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

Bands of taxable income

*In the case of a married couple with two incomes the standard rate band is €67,600 (made up of €42,800 plus an amount of €24,800 which may be transferred between spouses, if one spouse earns less than €24,800 there is a loss of some of the benefit of the higher band).

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Income Exemption Limits

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.

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*Relief in respect of the cost of maintaining a guide dog (max €825 @ 20% = €165) may be claimed under the heading of Health Expenses.

Single Parent Child Child Carer Credit
For 2014 and subsequent years the single parent family credit has been abolished and replaced with a one parent family tax credit. The credit may only be claimed by one parent and may only be claimed by the individual whose care the child is in the majority of the time, unless that person has no taxable income in which case it may be claimed bby the other parent.

Job Plus Scheme

From 1 July 2013 regular cash payments made to qualifying employers to offset the cost of employing individuals who have been long term unemployed will be exempt from income tax or corporation tax.
The Department of Social Protection will pay the incentive to the employer monthly in arrears over a 2 year period as follows:
* €7,500 for each person recruited who has been unemployed for more than 12 but less than 24 months
* €10,000 for each person recruited who has been unemployed for more than 24 months.

Earned Income Credit
The Earned Income Credit is available to individuals earning self-employed, trading or professional income. With regard to company directors the credit will apply to proprietary directors as their earnings are not taken into account for the purposes of the Employee (PAYE) Tax credit. Where an individual has earned income which qualifies for Employee (PAYE) tax credit and Earned Income Tax Credit, the combined value of both tax credits cannot exceed €1,650.

Relief for Long Term Unemployed Starting a Business

Where an individual who has been unemployed for 15 months and has been in receipt of jobseekers benefit, jobseekers allowance or a one parent family credit, and where that individual starts a new business, the individual is entitled to claim relief from income tax on the first two years of trading capped at a value of €40,000 per annum. USC and PRSI will continue to be payable.

The new business must commence during the period 25 October 2013 to 31 December 2018, but will exclude trades previously carried on by other people to which the qualifying person has succeeded, or activities which were previously carried on by other people.

The qualifying period is a period of 24 months from the commencement of business, it applies for the period of assessment falling wholly or partly in the qualifying periods and not therefore in the first 2 years of assessment.

The relief will be determined by a formula equal to the assessable profits or €40,000 if less, this is multiplied by the number of months or % of months within a year of assessment falling within the qualifying period as a numerator, and the number of months in the year of assessment as a denominator.

Additional Points
* The relief applies in priority to losses forward or capital allowances
* Where two businesses are started the total relief is capped at €40,000
* Pay and file obligations will apply to the individual applying for the relief.

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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.

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.

Domicile can be a difficult concept but broadly means the country that an individual considers as his/her natural home.

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.

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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.

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Cross Border Workers

Irish resident individuals employed abroad in a jurisdiction with which Ireland has 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 in Ireland for a minimum of one day a week during the period of qualifying employment. The relief does not apply to state or semi state employments.

An individual will be deemed to be present in the State if he/she is present at any time during the day.

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Remittance Basis of Assessment

Individuals domiciled outside Ireland are entitled to a “remittance basis” of assessment in Ireland on investment income and income from employment duties exercised outside Ireland under a foreign contract i.e. they are only subject to tax on income brought into the country.

Where an individual who is entitled to the remittance basis has transferred money to his/her spouse that individual will be taxed on the transfer post 1 January 2013.

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
OLD SARP
This relief applies from 1 January 2009 to 31 December 2015 for 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 (see below) 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 applied 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.

Share awards are also 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 was been introduced initially for 2012 – 2014, which has since been extended through to 2020.

The main conditions to qualify for the new relief are that ;

• the employee must be resident in the State (and not resident elsewhere for 2012 – 2014 relief claims),
• the individual must have been a full time employee of a Co. Incorporated and resident in a Treaty State for 6 months (2015-2017) versus 12 months (2012-2014) prior to arriving in the State.
• For 2012-14 duties must be performed in the State for 12 months from date of becoming resident, for 2015-20 the requirement is to perform duties for 12 months from the date of arrival.

The relief is of value to new workers who come to or return to Ireland, or returning workers who have been outside Ireland for at least five tax years. 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 in Ireland and is available for five consecutive tax years.

The relief allows a basic salary and certain cash allowances to be excluded from tax. The relevant amount is valued at 30% of basic salary and allowances between upper (€500,000) and lower (€75,000) thresholds.

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, and for 2015-2020 claims the employer is required to report within 30 days of the individual arriving, in addition to the annual reporting.

Making a claim under the new SARP provisions will mean that a deduction will not be claimable where another relief is claimed by the employee e.g. Trans-border relief, split year relief, Trans-border Relief, Special Assignment Relief Program, Foreign Earnings Deduction relief, R&D incentive and the limited remittance basis that still exists.

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 available for employees working temporarily overseas in the following countries Brazil, Russia, India, China and South Africa Algeria, Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal and Tanzania. In addition the following Jurisdictions have been added for 2015 onwards; Japan, Singapore, South Korea, Saudi Arabia, UAE, Qatar, Bahrain, Indonesia, Vietnam, Thailand, Chile, Oman, Kuwait, Mexico and Malaysia.  From 2017, Colombia and Pakistan.

The deduction is subject to a maximum claim of €35,000 (i.e a tax refund of up to €14,000) and applies until 2020.

In order to receive this deduction the employee must spend at least 30 (60 in 2014, 40 in 2015 and 2016) days working in a BRICS country in a tax year or in a continuous 12 month period. These “qualifying days” must form part of at least 3 consecutive days including travelling time spent working in the BRICS country (previously 4 consecutive days excluding travelling time).

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.

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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.

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