INTRODUCTION

Apart from a highly skilled, English speaking workforce; membership of the E.U.; an excellent standard of living for employees seconded to Ireland; a large network of international routes and a successful track record of investment, research and development from U.S. corporations there are many advantages to setting up Intellectual Property Trading companies in Ireland.

The main focus of this article is the tax advantages which can be summarised under the following headings:

1. Corporation Tax
2. Capital Allowances
3. Research & Development Relief
4. Withholding Tax
5. Stamp Duty

1. CORPORATION TAX

Ireland has one of the lowest corporation tax rates on trading income in the world.  The standard rate is 12½% on trading profits.

A 25% rate is charged on non-trading and foreign source income.  It is the rate applied to “passive income.”

To be eligible for the 12½% Corporation Tax rate the following criteria must apply:

1. The company must be a trading company.
2. The trade must be carried on in Ireland.
3. The trading activity must be controlled in Ireland.
4. The profit making apparatus must be located in Ireland.

Does your company qualify for the 12½% rate?

If your company is an Intellectual Property Trading Company established in Ireland with a workforce of individuals specialised in:

• Managing the intellectual property portfolio
• Developing and exploiting Intellectual property
• Promoting and licensing intellectual property rights for use by third parties

your company should be eligible for the 12½% rate of Corporation Tax.  If, however, there is any doubt, it is possible to obtain an advanced decision from the Irish Revenue Commissioners.  If the company does not qualify as a trading company, the 25% corporation tax rate will apply.

Other factors to be considered in the context of eligibility for the 12½% tax rate for IP companies include:

• Strategic and operational exploitation and management of the Intellectual Property in Ireland.
• The Irish company should incur marketing, legal and Research & Development expenditure in relation to the IP.
•  The Irish company should be responsible for the development and protection of the IP.

A point to keep in mind:

An Irish resident investment company which is in receipt of certain trading dividends can make an election for those dividends to be taxable at the 12½% rate.

2. CAPITAL ALLOWANCES

Capital Allowances are available for capital expenditure on the creation, acquisition and/or licence to use certain “specified intangible assets” which includes:

1. Copyrights
2. Patents and registered designs
3. Trademarks, brands, domain names and service marks
4. Computer software
5. Know How (related to commercial, industrial or scientific experience)
6. Goodwill to the extent that it is referable to the “specified intangible asset.”
7. Plant Breeder’s Rights
8. Secret Processes or Formulae
9. Applications or grant or registration of copyrights, patents, trademarks, etc.

Qualifying capital expenditure can be written off against 80% of the income generated from the “relevant trade” (income from developing, exploiting or managing the Intellectual Property) in either of two ways:

1. In line with the amount charged to the company’s profit & loss account  for the accounting period in respect of depreciation or amortisation or
2. Over a 15 year period.  A rate of 7% will apply for years 1 to 14 and a rate of 2% will apply for year 15.

A point to keep in mind:

A clawback of capital allowances claimed will arise if the IP is sold within ten years of its acquisition.  In other words no balancing allowance or charge event will arise if the intangible asset is sold ten years after the date of acquisition provided the intangible asset is not acquired by a connected company which is entitled to a tax deduction under this section.

3. RESEARCH & DEVELOPMENT RELIEF

 Background

The 2012 Finance Act introduced a new tax relief which allowed a company to surrender a portion of its R&D tax credit to key employees engaged in research and development activities.

This relief reduced the employee’s Income Tax (but not Universal Social Charge) on relevant emoluments providing the employee’s effective income tax rate didn’t fall below 23% in any tax year.

To be eligible for this relief:

a)      The key employee must have performed 75% or more of the duties of his/her employment in “the conception or creation of new knowledge, products, processes, methods and systems.”

b)      In addition 75% of the employee’s emoluments with the employer in question must qualify as expenditure on R&D within the provisions of Section 766 TCA 1997.

2013 Finance Act

The 75% thresholds were reduced to 50%.

This applies to accounting periods commencing on or after 1^st January 2013.

The Finance Act 2013 increased the amount of qualifying R&D expenditure that can be ignored when referencing current year expenditure to base year expenditure from €100,000 to €200,000.

This means that the first €200,000 of qualifying expenditure is effectively on a volume base.  Any qualifying amount in excess of this €200,000 is compared to the 2003 threshold amount and the R&D credit will be calculated on this portion of qualifying expenditure in the normal manner.

