Income Tax
- Income Tax Rates
- Bands of taxable income
- Income Exemption Limits
- Income Levy
- Tax Residence
- Split Year Treatment
- Cross Border Workers
- Remittance Basis of Assessment
- Special Assignment Relief Program
- Seafarer Allowance
Income Tax Rates
*In the case of a married couple with two incomes the standard rate band is transferable between them up to €65,600 (made up of €41,800 plus an amount of €23,800 which may be transferred between spouses, if one spouse earns less than €23,800 there is a loss of some of the benefit of the higher band).
Income Exemption Limits
| 2012 | 2011 | |
| € | € | |
| Single/Widowed | ||
| 65 years of age and over | 18,000 | 18,000 |
| Married Couples | ||
| 65 years and over | 36,000 | 36,000 |
The relevant exemption limits are increased by €575 for each of the first two dependent children and by €830 for the third and any subsequent dependent children.
| Tax Credits @ 20% | 2012 € | 2011 € | |
| Single |
1,650 |
1,650 |
|
| Married (Jointly assessed) |
3,300 |
3,300 |
|
| Widowed Person in year of bereavement |
3,300 |
3,300 |
|
| Widowed person no children (additional credit but not in the year of bereavement) |
540 |
540 |
|
| Widowed person/single person with dependent child (additional) |
1,650 |
1,650 |
|
| Additional tax Credits in years following bereavement | |||
| Year 1 |
3,600 |
3,600 |
|
| Year 2 |
3,150 |
3,150 |
|
| Year 3 |
2,700 |
2,700 |
|
| Year 4 |
2,250 |
2,250 |
|
| Year 5 |
1,800 |
1,800 |
|
| Home carer’s credit* | max |
810 |
810 |
| Incapacitated child |
3,300 |
3,300 |
|
| Dependent relative |
70 |
70 |
|
| Age credit | single |
245 |
245 |
| married |
490 |
490 |
|
| Blind person | Single |
1,650 |
1,650 |
| One spouse blind |
1,650 |
1,650 |
|
| married |
3,300 |
3,300 |
|
| PAYE |
1,650 |
1,650 |
|
| Allowances @ 41% | |||
| Allowance to employ a carer for an incapacitated person | max |
50,000 |
50,000 |
Relief for the Long Term Unemployed
An employee who is long term unemployed is entitled to two separate allowances, as follows:
Personal Tax Allowance Child Tax Allowance
€ €
Year 1 3,810 1,270 for each qualifying child
Year 2 2,540 850 for each qualifying child
Year 3 1,270 425 for each qualifying child
An individual is treated as long term unemployed where they have been continuously unemployed for a minimum period of twelve months. The relief is also available for persons who have been in receipt of disability allowance, blind person’s pension or invalidity pension for 12 months or more, illness benefit for 3 years or more, or who are released from prison after 12 months or more.
For 2012 and subsequent years of assessment the relief has been extended to individuals signing for PRSI contributions.
The employer is entitled to a double deduction for qualifying employees in respect of:
- Emoluments paid to those employees in the first 36 months of employment and
- PRSI contributions on those emoluments.
Tax Residence
An individual is liable to Irish Income Tax on his worldwide income provided he/she is resident and domiciled for the tax year, subject to any specific relief under the relevant Double Taxation Agreement. To be resident an individual must be present in the state for:
- 183 days or more in that tax year, or
- 280 days in that tax year and the preceding tax year, subject to a minimum of 30 days in each year.
Presence in the State at any time during the day will count towards residency. Domicile can be a difficult concept but broadly means the country that an individual considers as his/her natural home.
An individual is “ordinarily tax resident” if he/she is tax resident for three consecutive tax years, where they cease to be resident they remain ordinarily resident for three years after the tax year of departure and can therefore remain taxable in Ireland. An ordinarily tax resident individual is chargeable to Irish income tax on worldwide income with the exception of profits of a trade or profession carried on abroad. Foreign investment income exceeding €3,810 in the tax year will be subject to Irish tax.
