Key Post Brendan Burgess explains: The taxation of foreign deposit income

Discussion in 'Deposits' started by Brendan Burgess, Oct 9, 2010.

  1. Brendan Burgess

    Brendan Burgess Founder

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    I have copied the posts from a variety of threads into this thread and summarised the information. Corrections and comments welcome.

    Anything in red is tentative and I would appreciate if anyone could confirm it.


    This thread is only about the tax treatment. Posts relating to any other aspect will be deleted.




    From Revenue’s Irish Tax Implications of Foreign Assets and Income


    What rate of tax applies in the State on my foreign deposit interest?
    [FONT=Verdana,Verdana][FONT=Verdana,Verdana]A. [/FONT][/FONT]
    [FONT=Verdana,Verdana][FONT=Verdana,Verdana]This depends on the location of the financial institution. If it is located in another EU country, tax on the gross interest earned is due at the same rate as tax on Irish deposit interest income – 20% up to 31[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]st [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]December 2008, 23% for the period 1[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]st [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]January 2009 to 7[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]th [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]April 2009 and 25% from the 8[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]th [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]April 2009. In order to avail of this treatment, you must make a timely and accurate return of the foreign deposit interest and pay any tax due by the prescribed return filing date for the year concerned.
    [/FONT]
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    [FONT=Verdana,Verdana][FONT=Verdana,Verdana]
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    [FONT=Verdana,Verdana][FONT=Verdana,Verdana] If the interest is earned from a financial institution outside the EU, tax is due at your marginal (highest) rate of tax.
    Prior to 1 January 2005, all foreign deposit interest income, including interest from another EU country, was taxable at the marginal rate – that is, the higher or highest rate at which you pay income tax. Since 1 January 2007 the higher rate of income tax in Ireland has been 41%.
    [/FONT]
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    This is very important. To get this beneficial rate, you must submit a Form 12 for 2010 tax year by end of October 2011. If you don't submit it on time, you pay tax at your marginal rate.


    If your total income is below the taxable amount, you are better off making your deposit outside the EU.
    In the EU, you will pay a level equal to DIRT. Outside the EU, you will pay tax at your top rate which might be zero.





    Do I pay tax in the other country?

    In other EU countries you should be able to get the interest paid gross.






     
  2. SlugBreath

    SlugBreath Frequent Poster

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    This is an important question. If you are not in the tax net but have savings where the interest earned would still not put you in the tax net, do you still have to pay tax on interest earned overseas.

    Also, is interest earned overseas subject to DIRT or subject to tax?
     
  3. Godfather

    Godfather Frequent Poster

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    As I understood you need to ask the foreign bank if they can exempt you from any DIRT-like taxation as I did because you would need to let them know that any capital gain would be taxed where you reside, i.e. in Ireland. So I'm going to do if I'll unlock the funds I subscribed in Italy.
     
  4. Slainiae

    Slainiae Guest

    My wife is German and she has an account with NRW. If I transferred all my AIB savings into her German account would there be a tax penalty?
     
  5. CiaranT

    CiaranT .

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    For the transfer itself there is no tax penalty.
     
  6. McGrath

    McGrath Frequent Poster

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    Not quite, rayn.

    Your foreign deposit interest is taxed at DIRT rates only if you pay that tax to Revenue by the 31st October in the following year (presumably accompanied by an income tax return to declare it)

    So, if you earn €1,000 in interest on your Italian deposit account this year, you need to pay the tax of €250 (i.e. at DIRT rate) by 31st October 2011 to qualify for the low tax rate.

    If you forget and only pay the tax on, say, 1st December 2011, then you have to pay your marginal rate of tax
     
  7. shanegl

    shanegl Frequent Poster

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    Is there a potential capital gains issue in the following situation?

    - Deposit remains in EU bank account
    - Ireland leaves euro and devalues new currency.
    - You remit some of your savings back home in and convert to new Irish currency

    Essentially the large FX swing has created a capital gain. Anyone any idea on this (hopefully) far fetched scenario?
     
  8. Bcommercial

    Bcommercial Frequent Poster

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    This had also crossed my mind, and considering the many people who undoubtedly have sizeable sums offshore in case of just such an eventuality, there would be lots there for revenue to claw back if they could. Having never had share dealings or foreign currency dealings myself I really couldn't answer that, but I'd assume it would be handled the same as such by revenue (ie, if it moves tax it!). However, if it were the case that revenue wanted a slice of any gain, one could then conceivably argue that until repatriation there is no gain, since the sum of €X was transferred offshore to country Y, and the exact same sum €X is still in country Y as before, with the exact same buying power as before. Interesting concept and would be interesting to hear from those who have experience of share and forex dealings on this.
     
  9. Brendan Burgess

    Brendan Burgess Founder

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    I have compiled this Key Post from a variety of other posts.

    Would someone who has checked out this situation, please check out my summary?

    Thanks
     
  10. hand_m

    hand_m Registered User

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    Tax Treatment on Foreign Interest

    I spoke to a tax consultant today and she told me that tax on Interest earned on foreign deposit accounts is charged at your magrinal tax rate (EU and Non EU). I read elsewhere on this forum that you are only liable to the Dirt rate on interest earned from banks in other EU countries. Can someone please clarify what tax rates apply on EU and Non-EU interest.?
     
  11. jpd

    jpd Frequent Poster

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  12. SPC100

    SPC100 Frequent Poster

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    looks correct to me apart form one possible issue; Revenue have *not* confirmed to me that deposit income from non-eu countries can be set against any tax credits. (e.g. in the case of unemployment and no other income). They have confirmed if your total income does not put you in the higher rate, marginal rate in their FAQ, does mean the standard rate,
     
  13. Vega

    Vega Frequent Poster

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    Just looking at Form 12, can you just complete the part that relates to the foreign deposit income? Or do you have to complete all of the information on your PAYE, salary, pension etc., even though you have already been taxed on that as normal?
     
  14. Omega

    Omega Frequent Poster

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    I wonder what the situation is regarding paying the tax on these accounts if you're exempt from DIRT here in Ireland? Are you still exempt?
     
  15. Gervan

    Gervan Frequent Poster

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    Vega, you must complete all the relevant sections of the form; it is a return of your Total Income.

    Omega, if you are exempt from DIRT in Ireland because your income is below the exemption limit, if you are still below the threshold including your foreign income, you should still be exempt. Get the offshore bank to pay your interest gross, without any deduction.
    If your exemption has a different cause, I'm not sure. The offshore interest is classed as foreign income, I would expect, not deposit interest.
     
  16. Vega

    Vega Frequent Poster

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    How do you actually pax the tax on foreign deposit interest? Form 12 just details your income, do you have to submit it well before 31 October so that they tell you how much to pay by then?
     
  17. frankmac

    frankmac Frequent Poster

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    So if DIRT has been deducted by the foreign bank you can get a credit if it is a country with which we have a double taxation agreement, however in the case of taxed dividends you are liable to tax on the net amount paid with no credit for the witheld tax. Right?
     
  18. Vega

    Vega Frequent Poster

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    I’m looking at the Form 12 again and it refers to “interest received” as opposed to interest earned. My only foreign account, while opened in November 2010, didn’t actually pay me any interest until February 2011 so does that mean that I don’t need to complete Form 12 by October 2011 and in fact don’t have to do it until October 2012?
     
  19. Gervan

    Gervan Frequent Poster

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    It is correct that interest is taxed in the year received.
    But you have to notify Revenue in the year any foreign accounts have been opened, so will still have to make a tax return for 2010.
     
  20. Vega

    Vega Frequent Poster

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    Oh ok, many thanks for that.