How does this relief work?

The R&D Tax Credit is available to:

• offset the current year corporation tax liability of the company (the aggregate amount to be surrendered cannot exceed the corporation tax for the accounting period).
• to reward key employees who have been involved in the development of the R&D i.e. a “relevant employer” can surrender the benefits of the R&D credits to the employee who will then be entitled to have his/her income reduced by the amount of the tax credits surrendered in the tax year following the tax year in which the accounting period of the employer ends.
• Excess credits can be (a) carried forward indefinitely, (b) carried back to previous year, (c) surrendered within the group or (d) reclaimed from Revenue over a three year period, provided certain conditions are met.

In addition to the above relief, there is also a tax credit for capital expenditure on buildings or structures used for the purposes of R&D activities.

The tax credit is 25% of the cost of construction or refurbishment of a building or structure used to facilitate the R&D activity.  This is available on a proportional basis if at least 35% of the building is being used for the purposes of R&D.

Two points to remember:

1. The full R&D credit can be claimed in the year in which the expenditure was incurred.
2. There is a ten year claw back in situations where the building is (a) sold, (b) ceases to be used for the purposes of R&D or (c) ceases to be used for the purposes of the same trade by the company.

4. WITHHOLDING TAX

In general, Irish resident companies must deduct 20% withholding tax on dividends and other profit distributions.

There are, however, a number of situations where shareholders can receive dividends free from withholding tax from an Irish resident company providing certain documentation is filed.  For example:

1. Where the recipient of a patent royalty payment is resident in an E.U. member state or a country in which Irish has a double taxation treaty in place.
2.  In situations where no tax treaty is in place, unilateral relief for foreign tax suffered on royalties received from abroad is available.

Extensive exemptions are available with regard to dividend payments to:

1. Irish resident companies
2. Pension Funds
3. Companies controlled by residents from an E.U. member state or tax treaty country and not under the control of Irish residents.
4. Companies that are not resident in an E.U. / treaty country but which are controlled by tax treaty residents
5. Individuals resident in an E.U. member state or tax treaty country

As a result of these exemptions it is generally possible to extract profits from an Irish resident company by way of dividends free from Irish tax.

A point to remember:

Withholding tax of 20% may apply to interest payments on loans/advances paid in the course of a trade or business to an E.U./Treaty country resident company.  Providing the loan is capable of lasting in excess of twelve months no withholding tax should apply.

5. STAMP DUTY

Intellectual Property can be transferred to an Irish resident company without incurring Stamp Duty in Ireland.

Goodwill that is directly attributable to such IP is also covered by this stamp duty exemption.

SUMMARY

Ireland has one of the most competitive tax structures for trading and holding companies.  The main tax advantages are:

1. 12½% standard rate of Corporation Tax.
2. Significant Tax Credits for R&D Expenditure
3. No Capital Duty on incorporation.
4. Generally no Irish Stamp Duty on the transfer of Intellectual Property
5. Exemption for gains on the disposal of shares in a subsidiary company.
6. Tax Relief on the acquisition and development of Intellectual Property.
7. Exemption from withholding taxes to companies resident in E.U. member states and countries with which we have a double taxation treaty.
8. Availability of 25% Tax credit for capital expenditure incurred on buildings constructed or refurbished for the purposes of carrying on an R&D activity.

FINANCE ACT 2013

Finance Act 2013 contains the legislative provisions for a number of changes to the Irish tax system under all the main tax heads including Income Tax, Corporation Tax, Capital Gains Tax, Excise, Value Added Tax, Stamp Duty and Capital Acquisitions Tax.

Due to the amount of changes it is not possible to detail each individual provision so I decided to focus on a cross section of amendments to give a general overview.  The legislative provisions I have selected will have an affect on most if not all Irish individuals whether resident and domiciled or resident and non-domiciled; employed or unemployed; retired or still working; self employed or PAYE workers; corporate structures or individuals, etc.:

1. Universal Social Charge
2. The Remittance Basis for Income Tax
3. The Remittance Basis for Capital Gains Tax
4. Taxation of certain Social Welfare Benefits
5. Mortgage Interest Relief
6. Donations to approved bodies
7. Farm Restructuring Relief
8. FATAC – The US Foreign Account Tax Compliance Act
9. Close Company Surcharge
10. Stamp Duty

1. UNIVERSAL SOCIAL CHARGE

Finance Act 2013 introduced legislation to eliminate the 4% rate of Universal Social Charge applicable to individuals aged seventy years and over where their aggregate or combined income exceeds €60,000.00.