An Irish resident or ordinarily resident and domiciled individual will also be liable to Irish Capital Gains Tax on their worldwide gains. This leaves individuals ceasing to be Irish resident exposed to Irish tax on investment income and Capital Gains Tax for three years after the tax year of departure.
Despite the reference to three years in the paragraph above, an anti avoidance provision imposes Capital Gains Tax on individuals who dispose of shareholdings during a period of temporary non-residence, described as absences of less than 5 years.
Split Year Treatment
An individual who arrives in Ireland with the intention of becoming resident in the following tax year is liable to income tax on employment income only from the date of arrival to the following 31 December. Similarly, a resident individual who leaves Ireland other than for a temporary purpose is liable to income tax on employment income up to the date of departure only. This “split year treatment” applies to employment income only.
Relief from a liability to Irish Income Tax may also arise under provisions of Double Taxation Agreements between Ireland and other states.
Cross Border Workers
Irish resident individuals employed abroad in a jurisdiction with whichIrelandhas a double taxation agreement can exclude income on employment earned abroad from Irish tax and the Universal Social charge (USC). The employment abroad must be for a minimum period of 13 weeks and foreign tax must be paid on that income, and the duties must be performed wholly abroad. The individual must be present inIrelandfor a minimum of one day a week during the period of qualifying employment. The relief does not apply to state or semi state employments.
From 2010 onwards an individual will be deemed present in the State if he/she is present at any time during the day, for 2009 (and prior years) the individual needed to be present at the end of the day in order to qualify for the relief.
Remittance Basis of Assessment
Individuals domiciled outsideIrelandare entitled to a “remittance basis” of assessment inIrelandon investment income and income from employment duties exercised outsideIrelandunder a foreign contract i.e. they are only subject to tax on income brought into the country. From 1 January 2010 the remittance basis of assessment will no longer be available to Irish citizens who are not ordinarily resident inIreland.
For Non-domiciled individuals
Income:
Fully Taxable:
- All Irish source income, including the Irish workdays of a foreign employment and capital gains are taxable in Ireland regardless of whether they are remitted or not.
Not Taxable:
- Foreign employment income (non Irish workdays) and investment income are taxed only where remitted.
Capital:
- Irish citizens who are not ordinarily resident but who are resident are taxed on foreign capital gains
- Non-Irish domiciled are taxable on foreign capital gains only to the extent that they are remitted to the country.
- Capital gains tax applies to all Irish specified assets regardless of residence, these include all land and buildings in the state as well as certain other assets for example mineral rights.
Special Assignment Relief Program SARP
This relief applies from 1 January 2009 to individuals who are assigned to work in Ireland from abroad for a period of at least 1 year. The relief reduced taxable earnings in excess of €100,000 by 50%.
This relief has been replaced with a new SARP which entitles individuals to a different relief where they arrive in Ireland from 2012, the old relief continues to apply to individuals who had arrived prior to 2012. The old relief applies until the end of 2015.
The relief is only available to non domiciled individuals who take up residence in Ireland for the first time, and exercise their duties in Ireland for the first time, in addition they must:
- Have been employed by an associated company of the Irish entity to which they are assigned prior to arrival in Ireland and continue to be paid by the overseas employer
- Previously have been tax resident and exercised the greater part of their employment in the relevant overseas jurisdiction.
- Be an employee of an EU, EEA, or treaty country (prior to 2010 the relief only applied to non EEA countries which were also treaty countries.
The overseas employer must operate Irish PAYE (and PRSI where appropriate) on the employment income. The relief will operate by way of a repayment of taxes otherwise payable after the year end.
With effect from 1 January 2011 share awards will also be eligible for tax relief under the SARP. The benefits are limited to the amount of income subject to PAYE.
NEW SARP
From 1 January 2012 a new form of SARP has been introduced for 2012, 2013 and 2014.
