Tax Guide for American Expats in Ireland
This tax guide aims to enhance your understanding of the Irish income tax system by providing current insights and practical information. We covered the most important rules that expats should consider when it comes to residency, income, taxes, and withholding. We have also highlighted some tax planning and treaty provisions available solely to American citizens and residents living in Ireland.
Ireland is a common law country and a parliamentary republic. The Euro (EUR) replaced the Irish pound, and the IRS average exchange rate of the EUR to the US dollar is 0.937 for 2016. The Office of the Revenue Commissioner (Revenue) is the Irish Tax and Customs Administration dealing with all taxes, duties and customs controls.
The Irish Personal Public Service Number (PPS)
The PPS is a unique 7 digit reference number followed by one or two letters. The PPS is issued by the Department of Social Protection (DSP) on a need-to-have basis. American expats qualify for a PPS if they expect to be gainfully employed in Ireland or would need to deal with a specified list of governmental agencies, including the Revenue.
You must visit the nearest PPS registration center in person to obtain a PPS number. Some centers require an appointment which could be arranged over the phone or online. A list of the online registration centers is available at the DSP’s website.
To prevent misuse of the PPS, a Public Services Card is issued when you are allocated a PPS number. The Public Services Card is plastic with a photograph and microchip containing your identifiable information. It takes 4-5 days after your appointment to receive the Card in the mail.
Irish Tax Year
The Irish tax year used to follow the British fiscal tax year. Effective January 1st, 2002 a calendar year switch was made. Individual and business income taxes are now assessed on a calendar year basis, spanning from January 1st till December 31st.
Irish Residency and Tax Liability
Your tax liability will be limited if you remain non-resident or unlimited if you become a tax resident in Ireland. Non-residents with limited tax liability are subject to tax on Irish-source income. Residents with unlimited liability are taxed on worldwide income, but a foreign tax credit and a tax treaty exemption might be available to individuals with income from a tax treaty partner.
Section 819 of the Taxes Consolidation Act (TCA) of 1997 clarifies that an individual shall be presumed Irish tax resident if the individual is physically present in Ireland for at least 183 full days during the calendar year. Individuals who are present in Ireland for more than 30 days, but less than 183 days and were present in Ireland for at least 280 days in the immediately preceding tax year are also presumed, residents.
Finally, individuals who are physically present in Ireland for less than 30 days in the calendar year, but meet the 280 days requirement in the previous tax year may elect to be treated as residents for tax purposes. Taxpayers falling outside the above categories are presumed non-residents.
Tax Credit Certificates and myAccount
The amount of tax withholding depends on your Tax Credit Certificate (TCC). The TCC is issued by the Revenue at the start of each new calendar year or upon commencing employment in Ireland. The certificate lists the tax credits, tax reliefs and expenses you are entitled to.
A summary of your TCC is mailed by the Revenue to your employer. Similar to the W-4 withholding certificate used in the United States, it instructs the employer of the correct amount of tax to deduct based on your circumstances. If your circumstances change during the year a revised TTC is mailed to your employer.
The myAccount is a free tax account available at the Revenue’s website. You can create an account by providing a PPS, Date of Birth, address, and certain tax-related information. First-time users will receive a temporary password by mail after a successful registration.
The myAccount empowers you to access income tax records, change tax credits and reliefs, add flat rate expenses and allowances, manage your TCC, or submit claims and notifications to the Revenue.
Income and Tax Rates
The Irish Income Tax Act (ITA) of 1967 stipulates that income tax shall be charged on all property, profits, and gains separated into five categories (Schedules A to E). Income is defined broadly to include gains from land and tenements, rents, dividends and gains, proceeds from a trade, profession or employment, and interest, annuities, pensions, and stipends.
Certain types of income are exempt from tax. Some examples include scholarships, tax-free contributions to a pension or profit sharing plan, certain redundancy benefits, and employer paid travel pass.
The income tax is assessed as a percentage of taxable income. Taxable income is calculated from gross income minus applicable tax reliefs, allowances, and deductions. There are two income tax rates. The standard rate is 20% and the higher rate is 40%.
The income a person can earn before the higher tax rate comes into play is known as the standard rate cut-off point. The cut-off point depends on the filing status and the number of family members with income.
For instance, single parents are subject to a higher cut-off point than single taxpayers with no children. The 2017th standard rate cut-off point for a single individual, with no children is presented below.
|Single with no Children||Income cut-off point||Tax Rate|
|Standard Rate||Up to €33,800||20%|
|Higher Rate||Over €33,800||40%|
The cut-off point above doubles for married couples and civil partnerships where both taxpayers have income. A statutory civil partnership registration scheme for same-sex couples was introduced in 2011. In essence, it grants identical rights and obligations, including a married couple treatment for tax purposes. The passage of Marriage Act of 2015 abolished the civil partnership registration scheme and same-sex couples are now allowed to apply to marry.