According to Section 3 Finance Act 2013, individuals aged seventy years or over will be subject to the normal rates of Universal Social Charge where the individual’s aggregate income exceeds €60,000; in other words:

• 2% on first €10,036
• 4% on next €5,980
• 7% on the balance (10% where the relevant income exceeds €100,000.00)

No marginal relief will be available.  This means that in situations where the individual’s income exceeds the threshold amount, the higher rate of the Universal Social Charge will apply to the entire income and not just to the excess over €60,000.00.

How is “Aggregate Income” defined?

 “Aggregate Income” includes the aggregate of all “relevant emoluments” including pensions, employment income and benefit-in-kind if applicable and “relevant income” including rental income, dividend income, income from a trade or profession, etc.

It does not include:

• Social Welfare Payments or
• Deposit Interest subject to DIRT (Deposit Interest Retention Tax)

 What about the Medical Card holders?

 Previously medical card holders were entitled to avail of the special reduced Universal Social Charge rate of 4%.

According to this new amendment, individuals holding medical cards will be liable to pay Universal Social Charge at the normal rates if his/her aggregate income exceeds €60,000.00.

This will mainly affect individuals with high earnings from other E.U. member states who transfer to Ireland but have social security arrangements in their own country.  Under E.U. law these individuals qualified for medical cards in Ireland and prior to Finance Act 2013 they would have been entitled to the reduced USC rate of 4%.

 2. THE REMITTANCE BASIS FOR INCOME TAX

This legislative amendment was introduced as an anti-avoidance measure to ensure that an individual who is resident and/or ordinarily resident in Ireland but non-domiciled cannot avoid paying the correct tax on the remittance of income into Ireland.

Under the remittance basis an individual is only liable to Irish Tax on income he/she brings into Ireland.  If the income is from an “earned” source then Income Tax, Universal Social Charge and PRSI are levied.

The changes to the Taxes Consolidation Act are most easily explained in an example:

• Sean Murphy is Irish resident for the past three years but is U.S. domiciled.
• He earned €200,000 rental income from his investment properties located in the U.S. over a two year period.
• He did not remit any of this income into Ireland.
• Instead he invested this €200,000 in a property in Spain.
• In January 2013 he gave the Spanish property to his wife Mary, as a gift while on holiday there.
• Mary is also Irish resident but U.S. domiciled.
• On 1^st March 2013 Mary sold the property for €250,000.
• On 1^st May she lodged the proceeds into her Irish bank account which was opened in her sole name.
• The lodgement of €250,000 by Mary into her own bank account is treated as a remittance by Sean because it occurred after 13^th February 2013.
• John is liable to pay Income Tax on the remittance, being the lodgement of funds into Mary’s Irish bank account.
• Mary will also be liable to Capital Gains Tax on €50,000, being the gain in value on the Spanish property because she remitted the gain into Ireland in May 2013.

Summary of the main points

Where there is an application of income from foreign securities or possessions by an Irish resident or ordinarily resident individual who is non-domiciled who then:

a)      makes a loan to his/her spouse or civil partner or

b)      transfers money to his/her spouse or civil partner or

c)      acquires property that is subsequently transferred to his/her spouse or civil partner

It will be deemed to be a taxable remittance for Income Tax purposes for that Irish resident, non-domiciled individual where the sums are received in the state on or after 13^th February 2013 from any of the following sources:

a)      Remittances payable in the state

b)      Property imported

c)      Money or value arising from property not imported

d)      Money or value received on credit or account in relation to such remittances, property, money or value.

3. THE REMITTANCE BASIS FOR CAPITAL GAINS TAX

As with the Income Tax legislation, this new subsection provides that where an Irish resident, non-domiciled individual makes a transfer outside the state, of any chargeable gains, which would otherwise have been liable to Capital Gains Tax on the remittance basis, to his/her spouse or civil partner, any amounts remitted into Ireland on or after 13^th February 2013 deriving from that transfer will be treated as having been remitted by the individual who made the transfer to his/her spouse or civil partner.