The main conditions to qualify for the new relief are that ;
- the employee must be resident in the State and not resident elsewhere,
- the individual must have been a full time employee of a Co. Incorporated and resident in a Treaty State for 12 months prior to arriving in the State.
The relief will be of value to new workers (or returning workers who have been outside Ireland for at least 5 tax years) who come to or return to Ireland. While a number of conditions apply in order to obtain the relief it is not limited to either foreign employments or non-Irish domiciles.
Subject to conditions the relief is available for employees arriving between 2012 and 2014 and is available for 5 consecutive tax years.
The relief will allow a relevant amount of basic salary and cash allowances to be excluded from tax. The relevant amount is valued at 30% of basic salary and allowances between upper and lower thresholds (€500,000 upper and €75,000 lower). The maximum relief is calculated as follows:
- €500,000 – €75,000 x 30% = €127,500
- €127,500 @ 41% = €52,275
In determining the emoluments for the €75,000 threshold certain key items of compensation are excluded:
• Benefits in kind including company cars and preferential loans
• Termination/ex-gratia payments
• Bonus payments whether contractual or otherwise
• Stock/Equity Options and
• Other share based remuneration
However, the above emoluments may be included in assessing the relief once the minimum threshold has been established.
The relief is only for Income Tax and does not apply for the Universal Social Charge or PRSI.
It is possible for employees and employers to obtain relief through the PAYE system so that the relief can have an immediate impact rather than waiting to the tax year end to make a claim. Employees making a claim however will automatically become chargeable persons for the year of claim which will result in a tax filing requirement. Employers will also have a reporting requirement to Revenue for various details surrounding such employee claims.
Making a claim under the new SARP provisions will negate other possible claims which may reduce tax e.g. a Foreign Earnings Deduction, Cross-Border Relief, R&D incentive.
Other Benefits:
In addition to the exclusion of a relevant amount from tax an employer will also be able to bear the cost of certain items for a relevant employee on a tax free basis these include;
- the cost of one return trip for the employee and family to the overseas country they are connected with; plus
- Primary and/or Post Primary School fees of up to €5,000 per annum per child where the School has been approved by the Minister of Education.
Foreign Earnings Deduction
A deduction is to be made available for employees working temporarily overseas in the BRICS countries (Brazil, Russia, India, Chinaand South Africa). The deduction is subject to a maximum claim of €35,000 and shall apply for the tax years 2012, 2013 and 2014.
In order to receive this deduction the employee must spend at least 60 days working in a BRICS country in a tax year or in a continuous 12 month period. These “qualifying days” must form part of a period of at least 10 consecutive days spent working in the BRICS country.
The deduction does not apply to employees paid out of the public revenue of the State e.g. civil servants, Gardai and members of the defence forces or individuals employed with any board, authority or similar body established by or under statute.
The deduction is calculated based on the amount of time spent working in the BRICS country and is calculated according to the following formula:
D*E/F
- D is the number of qualifying days in the tax year
- E is the net employment income in the tax year (including share awards and share option income but excluding benefits in kind, termination payments and restrictive covenants)
- F is the number of days in the tax year that the individual held the office or employment
An example of how this deduction works is as follows. An individual who is tax resident in Ireland spends 120 qualifying days working in Brazil. The employment income for the year amounts to €100,000. The Foreign Earnings Deduction is calculated as follows.
(120*X €100,000) / 365
Specified amount = €32,877
Total employment earnings €100,000
Less deduction €32,877
Taxable Income €67,123
The deduction is claimed at the end of the tax year when making an annual return of income for that year. A deduction will not however be claimable where another relief is claimed by the employee e.g. split year relief, Trans-border Relief, Special Assignment Relief Programme, R&D Incentive and the limited remittance basis that still exits.
Seafarer Allowance
An allowance of €6,350 from employment income is available to seafarers provided they are on an international voyage(s) i.e. a voyage beginning or ending in a port outside the State for at least 161 days in a tax year. This allowance cannot be claimed in conjunction with the split year treatment. The allowance is also available to crews of vessels servicing drilling rigs in Irish waters.
