Understanding the Remittance Basis of Taxation Ireland: A Comprehensive Guide for Expats

The remittance basis of taxation is crucial for expatriates living in Ireland. It determines how foreign income and gains are taxed and is also responsible for helping expats optimise their taxes and ensure fair tax treatment.

But, like many tax-related matters, the remittance basis of tax can be tricky to understand!

To help, we’re here to give you all the information you need on the remittance basis of taxation in Ireland and its implications on your unique tax situation. 

What Is the Remittance Basis of Taxation?

The remittance basis of taxation refers to a system where only the income and gains brought into Ireland are subject to Irish tax. Under Irish tax law, foreign income includes earnings from employment or investments outside Ireland, while foreign gains refer to profits from selling assets outside Ireland. 

Both are subject to remittance if brought into the country for non-domiciled persons..

This contrasts the “arising basis” of assessment, where worldwide income and gains are taxed regardless of whether they’re brought into Ireland.

Regarding taxation, a remittance occurs when you transfer or bring foreign income or gains into Ireland (we’ll provide some examples later!).

In short, if you meet the criteria for remittance basis and choose to file your taxes this way, you must still pay tax — but the conditions under which you do so will be vastly different to most taxpayers.

Eligibility and Claiming the Remittance Basis

The remittance basis is typically available to Irish tax residents, or “ordinarily” Irish tax resident individuals, who are not Irish domiciled. Non-domiciled status means that, although you may live in Ireland, your permanent home is in another country.

To determine your domicile status, consider the following factors: 

• Domicile of origin: Usually acquired at birth, based on your parents' domicile status.

• Domicile of choice: Established by moving to a new country to make it your home with an intention to reside there permanently and indefinitely.

• Domicile of dependence: This applies to minors or those legally dependent on another person, usually aligning with the domicile of the parent or guardian.

Most people establish a 'domicile of origin' at birth (usually the father's), which is retained unless you gain a new domicile.

How to Claim Remittance Basis

Claiming the remittance basis via tax returns involves quite a few steps. But if you’re prepared and organised, it can be easier than you think!

Here’s a step-by-step guide to get you started:

• Confirm that you’re an Irish tax resident or ordinarily tax resident.

  • Verify your non-domiciled in Ireland by evaluating your domicile status (origin, choice, or dependence).
    

• Maintain comprehensive records of foreign income sources and remittances brought into Ireland.
  

  • Ensure you have supporting documentation for all transactions to verify your claims if audited.

• Collect all necessary documents that prove your non-domiciled status.

  • Compile documentation on your foreign income, foreign gains, and remittances.

• On your annual tax return, indicate that you’re claiming the remittance basis.

  • Accurately report foreign income and gains, specifying what has been remitted to Ireland.

It’s also strongly advised to consult with a tax professional to ensure compliance, optimise tax planning, and avoid errors.

Innovative tax management software and tools like RemitEase can simplify your tax management and ensure accuracy. 

Financial Transfers and Tax Implications

As a non-domiciled individual, bringing foreign income into Ireland becomes taxable on a remittance basis. 

Under Irish law, examples of what’s considered “foreign income” include:

• Foreign employment income: Salaries, wages, and other income earned outside of Ireland.

• Investment Income: Dividends, interest, and other returns from investments in foreign countries.

• Rental income: Income from renting out properties located outside of Ireland.

• Capital gains: Gains from selling assets (such as stocks, real estate, etc.) located abroad.

• Pension income: Income (e.g. annuities)  from foreign pension schemes.

• Business Income: Profits from business activities conducted outside of Ireland where no part of the activity is carried on or managed from Ireland (N.B. Obtain advice before assuming business income qualifies for the remittance basis of tax) 

When these incomes are transferred or brought into Ireland, they’re considered remittances subject to Irish tax. This is why it's essential to keep detailed records of these transfers to ensure accurate reporting and compliance with Irish tax laws.

When Does the Remittance Basis Apply?

Again, the remittance tax basis in Ireland can apply to various scenarios. 

Some of the most common instances include:

• When you have investment income from abroad and transfer those funds into an Irish bank account, that action counts as a remittance.

• If you receive a salary from a foreign employer for work completed outside of Ireland, use some of that money to pay off a mortgage in Ireland.

• Bringing gains from selling a property abroad into Ireland to invest in an Irish business.

• Using foreign dividends to cover personal expenses while residing in Ireland.

• Paying an Irish credit card bill using foreign income from a foreign bank account.

• Transferring proceeds from foreign stock sales into an Irish investment portfolio.

• Using money from a foreign rental property to renovate a home in Ireland.

Note: In some cases, foreign income and foreign cash savings accounts used to purchase goods or services in Ireland may also be considered remittances — which is why it’s important to consult a tax professional before making assumptions about what falls under this heading. 

Remittance Basis Over Time

While you can claim the remittance basis for as long as you remain non-domiciled, prolonged use may attract scrutiny from tax authorities. Maintaining accurate records to justify your claims is integral to the tax planning process.

