Remittance Basis Tax - Overseas Purchases

[JulesT]

For remittance basis tax: how does it work for purchases made outside Ireland with foreign income and delivered/brought to Ireland (setting aside any issues of import duty & VAT)?
Should the value of the items be declared on the Form 11 for tax on remittance basis?
Does it make any difference whether items are ordered on-line for delivery to Ireland (say… on Amazon.de), or bought outside Ireland and brought back in person (say… from GB or Northern Ireland)?
Thanks

 

[Farma1]

Yes - that is income remitted to Ireland and needs declaring on form 11.
Makes zero difference how they are ordered - if you bring them and use them into Ireland - you have remitted the income.

 

[Every_blooming]

On a similar note, is booking a one way flight to ireland while on holiday abroad using funds from foreign bank account considered a remittance?

 

[TomEdison]

The relevant legislation is Taxes Consolidation Act 1997 s. 71.

Under subsection (1) the default rule is that the full amount of income arising from property/investments held outside the state is subject to income tax.
However sub (2) creates an exception; it says that sub (1) doesn't apply to someone who satisfied the Revenue Commissioners that they are not domiciled in the state.

Sub (3) sets out the alternative rule which is to apply in that case: tax is to be computed on the full amount of the actual sums received in the State:

1. from remittances payable in the State, or
2. from property imported into the State, or
3. from money or value brought into the State arising from property not imported, or
4. from money or value received in the State on credit or on account in respect of expected remittances, property, money or value brought into the State

Assume your foreign income is dividends paid on shares held abroad.

Item 1 will subject you to tax if you receive a cheque, transfer, etc sent from abroad representing some or all of your dividend income

Item 2 will subject you to tax if you spend your dividend income on property/goods of any kind, and then import that into the state.

Item 3 will subject you to tax if you use your dividends to buy property/goods abroad, do not import that, but then rent it out or sell it or otherwise derive money from it, and bring that money into the state. Note that this could happen years after you earned the income and bought the property; it's still a remittance which is taxable in the year that you bring it into the state.

Item 4 will subject you to tax if you receive borrowings in the state (could be from an Irish lender; could be from a foreign lender; doesn't matter) on the strength of your investment income/property that you haven't imported. So if you borrow from the bank, saying "I'll pay you back out of my overseas dividends/property when I'm no longer resident in Ireland" that doesn't work; the borrowing will be treated as a remittance. If you have a credit card issued by a foreign bank and you use it to pay for good/services received/consumed in Ireland, settling it out of your foreign dividend income — that's a remittance, and it's taxable.

But you avoid tax if you receive the value of the income abroad and keep it abroad, even if you consume it abroad. So if you leave Ireland for a holiday abroad and, while abroad, use your foreign dividend income to pay your hotel bills, restaurant bills, car hire, theatre tickets and enormous bar bill, that's fine; no liability to Irish income tax. (Don't use it to pay for souvenirs that you will bring back to Ireland, though.) You own a house in your home country and you use your dividend income to pay expenses associated with that house — rates, water bill, maintenance, occasional check by a caretaker; that's fine. Similarly you can use your foreign income e.g. to pay for services that you receive abroad. The Spanish lawyer you hired to smooth over that embarrassing little incident in Barcelona involving an exotic dancer and a goat? You can pay him, no problem.

Airline tickets between Ireland and abroad might be a bit of a gray area. I would say that if you use your foreign dividends to pay for a flight from Dublin to Paris, that's value brought into the state because the flight originates in Dublin and the cost is payable here. But if you book a flight from Paris to Dublin there's at least an argument that you haven't brought value into the State — by the time you land, the value of the flight has been entirely consumed and therefore you are not bringing anything in.

 

[klaus-v]

That's interesting. I wonder what happens to cash, eg. if you withdraw cash abroad and spend it abroad, how can be proven that you spent it abroad ? If you use a card it's easily proven, but cash ?