Tax Reliefs, Allowances, and Tax Credits
The tax reliefs and allowances directly reduce the income on which you pay tax. These are statutory deductions from gross income. The flat rate expenses are probably the most widely used one. These are small amounts intended to compensate the cost of tools and equipment employees’ need for work. The allowance is pre-agreed between the Revenue and industry representatives. A complete list of all flat rate expenses per industry is available on the Revenue’s website. The flat rate expenses require no substantiation, and you can claim them through myAccount.
One can also claim a tax relief on the cost of eligible health expenses. Eligible expenses encompass your health expenses, those of a family member or any individual’s, as long as you paid for them. Charitable donations of up to 10% of the donor’s annual income could also be tax deductible.
A higher education tuition fees relief is also available. The maximum limit of tuition fees relief is €7,000 per course. You can claim a relief for one or more students' tuition fees, as long as you have paid the fees, and the student attended an approved educational institution. A list of all authorized colleagues and universities is available on the Revenue’s website.
Some special allowances and reliefs are available only to individuals with a disability or in specified occupations. For instance, a Seafarer’s Allowance of €6350.00 is available to eligible private sector marine employees. Up to €50,000.00 of income from the sale of artistic artwork may also be excluded from tax. If you rent a room or rooms in your principal residence, up to €14,000 of gross rental income is not subject to tax too.
The tax credits are taken after your tax liability has been calculated. They result in a reduction of the amount of tax you have to pay or in a tax refund. Some tax credits are calculated automatically by the Revenue, while others require a formal application through the myAccount platform. A complete tax relief and credit chart is available on the Revenue’s website.
The Universal Social Charge (USC)
The Universal Social Charge is additional tax payable on total income, except for some welfare benefits and deposit interest. There is no limit on the amount of income the USC applies to. The standard rates gradually increase from 0.5% to 8% of total income. Further, a USC surcharge of 3% applies if your non-PAYE income is more than €100,000 a year. A reduced USC rate is available to individuals in certain categories. Individuals with total gross income under €13,000 are exempt from the USC.
Pay Related Social Insurance (PRSI) and Pension Contributions
The Pay related social insurance (PRSI) contributions go to the Irish Social Insurance Fund (SIF) which deals with Social Welfare benefits and social security payments. The PRSI is divided into several Classes and sub-classes depending on age, income level, employment, and self-employment.
In addition to the statutory governmental PRSI, taxpayers are allowed to contribute to various occupational and personal pension plans. The occupational and profit-sharing plans are similar to the 401(k) in the States. They are usually maintained by large employers. Effective 2003, Personal Retirement Savings Accounts (PRSA) became available. These are similar to an IRA and are designed to be used instead of occupational pension schemes by individuals and small employers.
Income Tax on Employees
The remuneration from employment in Ireland is taxed at source under the PAYE (Pay-As-You-Earn) system. Income from employment includes wages, salaries, bonuses, perquisites, and various taxable benefits. The tax deducted at source is treated as an advance payment of your prospective tax liability and is remitted to the tax administration by the employer.
In addition to the income tax, the payroll deductions also include PRSI and USC. Most Irish resident employees pay PRSI Class A contributions. Class A employee PRSI is calculated at 4% of gross weekly earnings over €352.00 per week. The employer contribution is either 8.5% or 10.75% depending on the employee’s income.
Your employer will release Form P60 “End of Year Certificate” by February 15th after year end. The P60 reports your annual gross income and all applicable deductions. The document serves as a proof of tax withholding and is valuable for the preparation of your Irish and U.S. income tax returns.
If employment terminates before the year end, the employer will issue Form P45 “Starting or Leaving Employment” instead. The P45 reports your gross income and payroll deductions up to the date employment terminates. You must give a copy of the P45 to your employer if a new job starts during the year.
In the event of a redundancy or prolonged unemployment, individuals who were previously employed and meet certain eligibility requirements may qualify for a Jobseeker’s Allowance or Jobseeker’s Benefit. Disability and other welfare benefits are also available.
Taxation of Freelancers & Self-Employed Individuals
Article 47 of ITA 1967 stipulates that tax is also assessed on any person carrying on a trade or profession. Nonetheless, the Irish tax law contains no comprehensive definition of self-employment activities. The Irish Courts and the Revenue established guidance where persons would normally be self-employed if they conduct business on their own, bear the financial risk and costs, and have control over the way business is conducted.