Inaccurate tax reporting in Ireland can lead to significant penalties and possible legal implications, so if in doubt — ask a professional! 

Special Conditions of Remittance Basis

Under the remittance basis of tax, personal tax credits, Capital Gains Tax (CGT), clean capital, gifts, and death can all affect your tax obligations.

For example:

• Tax credits: These may be reduced or unavailable on a remittance basis, affecting your overall tax liability.

• Capital Gains Tax (CGT): Gains from foreign assets are only taxable when remitted to Ireland, but certain exemptions may apply.

• Clean capital: Funds brought into Ireland that were earned before becoming resident may not be subject to tax, but keeping precise records is essential to support these claims.

• Gifts and inheritances: Transferring foreign assets as gifts or through inheritance can have different tax implications on a remittance basis.

• Death: The treatment of foreign income and gains may change upon death, potentially impacting estate planning and inheritance tax.

Note: Double tax treaties and split year treatment can also affect how the remittance basis applies. These treaties can prevent double taxation, and split year treatment can provide relief when moving to or from Ireland during a tax year. For example, suppose you are liable to pay Irish income tax during a specific tax year. In that case, paying income tax to another tax authority on the same income shouldn't be necessary.

Mixing Business and Personal Income

Combining business and personal income can also complicate your tax situation. Therefore, separating these incomes clearly and understanding their individual tax implications is essential to avoid unexpected tax liabilities.

How Remittance Basis Affects Tax Planning

Effective tax planning is crucial when using the remittance basis. 

This includes:

• Consulting with professionals: Regularly seek advice from tax advisors to stay updated on changes in tax laws and ensure compliance.

• Timing your remittances to minimise tax impacts: Plan when to bring foreign income into Ireland to align with lower tax periods or to maximise available allowances and credits.

• Utilising tax treaties: Leverage double taxation agreements between Ireland and other countries to avoid being taxed on the same income twice.

• Managing clean capital efficiently: Maintain precise records of earned and taxed capital before becoming an Irish resident to ensure it remains untaxed when remitted.

• Segregating accounts: Keep foreign income and gains separate from clean capital to simplify tracking and avoid accidental tax liabilities.

• Monitoring exchange rates: Transfer money when exchange rates are favourable to maximise the value of your remitted income.

• Investing in Irish assets: Consider investments within Ireland to benefit from local tax reliefs and incentives.

• Understanding foreign tax credits: Claim credits for taxes paid abroad to reduce your Irish tax liability.

• Documenting gifts and loans: Clearly document any remittances made as gifts or loans to prevent misunderstandings with tax authorities.

• Reviewing remittance rules annually: Follow any changes in the remittance basis rules and adjust your tax planning strategies accordingly.

Support Your Tax Planning Strategy with the Right Tools

Understanding and correctly applying the remittance basis of taxation can significantly enhance your tax efficiency in Ireland. You can make informed decisions about your foreign income and gains by learning the basics, understanding your eligibility criteria, and exploring detailed scenarios.

But, even with the best strategy in place — tax matters can get overwhelming fast.

Knowing which tools can alleviate your tax management struggles and streamline the process is essential.

RemitEase: Simplifying Tax Management for Expats

RemitEase is an intuitive app designed to simplify and improve tax planning and compliance. Especially useful for non-domiciled individuals in the UK and Ireland, It offers complete support for those trying to overcome the challenges associated with the remittance basis of tax and other complex non-resident tax laws.

Whether you're dealing with the complexities of remittance basis taxation or simply want to manage your taxes as a non-domiciled individual more efficiently, RemitEase offers a suite of features tailored to your needs:

• Automated tracking: Easily track income and gains by streamlining record-keeping and ensuring compliance with tax laws.

• Simplified tax calculations: The software handles complex tax calculations, minimising the risk of errors and ensuring accurate reporting.

• Comprehensive record-keeping: Maintain clear and detailed audit records with a transparent audit trail for tax preparation.

• User-friendly interface: Enjoy a simple and intuitive interface that makes tax reporting easy and efficient.

• Time and cost savings: Automate many time-consuming tasks associated with tax management, saving you valuable time and money.

• Expert support: Access expert advice and support from the RemitEase team to navigate complex tax situations and optimise your tax position.

Join the RemitEase Waitlist

Ready to simplify your tax reporting and optimise your tax position? Join the waitlist for RemitEase today and be among the first to experience the benefits of our intuitive tax management platform. Don’t let the complexities of tax planning overwhelm you — let RemitEase make the process easier than ever!

DISCLAIMER: The material in this article is for general information purposes only and does not constitute legal or taxation advice. Legal, financial, investment and taxation advice should be sought before acting or refraining from acting. All information and taxation rules are subject to change without notice. RemitEase accepts no liability for any action taken based on the information in this article or any of the articles in our blog series. RemitEase does not provide financial planning, investment, or mortgage advice; this article is provided only for general information. We are not authorised/licensed to provide financial advice, and this article should not be considered to constitute advice of this type in any respect.