 

[Dr Strangelove]

This came up on another thread but I'd appreciate your view @TomEdison

Assume an Irish-resident is a non-dom and has foreign income. He has an account with an Irish and a German neobank both of which he accesses via phone app and spends/withdraws via physical card.
Scenario A: he receives the money to an Irish-based neobank and spends the proceeds entirely outside Ireland
Scenario B: he receives his income to a German-based neobank and spends the proceeds entirely outside Ireland

Is it correct that Scenario A involves remittance and therefore income tax liability in Ireland but Scenario B does not? Even if in substance the only difference is where the neobank is licensed and registered?

 

[TomEdison]

That's interesting. I wonder what happens to cash, eg. if you withdraw cash abroad and spend it abroad, how can be proven that you spent it abroad ? If you use a card it's easily proven, but cash ?

I'm talking here about your liability to income tax, not about whether you can evade that liability.

You can go to your bank in Monte Carlo, draw a suitcase full of cash, and travel with it back to Dublin. Your chances of being found with the cash at Dublin Airport are pretty low. And you can lie by omission about this particular remittance on your tax return. I think you'd probably get away with it — as in, it wouldn't be detected by the Revenue. The big cash withdrawal in Monte Carlo would trigger alerts in the banking system in Monaco/France, but this would mainly engage the attention of authorities concerned with money laundering/proceeds of crime. Word might get back to the Revenue in Ireland; on the other hand, it might not. Even if it did, if you had a plausible explanation for what you did with the money that didn't involve remitting it to Ireland ("I was paying off my debts to a Hong Kong gambling syndicate who had become, um, unreasonable pressing in their demands") there wouldn't be a great deal the Revenue could do about it.

But, to be clear, you would have a liablity to income tax in this situation. You would just be illegally evading that liablity.

Is it correct that Scenario A involves remittance and therefore income tax liability in Ireland but Scenario B does not? Even if in substance the only difference is where the neobank is licensed and registered?

I agree that scenario A involves remittance, and therefore tax liablity. I think the key issue is where the neobank does its business — it may not have branches that customers can visit, but it will have a physical centre of operations. And that will be where it is licensed/registered/regulated.

Scenario B would only involve remittance if, although you spent the money outside Ireland, you spent it on property in, or that you brought into, Ireland, or otherwise spent it in a way that delivered value to you in Ireland.

 

[JulesT]

Thanks all for the helpful info.
J

 

[Dr Strangelove]

I agree that scenario A involves remittance, and therefore tax liablity. I think the key issue is where the neobank does its business — it may not have branches that customers can visit, but it will have a physical centre of operations. And that will be where it is licensed/registered/regulated.

I find these distinctions almost theological in this day and age! Neobanks have activities and customers spread across borders. My own view is the “centre of interests” test is in which country the deposit guarantee scheme the funds are covered under ultimately.

I won’t be a non-dom but will have pension income in two currencies from three jurisdictions. I’ll probably manage this with neobanks in one or two jurisdictions outside Ireland. Assessing what exactly is and what isn’t remitted would be a pure exercise in form over substance.

 

[jpd]

If you are domiciled and resident in Ireland, your world-wide income is taxable in Ireland - not matter where it is

 

[TomEdison]

I find these distinctions almost theological in this day and age! Neobanks have activities and customers spread across borders. My own view is the “centre of interests” test is in which country the deposit guarantee scheme the funds are covered under ultimately.

That will generally be the place where the bank has its centre of operations. You apply for a deposit-taking licence in the country from which you actually run the deposit-taking business; it's the grant of the licence that engages the deposit guarantee scheme. Other countries, where you don't have a base of operations, aren't hugely interested in issuing you a licence, becoming your regulator and guaranteeing your deposits.

I won’t be a non-dom but will have pension income in two currencies from three jurisdictions. I’ll probably manage this with neobanks in one or two jurisdictions outside Ireland. Assessing what exactly is and what isn’t remitted would be a pure exercise in form over substance.

Obviously the question is academic in your situation — because you have Irish domicile the remittance basis won't apply to you. There'll be practical issues in consolidating your retirement income from 3 countries and the tax treatment may be complex. But it will depend on the terms of the tax treaties (if any) between the other countries and Ireland and — though no doubt you have looked into this more deeply than I have — I don't think your tax liability is going to depend on what banking arrangements you put in place.

