gifts and inheritances.
The person providing the property is the disponer (or donor in the case of the gift), and the disposition is the method by which he passes the property to the acquirer. In the case of property acquired under a will, the testator (i.e., the person who made the will) is the disponer. In the case of property acquired on intestacy (i.e., from a person who died intestate, in other words, without making a will), the deceased is the disponer. The term disposition is very widely defined to include not only a will or intestacy, but any method (including, for example, any trust covenant, agreement or arrangement) by which property can be passed from one person to another. The date of the disposition is the date of death of the disponer in the case of property passing by will or intestacy, and in other cases it is the date on which he provided the property (or bound himself to provide it).
Taxable gifts and taxable inheritances
To be chargeable, the property must be a taxable gift or taxable inheritance.
A gift is entirely taxable if:
- the disponer was resident or ordinarily resident in the State at the date of the disposition, or at the date of the gift,
- the donee was resident or ordinarily resident in the Sate at the date of the gift.
Otherwise, only the part or proportion of the property situate in the State at the date of the gift is taxable.
An inheritance is entirely taxable if:
- the disponer was resident or ordinarily resident in the State at the date of the disposition, i.e., the date of death, or
- the successor was resident or ordinarily resident in the Sate at the date of the inheritance.
Otherwise, only the part or proportion of the property situate in the State at the date of the gift is taxable.
Taxable value
Tax is generally charged on the property’s taxable value, which is computed as:
Market value
less liabilities costs and expenses payable out of the gift or inheritance
= incumbrance free value
less consideration paid by acquirer in money or money’s worth
= taxable value
Valuation date
Tax is charged on the valuation date. In the case of a gift, this is the date of the gift. In the case of an inheritance, it is generally the date of death of the deceased, or the earliest date on which his personal representatives can retain the inherited property for the beneficiary.
Exemptions
Exemption thresholds
Since 8 April 2009, the group thresholds, indexed for inflation, are:
- €434,000 (Group 1) where the beneficiary’s relationship to the disponer is: son or daughter, minor child of a predeceased son or daughter, parent (in the case of a non-limited interest taken on the death of a child). Child includes a foster child (since 6 December 2000) and an adopted child (since 30 March 2001).
- €43,400 (Group 2), where the beneficiary’s relationship to the disponer is: lineal ancestor, lineal descendant (not within (a)), brother or sister, nephew or niece.
- €21,700 (Group 3) where the beneficiary’s relationship to the disponer is: cousin or stranger.
- For gifts and inheritances taken on or after 5 December 2001, only prior benefits received since 5 December 1991 from the same beneficiary within the same group threshold are aggregated with the current benefit in computing tax payable on the current benefit.
Other exemptions
- The other main exemptions from capital acquisitions tax are:
- Spouses’ exemption: Property passing between spouses is exempt from gift tax, inheritance tax, and probate tax. The exemption also applies to property passing by Court order between separated or divorced couples.
- Principal private residence. To qualify, the recipient must have lived: for three years ending on the transfer date in the residence, or for three of the four years ending on the transfer date in the residence and the residence which it has replaced. In addition, the recipient must not have any other private residence and he must not dispose of the residence for six years after the transfer to him.
- An inheritance taken by a parent from a pre-deceased child is exempt.
- The first €3,000 of gifts taken in each calendar year is exempt.
- A gift or inheritance taken for public or charitable purposes is exempt.
- Objects of national, scientific, historic, or artistic interest, which the public are allowed to view, are exempt. This relief also extends to heritage property owned through a private company.
- Pension lump sums are exempt.
- Securities acquired by a beneficiary who is not domiciled or resident in the State from a disponer who held them for at least three years.
- Personal injury compensation or damages, and lottery winnings are exempt. This exemption also covers reasonable support, maintenance, or education payments received by a minor child at a time when the disponer and the child’s other parent are dead.
- Property acquired under a self-made disposition is exempt.
Reliefs
The other main reliefs from capital acquisitions tax are:
- A surviving spouse may take the place and relationship status in respect of property acquired by the deceased spouse.
- Agricultural relief. This applies to a farmer - an individual who on the valuation date is domiciled in the State, and at least 80% of the gross market value of his assets consists of agricultural property (i.e., farm land and buildings, crops, trees and underwood, livestock, bloodstock, and farm machinery).
- The relief is a 90% reduction of the full market value. The relief may be withdrawn if the property is later disposed of within six years of the date of the gift or inheritance and the proceeds are not reinvested within one year of the disposal (six years in the case of a compulsory acquisition).
- Business relief. This applies to relevant business property, i.e., a sole trade business, an interest in a partnership, and unquoted shares in an Irish incorporated company.