It is important to remember that the provisions apply to a remittance by the spouse or civil partner on or after 13^th February 2013 which means that any chargeable gains historically transferred are within the scope of the new provisions of Finance Act 2013 where the remittance into Ireland occurs on or after 13^th February 2013.

 4. TAXATION OF CERTAIN SOCIAL WELFARE BENEFITS 

From 1^st July 2013 certain Social Welfare Benefits not previously chargeable to Income Tax will come into the Income Tax net including:

1. Maternity Benefit
2. Adoptive Benefit
3. Health & Safety Benefit

Revenue will now be permitted to amend tax credit certificates and standard rate cut off points to collect the tax arising on these benefits.

These benefits are not liable to the Universal Social Charge.

What happens if the salary is paid by the Employer during Maternity Leave?

Previously the employer paid the full salary to the employee less an amount representing the maternity benefit.  The net salary was liable to Income Tax, Universal Social Charge and PRSI while the employee received the Maternity Benefit tax free.

The employer received a tax saving on employer’s PRSI for the amount of the Maternity Benefit received by the employee.

From 1^st July 2013 onwards the employee will pay up to 41% Income Tax on the amount of the Maternity Benefit.

5. MORTGAGE INTEREST RELIEF

Prior to Finance Act 2013 Mortgage Interest Relief was due to expire at the end of 2012.

Section 9 Finance Act 2013 introduced transitional provisions in relation to mortgage interest relief which allows certain loans taken out in 2013 to be deemed to have been taken out in 2012.  These include:

• A loan taken out to purchase a site for which planning permission has been obtained on or before 31^st December 2012 and in respect of which a qualifying residence is built on that land or
• A loan taken out by an individual on/after 1^st January 2012 and on/before 31^st December 2012 which has been used for the construction of a residential premises on the site/land which the individual purchased on/after 1^st January 2012 and on/before 31^st December 2012.
• A facility agreement or loan agreement which was in place on/after 1^st January 2012 and on/before 31^st December 2012 to provide a loan to an individual which is partly drawn down in 2012 with the remainder being drawn down in 2013.  The loan must be for the repair, development or improvement of a residential premises which is the individual’s qualifying residence.

It is important to remember that where planning permission is required, it must have been granted prior to 31^st December 2012 for the relief to apply.

6. DONATIONS TO APPROVED BODIES

Prior to the Finance Act 2013, tax relief for donations was given in two ways:

1. The self employed individuals and companies received a tax deduction for donations made to approved bodies subject to certain conditions.
2. PAYE workers (employees paid through the PAYE system) did not obtain a tax deduction.  Instead the approved body applied to Revenue for a repayment as if the PAYE worker had made the donation net of tax at the individual’s marginal tax rate i.e. 41%.

The new provisions have resulted in:

1. The distinction between self employed individuals and PAYE workers has been removed.
2. The approved body (i.e. the Charity) can reclaim a specified amount of the donation rather than the self employed individual receiving a tax deduction for the donation through the self assessment system.
3. The specified rate is 31% now instead of the individual’s marginal tax rate of 41%.
4. There is a cap of €1,000,000 on the aggregate qualifying donations in any year of assessment from any individual donor to approved bodies.
5. There is still a 10% restriction for donations to approved bodies with which the individual donor is associated.
6. Certification by donors is being simplified.
7. Donors no longer need to provide “appropriate certificates” instead they will provide annual or enduring certificates that can be renewed.
8. Enduring Certificates will apply for five consecutive years of assessment and can be renewed.

What does this mean?

1. The net cost to a self-employed individual making the minimum donation of €250.00 has increased from €148.00 (i.e. €250 x 41%) to €250.00.
2. Since self employed individuals with earnings taxed at the marginal rate are more likely to make donations of €250.00 than self employed individuals taxed at the standard rate then this is likely to result in a significant shortfall in donations for approved bodies.

Final Points

1. Corporate donations are not affected by the new reclaim procedures for individuals or the annual cap of €1,000,000 on relevant donations.
2. The relief is only available in respect of donations made by Irish resident individuals.
3. Donations from non-resident individuals do not qualify regardless of the amount of tax paid by them in Ireland which doesn’t appear to make any sense especially since non resident companies can obtain a tax deduction for donations.

7. FARM RESTRUCTURING RELIEF

This new relief announced in the 2013 Budget enables individual farmers to obtain relief from CGT (Capital Gains Tax) where there is a sale or exchange of agricultural land where other agricultural land is being purchased or acquired under an exchange.

