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

Vega

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65
Yes I rang them and they told me there was no need to fill out the Form 12, just write to my local office and pay the DIRT, makes far more sense than wasting my own and the Revenue's time with all those forms, fair play to the Revenue, just hope it works now.
 

Jiblet-run

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61
An update here. The revenue got back to me a few weeks back via my PAYE online and have issued me with a new balancing statement (p21 I think its called) and there is a section for foreign deposit income. The money I owe the revenue is to be collected by them reducing my credits / relief accordingly.

I did a quick calculation and it's 41% I that I've been charged on my interest. Bank is in the EU and so would have thought it should have been the standard rate of DIRT.
Though as I am away from the country on holidays for several months, I will follow with them when I return.
 

Jiblet-run

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61
Managed to finally ring the Revenue on this.

I asked why my tax on my interest was charged at 41%.

I was told that because Rabobank did not take any DIRT from my account then the interest paid here is calculated at the marginal rate - which is 41% in my case.

I the posed the question if Rabobank had taken DIRT and for example it amounted to say 24% (random figure) what would be the outcome. I was informed that in this case, the remainder of DIRT would be taken by the Revenue. So this would be 6%, in order to make up the 30%

This is something new to me as I had read on this site that the rate of DIRT is 30% across the EU.

I suppose I could ask Rabobank to apply DIRT on my account and I could make a saving of 11% overall.
Although I do remember that they don't this for customers who's addresses are not in Holland.

Anyone else who has declared their DIRT either via the Revenue forms or by the letter approach, I'd be interested to hear your experiences.
 

milic

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85
If one holds a foreign deposit account in sterling and interest is added in sterling obviously, how does one calculate tax payable in euro? what rate of exchange is used? The rate at time of payment?
 

laois1

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149
Just to clarify from reading the above - if a PAYE worker has an offshore bank account e.g IOM where DIRT is deducted at source and you notify revenue of this account and the amount of interest/ DIRT paid in the year it was earned then you have to pay an additional 14% tax on your interest assuming you are on the higher rate ? if you are on the lower rate then no additional tax is due as you have already paid 30 % DIRT ? is this correct ? apologies if im repeating the situation.
 
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roker

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1,773
How is the interest handle with regards to exchange rate to Euro?, is the average exchange rate over a year taken?
 

laois1

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149
Can someone please clarify if someone opens an offshore account in the Isle of man what is the rate due on any interest made - I presume its the highest marginal rate of tax if you already paying tax at this rate ? Many thanks
 

jpd

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2,357
Taxed at 30% for standard rate taxpayers who file income and pay tax in time

Otherwise taxed at 41%, ie higher rate or fail to return details on time.

USC is also due and PRSI may also be due in 2012 and is due from 2013
 

dub_nerd

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1,969
DIRT is your only liability if you have other income that allows for a DIRT credit to be created.

Example:
PAYE Income: 50,000 EUR
Deposit Interest: 1,000 EUR
Step 1) DIRT paid: 270 EUR to the bank automatically.
Step 2) Declare 1,000 EUR deposit interest.
Step 3) Revenue charge you 27% tax on your deposit interest AND at the same time grant you a tax credit for 270 EUR. The tax credit was only issue because you had PAYE/other income to cover this tax credit.
Hence, you do not pay anything further that you original DIRT payment to the bank because of other income that allowed for the creation of a DIRT tax credit.

Just came across this thread and am interested in the situation when there is no PAYE (or any other) income to offset tax credit against. I have upped the DIRT rate to 33% for 2013. So, suppose:

PAYE Income: 0 EUR
Deposit Interest: 1,000 EUR
Step 1) DIRT paid: 330 EUR to the bank automatically.
Step 2) Declare 1,000 EUR deposit interest.
Step 3) Revenue charge you 33% tax on your deposit interest AND at the same time grant you a tax credit for 330 EUR. You have no PAYE/other income to cover this tax credit.