Self-employed taxpayers with income over €5,000 per year are required to pay 4% PRSI Class S. A freelancer is not entitled to unemployment and disability benefits. Further, the self-employed are obliged to pay preliminary tax and file self-assessment tax returns on an annual basis.
The preliminary tax is due by October 31st of the calendar year. The tax paid must represent at least 90% of the individual’s final liability for that year or 100% of the tax for the preceding year. Alternatively, an election to pay the preliminary tax, by a direct deposit, in equal monthly installments could be also available. If the annual turnover surpasses a statutory threshold, a freelancer must also register for and start collecting value-added tax from clients.
Special Assignee Relief Programme (SARP)
The Special Assignee Relief Programme (SARP) is a temporary tax relief initiative introduced in 2012 to cover individuals arriving in Ireland. The Finance Act of 2017 extended the program to assignees arriving in Ireland throughout December 31st, 2020.
The relief provides a €75,000 tax-free deduction from the remuneration of highly compensated individuals who have been employed abroad, relocate to Ireland for gainful employment purposes and meet certain other conditions. Income over the tax-free deduction is taxed flat at a 30% tax rate. The SARP is available for the assignee’s first five years of residency in Ireland.
Tax Assessment, Collection & Refunds
The final income tax liability is assessed after year end. Irish residents with income from employment are not required to file income tax returns. The payroll tax is sufficient to cover the tax liability in full.
A formal self-assessment tax return is required if you are a self-employed, have rental or investment income, or a request to file has been received. Further, tax relief claim might be a valuable option if you work for part of the year, have unaccounted tax reliefs that reduce your income subject to tax, or additional tax credits that reduce the tax you have to pay.
Married individuals can choose to be treated as single for tax assessment purposes, file joint or separate returns. Taxpayers registered for self-assessment must file a return on Form 11 by October 31st of the year following the tax year. The registration for a self-assessment tax return can be made through the Revenue Online Services (ROS) or on paper by completing Form TR1.
Taxpayers who use ROS to file the return are granted an automatic extension of time to pay the balance due by November 14th of the year following the tax year. Once the tax return is processed, the Revenue will send you Form P21 “Balancing Statement” reflecting your tax assessment.
Taxpayers who are not required to file self-assessment tax return can obtain the P21 through the myAccount. If you disagree with the assessment, you may submit a formal objection to the Inspector of Taxes within 30 days from the date of the Notice of Assessment.
The statute of limitations is four years. Thus a tax refund for 2016 will be available if a claimed by the end of 2020.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) is charged on the capital gain derived from the disposal of assets. The 2017 CGT rate is 33% of the net gain realized, with a reduced 10% CGT on certain business dispositions. Gains made by individuals on tangible movable property worth €2,540 or less at the time of disposal are exempt from CGT. The gain realized from a deposition of the taxpayer’s principal residence is also exempt from CGT.
Deposit Interest Retention Tax (DIRT)
The Deposit Interest Retention Tax is a final tax deducted at source by Irish banks and financial institutions from deposit interest paid or credited to the financial accounts of Irish residents. The DIRT rate is 39% of your total interest, but it is scheduled to decrease by 2% per year from 2018 to 2020 until it reaches 33%. Certain DIRT exemptions may also apply.
Value-Added Tax (VAT) is an indirect tax applied to consumers of goods and services. It is similar to the sales tax in the States, but the rate is much higher. Note that unlike the U.S., the listed price of goods or services must include the value-added tax.
Local Property Tax (LPT) is assessed on Irish residential property you own. The amount of the LPT is determined as a percentage of the fair market value of the property as of a valuation date. The current valuation date is May 1st, 2013. The LPT is assessed on the owner of the property as of a liability date. The liability date is November 1st of the preceding year.
Social Security Coverage Exemption for American Expats in Ireland
Americans with self-employment activities in Ireland are generally covered by the local PRSI system. Simultaneously, U.S. citizen and residents also pay self-employment (SE) taxes in the United States. To eliminate double coverage and ensure equal treatment, the United States has signed a Social Security (Totalization) Agreement with Ireland. The Totalization Agreement eliminates the double Social Security coverage requirement.
Universal Social Charge and the U.S. foreign tax credit
The Revenue signed a Memorandum of Understanding with the IRS concerning the income tax treatment of the USC. Consequently, the USC shall be treated as income tax for all for tax treaty and foreign tax credit purposes.
Tax Planning for American Expats in Ireland
American citizens and residents living in Ireland are still required to file a U.S. income tax return. Because the Irish tax rates are high and a foreign tax credit is granted on a U.S. tax return, it is unlikely to have a significant double tax exposure. Some tax treaty provisions may also help you reduce U.S. income taxes due. Nevertheless, the concurrent tax planning is the key to elimination of any tax. Thus, we urge you to contact us long before tax year end.