This is subject to Ministerial Order to take effect.

To qualify for the relief the following conditions must be fulfilled:

1. The sale / purchase and exchange of land is between farmers (i.e. both parties must be farmer) who spend not less than 50% of that individual’s normal working time farming and
2. A farm restructuring certificate must be issued by Teagasc making the agricultural land qualifying land and
3. Where the qualifying land is purchased / acquired / exchanged in joint names, each joint owner must be a farmer in his/her own right.  This excludes spouses and civil partners and
4. The first sale or purchase must occur in the relevant period (i.e. between 1^st January 2013 and 31^st December 2015) with the matching purchase or sale taking place within two years from that date or
5. Where there is an exchange both transfers under the exchange must take place between 1^st January 2013 and 31^st December 2015 and
6. The consideration for the qualifying land being purchased or exchanged must equal or exceed the proceeds from the sale of the qualifying land for the relief to be granted in full.  In other words, relief is given in full where the value of the land sold/exchanged is less than or equal to the value of the land purchased / acquired by exchange.
7. Where the consideration for the qualifying land purchased or exchanged is less than the consideration on the sale of the qualifying land then the relief is granted by reducing the chargeable gain by the same proportion that the acquisition costs bear to the sale/exchange proceeds for the qualifying land.

Can the Relief be clawed back?

1. The relief can be clawed back if the qualifying land is sold within five years from the date of purchase or exchange.
2. The clawback will not arise in the case of compulsory acquisition.

8. FATAC – US FOREIGN ACCOUNT TAX COMPLIANCE ACT

The US Foreign Account Tax Compliance Act 2010 comes into effect in 2014.

The aim of this legislation is to ensure that US citizens pay US tax on income arising from overseas investments.

The Finance Act 2013 introduced legislation which allows for the Irish Revenue Commissioners to make regulations for the purpose of implementing this Ireland US agreement.

The regulations will require that certain financial institutions register and provide a return of information on accounts held, managed or administered by the financial institution.  A return of information on payments must also be made.

The financial institutions will be required to obtain a US TIN from account holders.

Finance Act 2013 empowers Revenue officers to enter the premises of the financial institution at all reasonable times to ensure the correctness and completeness of a return and to examine the administrative procedures in place for the purposes of complying with the financial institution’s obligations under the regulations.

Section 891E(10) authorises Revenue to communicate the information obtained to the Secretary of the U.S. Treasury within nine months of the end of the year in which the return is received, notwithstanding Revenue’s obligation to maintain taxpayer confidentiality.

Section 32 of the Finance Act 2013 that introduced the new s.891 is enabling legislation.  The regulations will contain their own commencement provisions.

9. CLOSE COMPANY SURCHARGE

Finance Act 2013 increases the de minimis amount of undistributed investment and rental income from €635 to €2,000 which may be retained by a Close Company without giving rise to a surcharge.

A similar amendment is being made to increase the de minimis amount in respect of the surcharge on undistributed trading or professional income of certain service companies.

The aim of these changes is to improve cash flow of close companies by increasing the amount a company can retain for working capital purposes without incurring a surcharge.  Although it’s difficult to imagine how undistributed income of €2,000 could possibly make that much of a difference!

10. STAMP DUTY

Finance Act 2013 introduced anti-avoidance measures to target “resting in contract” and other structures used in relation to certain land transactions.

The main points are as follows:

1. Where a contract or agreement for the sale of land or an interest in land is entered into where (1) 25% or more of the consideration is paid under the contract or agreement and (2) an electronic or paper return along with the relevant stamp duty payable hasn’t been filed and paid within thirty days then the contract or agreement is chargeable to stamp duty as if it were a conveyance or transfer of interest in the land.
2. Where stamp duty is paid on a contract and a conveyance is ultimately completed there is a provision for crediting the stamp duty paid on the contract against any stamp duty that would be payable on the conveyance.  The conveyance must be made “in conformity with the contract.”
3. If the contract or agreement is rescinded or annulled, the stamp duty will be returned provided this is shown to the satisfaction of the Revenue.
4. There are no exclusions from the charge for tax incentive properties.
5. Where a landowner (1) enters into an agreement with another person that allows that individual to enter onto the land to carry out developments on the land and (2) 25% or more of the market value of the land is paid to the landowner other than as consideration for the sale or all or part of the land, then the agreement is chargeable with stamp duty as if it were a conveyance.
6. An agreement for land leases exceeding thirty five years will be stampable as if they were actual leases made for the term and consideration mentioned in the lease agreements where 25% or more of the consideration specified in the agreement for lease has been paid.
7. This legislation is applicable to all instruments executed on or after 13^th February 2013 with the exception of instruments executed solely “in pursuance of a binding contract or agreement entered into before 13^th February 2013.”
8. Where the agreement for lease has been stamped, stamp duty on the lease will be limited to €12.50.