- The relief is a 90% reduction of the taxable value. The relief may be withdrawn if the property is later disposed of within six years of the date of the gift or inheritance and the proceeds are not reinvested within one year of the disposal.
- Favorite nephew (or niece) relief.
- Double taxation in respect of US and UK equivalent taxes.
- The proceeds of a life assurance policy taken out to pay inheritance tax or gift tax.
- If the same event gives rise to a liability to both CAT and CGT, the CGT charge may be credited against the CAT up to the amount of the CAT charge.
Discretionary trust tax
Assets placed in discretionary trusts are subject to:
- a once-off charge of 6%, which is due within four months of the valuation date, and
- an annual charge of 1%, which is due on 5 April each year, and payable by 5 July each year during the trust’s lifetime.
Probate tax
Probate tax was charged up to 6 December 2000 at 2% on the net value of an estate, and was due within nine months of the date of death (FA 1993 s 113).
Corporation tax
Corporation tax is charged on the profits of companies which includes both normal income and chargeable gains. Certain expenses such as interest repayments can be offset against profits. The current rate of corporation tax in Ireland ranges from 10% to 25%, depending on the nature of the business.
The main rate, which is 12.5%, applies to trading income of companies. It is low compared to international standards and its longevity (introduced in the mid 1990's by then Minister of Finance Ruairi Quinn) has ensured widespread confidence among international enterprises in the value of investing in the Irish economy.
The higher rate, 25%, applies to non-trading income such as interest gains, foreign sourced income and profits and rental income. The 10% rate, introduced in 1981, continues to apply to a limited number of manufacturing firms, IFSC finance enterprises and businesses located in the Shannon Free Zone; all typically large multi-nationals. It is used as a marketing incentive to attract foreign direct investment (FDI) into Ireland. Despite being credited with helping the IDA secure millions of euro worth of FDI and thousands of jobs, it is currently being phased out with the last year of the 10% rate likely to be 2010.
Taxation evasion and tax avoidance
Tax evasion in Ireland, while a common historical problem, is not as widespread in 2006. The reasons are twofold - most people pay at source (PAYE) and the penalties for evasion are high. The Irish Revenue target specific industries every year. Industries have included fast food take away restaurants, banks and farmers.
Tax avoidance is a legal process where one's financial affairs are arranged so as to legitimately pay less tax. In some cases the Revenue will pursue individuals or companies who avail of tax avoidance; however their success here is limited because tax avoidance is entirely legal.
The areas where tax evasion can still be found are businesses that deal in a lot of cash. The trades, small businesses, etc., will sell goods and perform services while accepting cash for the good/service. The buyer will avoid paying VAT at 21% and the seller does not declare the monies for Income Tax. Revenue perform random audits on businesses but the random level is small enough that it is sometimes worth a chance. Revenue claim a business will be audited roughly every seven years. In reality small businesses with low turnover will see the taxman much less. It is understandable why this is the case as the Revenue’s expectation of cost vs. reward would be high vs. low.
Other methods have also been employed by government to combat tax evasion. For example, the introduction of a Taxi Regulator and subsequent regulations for the taxi industry has meant that the opportunities for taxi drivers to avoid declaring cash income have dwindled. By law, taxi drivers must now issue an electronic receipt for each fare, effectively recording their income.
Local Taxes
Prior to 1977, all property owners in Ireland had to pay "rates" - based on the "rateable valuation" of the property - to the local authority. Rates were used by local authorities to provide services such as mains water and refuse collection. Rates for private residences were abolished in 1977, with local authorities instead receiving funding from central government. They continue in operation for commercial property.
Recently the government have attempted to re-introduce some local taxes. A charge for water was introduced but later scrapped after mass protests. A "bin tax", for domestic refuse collection, has also been introduced and has proved widely unpopular. Opponents claim that this is double-taxation - that in the aftermath of the abolition of domestic rates, their taxes were increased to fund local authorities.
Motor Tax is paid into the Local Government Fund and is distributed among local authorities.
See also
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Life in Ireland |
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Culture
Economy
General
Society
Politics
Policies
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- Celtic Tiger
- Central Bank of Ireland
- Economy of the Republic of Ireland
- Economic history of the Republic of Ireland
- International Financial Services Centre
- Irish topics
- Office of the Revenue Commissioners
- Personal Public Service Number
References
Online
- Revenue.ie Office of the Revenue Commissioners
- Irish Statute Book
- Irish Tax Law Online
- Irish Taxation Institute
- BASIS - BASIS is a government help site for business.
- Citizens Information - Tax section - Citizens Information (formerly known as Oasis) is a government help site for individuals.
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