(Plus, if you were non-domiciled, I don't think the remittance calculation would be that difficult. If your Irish pension for the year is €x, and your expenditure in Ireland for the year is €(x + y), then €y must represent either the proceeds of realising Irish assets, which is easily documented, or, directly or indirectly, remittances from abroad. All your foreign sources of investment income are regarded as single source, so it's not necessary for you - or the Revenue - to be able to say which of your foreign pensions is being remitted, or through which of your foreign bank accounts the remittance is coming.)

I think the typical person who benefits from non-dom status and the remittance basis is presumed to be a senior executive with a multinational, who has been posted to Ireland. Given our interest in attracting foreign direct investment, we don't wish to subject these people to Irish tax on their worldwide income and gains for so long as they are resident in Ireland, so the remittance basis for non-doms (though I think its quite an old rule*) actually suits our broader public policy quite well, which I suspect is why it has survived.

In general, the expectation is that for non-doms this won't be an issue in retirement — on or before retiring, most non-doms will either return to their home country or migrate to a place with a pleasant mediterranean climate and pleasantly low tax rates. While resident here they live off their employment income. They roll up their investment income outside Ireland and then leave Ireland, never remitting the investment income and never paying Irish tax on it.

(*Fun fact: When income tax was first introduced, during the Napoleonic wars, the remittance basis applied to everyone — you were only taxed on income actually received in (what was then) the United Kingdom. It wasn't until 1914 that UK residents were made taxable on their worldwide income from stocks, shares and rents; but when this change was made an exception was provided for taxpayers not domiciled in the UK, for whom the remittance basis remained available. And so it has remained (in Ireland) ever since.)

 

[Franc1]

That will generally be the place where the bank has its centre of operations. You apply for a deposit-taking licence in the country from which you actually run the deposit-taking business; it's the grant of the licence that engages the deposit guarantee scheme. Other countries, where you don't have a base of operations, aren't hugely interested in issuing you a licence, becoming your regulator and guaranteeing your deposits.

Obviously the question is academic in your situation — because you have Irish domicile the remittance basis won't apply to you. There'll be practical issues in consolidating your retirement income from 3 countries and the tax treatment may be complex. But it will depend on the terms of the tax treaties (if any) between the other countries and Ireland and — though no doubt you have looked into this more deeply than I have — I don't think your tax liability is going to depend on what banking arrangements you put in place.

(Plus, if you were non-domiciled, I don't think the remittance calculation would be that difficult. If your Irish pension for the year is €x, and your expenditure in Ireland for the year is €(x + y), then €y must represent either the proceeds of realising Irish assets, which is easily documented, or, directly or indirectly, remittances from abroad. All your foreign sources of investment income are regarded as single source, so it's not necessary for you - or the Revenue - to be able to say which of your foreign pensions is being remitted, or through which of your foreign bank accounts the remittance is coming.)

I think the typical person who benefits from non-dom status and the remittance basis is presumed to be a senior executive with a multinational, who has been posted to Ireland. Given our interest in attracting foreign direct investment, we don't wish to subject these people to Irish tax on their worldwide income and gains for so long as they are resident in Ireland, so the remittance basis for non-doms (though I think its quite an old rule*) actually suits our broader public policy quite well, which I suspect is why it has survived.

In general, the expectation is that for non-doms this won't be an issue in retirement — on or before retiring, most non-doms will either return to their home country or migrate to a place with a pleasant mediterranean climate and pleasantly low tax rates. While resident here they live off their employment income. They roll up their investment income outside Ireland and then leave Ireland, never remitting the investment income and never paying Irish tax on it.

(*Fun fact: When income tax was first introduced, during the Napoleonic wars, the remittance basis applied to everyone — you were only taxed on income actually received in (what was then) the United Kingdom. It wasn't until 1914 that UK residents were made taxable on their worldwide income from stocks, shares and rents; but when this change was made an exception was provided for taxpayers not domiciled in the UK, for whom the remittance basis remained available. And so it has remained (in Ireland) ever since.)