What is meant by developments?

1. The construction, demolition, extension, alteration or reconstruction or any building on the land or
2. Any engineering or other operation in, on, over or under the land to adapt it for materially altered use.

CONCLUSION

This has been a very comprehensive Finance Act with many far reaching amendments. Over the next few weeks I will be focusing on areas significantly affected by the 2013 Finance Act as they deserve more detailed explanations to properly outline the changes to the Irish tax system:

CLARIFICATION OF LPT

Revenue has clarified the following points:

The “Late” surcharge could apply to a taxpayer’s Income Tax Return in circumstances where the taxpayer is not fully LPT compliant by the time the Income Tax Return is filed.

This surcharge will not exceed the amount of LPT due where the taxpayer subsequently returns and pays his/her Local Property Tax.

For those taxpayers who pay and file via ROS, the surcharge won’t apply where the individual is LPT compliant by the extended deadline date i.e. 14th November 2013.

What about payment options for 2014?

Where the taxpayer has elected to pay the LPT via the phased payment option for 2013 that option will automatically apply for 2014.

For taxpayers who have made a once off lump sum payment in 2013, Revenue will contact the taxpayer in the last quarter of 2013 to establish their preferred payment option for 2014.

FINAL REMINDERS

The due date for filing paper LPT Returns is Tuesday, 7th May 2013.

The deadline for filing via the ROS System is 28th May 2013.

If the taxpayer has not received an LPT Return from Revenue, he/she can file on line by selecting “I have not received a Property Pin” on the LPT website at http://www.revenue.ie

WHAT IS IT?

The Local Property Tax or LPT is a self assessed tax payable by an individual on the market value of his/her “residential property or properties” located in Ireland.

WHAT DOES THAT MEAN?

It means the LPT is a self assessed tax.  You are responsible for valuing your own property, filing your tax return and making the relevant payment.

WHAT’S MEANT BY “Residential Property?”

A “residential property” is any building (or part of a building) which is used or is suitable for use as a residence.  It includes the driveway, yard, garden, garages, sheds and any other land associated with the property up to one acre in area.

HOW IS THE PROPERTY VALUED?

Because the LPT is a self assessed tax the property owner must decide on the market value of the property.  Once the market valuation has been made it will hold for LPT purposes until the end of 2016 regardless of any improvements or renovations to the property or indeed any changes to the property market.

Revenue will not be valuing individual properties.  Instead they will provide guidance to assist the property owners in valuing their own property.  The LPT information guide uses the following resources as suggestions on how to honestly value your property:

• Property Websites including www.daft.ie, www.myhome.ie, etc.
• Local Estate Agents
• The Property Services Regulatory Authority’s Property Price Register
• www.revenue.ie for a guide on average values for a range of different property types  based on a number of factors including age of property, average price of type of property for each electoral district in Ireland.  There is also a Valuation Technical Paper available on this website to assist you accurately value your property regardless of where you live in Ireland.

If in doubt, it is advisable to get a valuation from an independent Auctioneer, Valuer or Estate Agent.

CAN THE VALUATION BE CHALLENGED?

There is a presumption of honesty with this new tax.  An exact valuation will not be required unless the property is valued at €1 million or more.  However, Revenue will challenge cases where it is obvious that an undervaluation has occurred in which case they can raise an assessment on the undervaluation.

If such a situation arises, the tax payer can appeal the assessment to the Appeal Commissioners.

HOW IS LPT CALCULATED?

The amount of LPT depends on the property value.

Property values are organised into bands.  The first band is for property values between €0 and €100,000.  After that all values are in €50,000 bands.  Where the property has a value of in excess of €1m an exact valuation is required.

