Tax on interest from an offshore account & EU Saving Directive

[Ed33]

Hi guys,

I have an offshore account where I used to receive some interest. The interest was taxed at source according to the EU Saving Directive (the foreign bank would withhold 15-20% from my gross interest and send this tax to Ireland). I originally thought that this is all I needed to do in terms of paying tax on that interest, but it now seems to be not the case - it looks like here in Ireland I would only get credit for the tax withheld by the foreign bank, and still have to declare and pay the rest? Am I correct?

If so, how do I calculate what I owe?

Let's say, if I received 100 EUR gross interest in a tax year, and 20 EUR (20%) were taken as withholding tax, how do I calculate what I still owe?

Any feedback greatly appreciated.

Ed

 

[Joe_90]

As the holder of a foreign bank account you are a chargeable person so should file a form 11 each year with details of all your income, depending on the country it will be taxed at 33% or your marginal rate and subject to USC.

 

[Ed33]

Thanks a lot for the reply, Joe.

My question though is whether I can deduct the EU withholding tax I paid from my Irish tax obligations (e.g., Tax owed = 100 EUR * (Irish Tax% - 20%), or whether I should pay the Irish tax on the net amount I received (e.g., Tax owed = 80 EUR * Irish Tax%)?

 

[Gervan]

You should only be paying Irish tax on the foreign deposit interest, assuming you are Irish resident. The theory is you should get the bank to pay you interest gross, and as for tax already paid, you should reclaim it.
I don't think the foreign bank was ever sending tax to Ireland; you were just paying the retention tax in that country.

 

[Joe_90]

Assuming its a double treaty country you will get a credit for the foreign tax paid.

 

[Ed33]

Yep, I am an Irish resident and the country of the bank account is Jersey.

The interest was paid a few years ago, so I can't get the bank to pay it gross now as the tax had been alrerady deducted. When I was opening the account they did give me a choice (under the EU Saving Directive) of:

1) pay the interest gross (but then I'd have to declare and pay it myself in Ireland)
2) apply withholding tax to my interest.

I chose 2) as I thought it was a much easier option then declaring and paying it myself. That was a bad choice as I didn't realize I'd still have to pay taxes here

Thanks for the tip re double taxation treaty - I looked up the list of treaties on the Revenue website but there seem to be no treaty with Jersey I did find some letters/protocols that mention elimination of double taxation between Ireland and Jersey, but not sure if it is enough..

 

[Ed33]

I've done more searching and I did find information on the Revenue website where it states that credit could be claimed for the EU Withholding tax:

An individual not in possession of a Certificate for Non-Deduction of Withholding Tax in any given year, may claim a credit for the tax withheld by way of an end of year review on her/his annual tax return form

Sorry, can't post the link as this site does not allow me, but it can be found by searching for "EU Savings Directive - Withholding Tax" on the Revenue site.

So it looks like it does not matter whethere there is double taxation treaty between Ireland and Jersey.. This kind of makes sense since the EU Withholding tax is not some local tax that Jersey collects and keeps, but a EU-wide tax that Jersey collects and then sends to Ireland.

Could someone confirm that my understanding is correct? Or maybe someone has been in a similar position and was able to offset his Irish tax liability by the tax withheld under EU Savings Directive?

 

[jpd]

The withholding tax is not n EU wide tax. I don't think that the countries that deduct the witholding tax send it on to the foreign state of residence - I think they keep it themselves.

In some cases you may be able to claim some of it back from the foreign tax authorities by virtue of the double taxation treaty. You can only offset the non-refundable part against your Irish tax.

I think the choice is up to the foreign country - they can deduct witholding tax and not send any information to the resident's country OR they can pay the interest gross and send the revenue information on the recipient and amount earned

 

[Ed33]

The withholding tax is not n EU wide tax. I don't think that the countries that deduct the witholding tax send it on to the foreign state of residence - I think they keep it themselves.

No, it is more or less a EU wide tax and the country that collects the tax sends 75% of it to the country of residence (can't post the link but just look it up on the wiki for example)

I think the choice is up to the foreign country - they can deduct witholding tax and not send any information to the resident's country OR they can pay the interest gross and send the revenue information on the recipient and amount earned

Yep, these are the choices, but the choice is not only up to the foreign country but to the person itself - I remember I was free to choose between either option.