I think that also normal people benefit form the non-dom status not only senior executives from multinationals. For example I'm a Paye employee my salary is in the (high) 5 figures. Once I have all my taxes maximized in Ireland (mortgage, pension, AVC) etc. then I have the lunxury of investing the cash leftover abroad on products for which the remittance basis applies. Eg. If I invest in non irish shares etc. over a 30 year period for eaxmple, I save the 33% capital gain tax plus income tax on the dividends (income tax on dividends is normally lower everywhere elase). Over a period of 30 years I could save a large sum by avoiding taxes and then retiring back to France, my home country. My colleague Joe Blog, irish, who sits next to me, has the same wage as me, leads the same lifesytle that I do, lives in the same area in Dublin, will have much less income when he retires back in his hometown in Connemara, because he's taxed 33% more than I am on his investment. His only fault ? Being Irish living in Ireland. How unfair is this system to Irish people ? but of course nothing will change since the system is in place to favour the large U.S. multinationals and their executives who give the wage to their employees, who in turn have to pay an exorbitaint amount of taxes since money must be found somewhere...the squeezed middle class.

 

[Dr Strangelove]

Over a period of 30 years I could save a large sum by avoiding taxes and then retiring back to France, my home country.

You don’t even have to move back to France if you can remain domiciled there, you just have to spend the money on your holidays outside Ireland.

I don't think your tax liability is going to depend on what banking arrangements you put in place.

I think it actually does. Foreign income is remitted if it ever hits an account covered by the Irish DGS even if spent abroad.

Given our interest in attracting foreign direct investment, we don't wish to subject these people to Irish tax on their worldwide income and gains for so long as they are resident in Ireland

I agree that you don’t want to be complicating life for transitory migrants. However I think something like a ten-year rule is more transparent and equitable than the nebulous concept of domicile. I’ve seen people advised on AAM to purchase a plot in a graveyard in their home country so they remain treated as non domiciled. This is a daft way to run a tax system!

 

[TomEdison]

Over a period of 30 years I could save a large sum by avoiding taxes and then retiring back to France, my home country.

You could save a large amount of Irish tax. Obviously, there's the matter of tax liability in the country where the income is earned.

My colleague Joe Blog, irish, who sits next to me, has the same wage as me, leads the same lifesytle that I do, lives in the same area in Dublin, will have much less income when he retires back in his hometown in Connemara, because he's taxed 33% more than I am on his investment. His only fault ? Being Irish living in Ireland. How unfair is this system to Irish people ?

Well, Joe does have the option of doing his saving within the Irish pension system, which is highly tax-favourable; more so than in many other countries. Internationally mobile workers have a problem here; they can participate so long they are resident in Ireland but, once they leave, they either have to expatriate their accumulated retirement fund, which is expensive in itself and typically lands them in a less tax-advantaged pensions environment, or leave it in the Irish system until they retire and then draw retirement benefits whose taxation is messy and (depending on the rules of the other country involved) can be quite punitive.

So you could see access to the remittance basis as an alternative way of saving for retirement that is available to internationally mobile workers, to offset the disadvantage that participating in the standard Irish pension system is unlikely to meet their needs very well.

I think it actually does. Foreign income is remitted if it ever hits an account covered by the Irish DGS even if spent abroad.

Yes, I know. But you're not taxed on the remittance basis, so whether the income is remitted or not is irrelevant to your tax liability.

However I think something like a ten-year rule is more transparent and equitable than the nebulous concept of domicile.

I take your point, but it's the usual trade-off between certainty/simplicity and actually meeting the policy objective in a world which is not simple. Do we want a rule that compels, or at least strongly incentivises, internationally mobile workers to leave the country after an arbitrary period of time, regardless of how that fits with their own career plans or their employer's needs?

Back in 1914, when the remittance basis was abolished for most taxpayers, the initial proposal was to retain the remittance basis for taxpayers who were not British subjects. British subject status was a bit more cut-and-dried than domicile. The equivalent nowadays would be to offer the remittance basis to residents who were not Irish citizens. But taxing non-citizens less than citizens would be politically very difficult. Plus, it would provide an incentive for those moving to Ireland not to naturalise, and for persons born in NI not to exercise their entitlement to citizenship, and even for Irish citizens who were in a position to do so to renounce their Irish citizenship. So, all-in-all, it would be a really bad idea. (It was probably a bad idea in 1914 too, which is why it was abandoned then.)