Once the property owner has identified the band in which his/her property falls into, the LPT will be calculated automatically when filing on line via ROS (Revenue on line System).

It is not necessary to ask your Accountant / Tax Adviser to calculate this tax as there is a ready-reckoner provided to assist those completing their Returns.

But just in case you want to know how to calculate the tax liability, it’s computed as follows:

• Apply 018% to the mid point of the relevant band.
• If your property is valued at €1m or over then the first €1m will be assessed at 0.18% with the remainder at 0.25%

Again, please make sure you have an exact valuation if your property is worth €1m or over.

WHO HAS TO PAY THE LPT?

The simple answer is the owner of the property on the date the LPT falls due.

The filing date for 2013 is 1^st May 2013.  For 2014 onwards it will be 1^st November.

If you are in the process of selling your property but still haven’t sold it by 1^st May 2013 then you will be considered the “liable person” for 2013 even if the property is sold before the end of the year.

The following individuals are liable to pay the LPT:

• Any one who owns property situated in Ireland regardless of whether he/she lives in Ireland or not.
• The landlord in situations where the property is rented under leases of less than twenty years.
• Trustees in circumstances where the property is held in a trust.
• Local authorities or organisations that provide social housing.
• Any one who holds a “life interest” in a residential property.
• An individual who legally occupies a property on a “rent free” basis.
• Lease holders whose leases are more than twenty years.
• The personal representative of a deceased owner including executors and administrators of the deceased’s estate.

If two or more people own a residential property they are both liable for the LPT.  It is essential that they agree who should file the return and pay the relevant tax.  If neither owner pays the LPT then Revenue can collect the tax from either party.

ARE THERE ANY EXEMPTIONS?

There are a number of exemptions including:

• New and unused properties which have been purchased from a builder or developer between 1^st January 2013 and 31^st October 2016.  They will be exempt until 31^st December 2016.
• Residential Properties purchased by a first time buyer between 1^st January 2013 and 31^st December 2013.  These properties are exempt until the end of 2016 providing they are used as the individual’s principal private resident (sole or main residence).
• Properties that are unsold and are not used as a residential property.  These properties must be constructed and owned by a builder / developer.
• Registered Nursing Homes.
• Diplomatic properties including embassies.
• Mobile homes, vehicles or vessels.
• Properties used by charitable bodies.  They must provide residential accommodation in connection with the recreational activities for which they were set up.
• Residential properties owned by a charity or public body to provide accommodation to people with a particular need.  For example, sheltered housing for elderly or disabled individuals.
• Properties which are certified as having significant pyritic damage in line with Government regulations.
• Properties purchased or adapted for the use of a severely incapacitated individual who has received an award from P.I.A.B. (Personal Injuries Assessment Board) or from a trust established.  The property must be the individual’s main or sole residence.
• Properties in unfinished housing estates (“Ghost Estates).
• A property owned by an individual which has been vacated due to long term mental or physical infirmity.

HOW DO WE PAY THE LPT?

The liable person must complete the tax return and select the preferred payment option.

If you prefer submitting a paper return the due date for both filing and paying is 7^th May 2013.  In other words you must enclose a cheque, bank draft or postal order with the completed form.

If you wish to submit a return on line there is an extended filing date to 28^th May 2013 with the following options:

• You can pay by single debit authority.  The payment deadline date in this instance is 21^st July 2013.
• If you wish to pay on a phased basis, the commencement date is 1^st July 2013.

WHAT IS MEANT BY A “PHASED BASIS”?

A phased basis means:

• A deduction from salaries, wages or occupational pensions.
• A deduction from certain payments from the Department of Social Protection.
• A deduction from certain payments made by the Department of Agriculture, Food and the Marine.
• Direct Debits
• Cash payments including debit and credit card payments which are made in equal instalments through an approved payment provider.

HOW WILL AN EMPLOYER KNOW TO DEDUCT LPT?

Revenue will advise the employer of the amount to be deducted.

If a payment is deducted from the individual’s salary at source it is not subject to charges or interest.

WHAT HAPPENS IF THE LPT RETURN IS NOT SUBMITTED?

Revenue will pursue the amount by raising a “Notice of Estimate” using a wide range of collection options including:

• Mandatory deductions of the required amount from salaries, wages, pensions, Government payments.
• Notices of Attachments on bank accounts.
• Handing the debt to the Sheriff.
• Referring the debt to the Revenue Solicitor.
• Withholding refunds of other taxes due until the LPT is paid in full.