So you pay 66% tax on your deposit interest -- 33% deducted by the bank and another 33% owing to the Revenue Commissioners?! Can that be correct? And the total tax rate would be 66% whether the interest was 1,000 or 100,000?

Is there USC and PRSI to pay as well? I know they are not charged if there is PAYE income as well. I also know PRSI will be charged from 2014, which means -- if the above assumptions are true -- that the minimum tax rate on deposits for someone with no PAYE income in 2014 will be 70%? :eek:
 

Joe_90

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2,223
If you earn €1,000, then the bank withhold 33% Deposit Interest Retention Tax.

When you make a tax return you are charged tax at 33% and get relief for the tax withheld. So the liability is 33%.
 

dub_nerd

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1,969
Sorry, was having a dim moment there. I thought the tax credit for DIRT could only be offset against PAYE income. Checked Revenue's calculation on my Form 11, and it looks like DIRT is counted as income for this purpose, so credit can be offset against it. Ta.
 

dub_nerd

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1,969
The links from Brendan's key post at the top of this thread to the revenue.ie site are now broken, and I'm having trouble finding any information from that site on foreign deposits. Does anyone have up to date links?


I'm toying with the idea of opening a foreign bank account in New Zealand. I'd appreciate if anyone has any thoughts in addition to the following?
  • NZ term deposit rates are up to 5.7%.
  • I understand there is FX risk, which I'll consider carefully before I do it. The NZ dollar appreciated by 50% against the euro between 2009 and 2012. It could fall again. (NZ property is appreciating at about 10% p.a. It doesn't take too much to imagine a housing correction and economic slowdown, which could result in lower interest rates, and a depreciation of the currency).
  • New Zealand has a double taxation agreement with Ireland.
  • Foreign holders of deposits in NZ accounts are charged a non-resident withholding tax on deposit income. The rate for Irish citizens is 10% (which is reclaimable against income tax liability here?)
  • There is no deposit insurance protection in New Zealand. However, there are some big institutions like Rabo operating there. (I've mailed Rabo NZ to see if they accept foreign deposits).
Tax in Ireland on deposit income from non-EU countries is charged at the person's normal tax rate + USC + PRSI (is this correct? -- seems to be implied by OP on this thread). Up to the Standard Rate cutoff of €32,800 this is 20% + (up to) 7% USC + 4% PRSI = 31% (i.e. considerably less than current DIRT rates). Other domestic deposit income from Irish deposits on which DIRT is paid would not affect income tax rate or standard rate cutoff (is this correct?).

So for someone on the low rate of income tax, foreign deposits could be a viable way of earning better returns, assuming one accepts currency and institutional risk?

(EDIT: However, I also found this, the last sentence of which would seem to imply that non-EU interest is charged at 41% and not the person's normal income tax rate, so I am now confused. EDIT2: Perhaps it is explained by this which implies that the tax rate on non-EU interest was set equal to the DIRT rate in 2012 which was then 30%. If it stayed in sync then it is now 41% regardless of your normal income tax rate, in which case it may not be worth the risks).
 

dub_nerd

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I contacted Rabo New Zealand. They only take deposits from NZ citizens.

That aside, I'm wondering if anyone can confirm that non-EU deposits are now taxed at 41% regardless of your normal tax band?
 

Gervan

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1,076
If you are tax exempt here you won't pay 41% but if you are a lower rate taxpayer it seems you will pay 41% on non-EU deposit interest.

You can download a Form 11 offline from Revenue, and put numbers in the respective categories, to see how the tax is calculated.
 

dub_nerd

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1,969
Thanks Gervan -- never occurred to me to use the Revenue offline application to test this. So I checked for 2013, and:
  • Non-EU deposit interest is taxed at 41%, regardless of your tax band
  • You can apply your tax credits against it (e.g. single tax credit of €1,650)
  • if you are liable for 4% PRSI on unearned income, you also pay it on non-EU deposits
  • USC is not applied
 
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