WILL INTEREST AND PENALTIES APPLY?

Interest and penalties on late payments will apply.

Not submitting an LPT Return could result in a penalty of the amount of the LPT that would have been payable on a correctly completed return up to a maximum of €3,000.00.  This penalty could arise even if the individual has actually paid the LPT.

A Tax Clearance Certificate will not be issued to the individual.

If you are obliged to file Income Tax, Corporation Tax or Capital Gains Tax Returns, you will incur a 10% surcharge at the relevant filing dates,  if you have not filed your LPT Return and paid the corresponding liability or entered into a payment agreement.  The surcharge will be capped at the amount of the LPT liability only in situations where the LPT position is subsequently brought up to date.

WHAT HAPPENS IF I OWN MORE THAN ONE PROPERTY?

Taxpayers who own more than one property are obliged to pay and file on line.  They do not have the option of submitting a paper return and accompanying cheque, draft or postal order.

WHAT IF I CAN’T PAY THE LPT?

In certain circumstances an individual can opt to defer the payment of taxes if certain conditions are met.

It is important to remember that a deferral is not an exemption.

The deferred tax will remain as a charge on the property until the property is sold or transferred to another person.

There are four categories of deferral of the LPT:

1. Hardship Grounds
2. Personal Insolvency
3. Personal representative of a deceased person.
4. Income Threshold

Revenue will review applications in respect of the first three categories and following its review will grant or deny the deferral application.  These deferrals are not restricted to owner occupiers.  They can apply to personal representatives of deceased liable persons, individuals who have entered into insolvency agreements under the 2012 Personal Insolvency Act as well as those who have suffered unavoidable and unexpected significant financial loss and cannot pay the LPT without excessive hardship.

The fourth category dealing with the Income Threshold does not involve an approval process.  The thresholds are based on gross income providing certain conditions are met.  The standard income threshold can be increased if the claimant pays mortgage interest and this category of individuals must be owner occupier i.e. it does not apply to owners of multiple properties.

I STILL HAVE QUESTIONS

If you still have questions, please contact us on 01-  872 8561 or visit the revenue site http://www.revenue.ie

Rental Income

Rental income is calculated on the gross amount of rents receivable. A profit or a loss is calculated separately for each rental source. The rental income which is liable to Income Tax is the aggregate of the profits as reduced by the aggregate of the losses.

When completing an Income Tax Return, rental income from property situated in the Republic of Ireland is chargeable to tax under the provisions of Case V Schedule D while rental income from property situated outside the State is chargeable to tax under the provisions of Case III Schedule D.

It is important to remember that losses from one source cannot be written off against profits from the other. In particular, Irish rental losses cannot be written off against profits from foreign rental properties and vice versa.

Rental Income liable to Income Tax

The types of rental income liable to Income Tax can be more diverse than you might imagine. The following income is considered to be rental income, taxable under Case V, Schedule D:

• The letting or rental of residential, commercial and/or agricultural property.
• Easements.
• The granting of sporting rights and permits.
• Insurance payments received to compensate for non payment of rent.
• Certain Premiums.
• Improvements carried out by the tenant which is not required by the lease and for which he/she is not reimbursed, etc.

Deductible Rental Expenses

For rental expenses to be deductible there are three main rules:

1. It must be incurred by the landlord.
2. It cannot be of a capital nature.
3. It must be incurred during the period in which the landlord is entitled to receive rental income. In other words, it cannot be considered pre or post trading expenses.

Specific Expenses include:

• Rent, rates and insurance paid by the landlord.
• Repairs & Maintenance costs paid by the landlord including water charges, electricity, satellite/cable television, cleaning and maintenance services, painting and decorating, replacing tiles and slates, damp treatment, fixing broken showers, windows, doors, etc.
• Management Charges.
• Letting Expenses
• Advertising
• Legal Fees including the drawing up of leases or debt collection.
• Accountancy charges in relation to preparing rental income accounts and tax returns.
• Interest on money borrowed to purchase, improve or repair the rental property.
• Allowances for capital expenditure – These are known as Capital Allowances.

Please be aware you can never claim a deduction for your own labour. If you carry out repairs or gardening yourself, you cannot include this as a deductible expense against rental income.

The NPPR and Household charges are not allowable expenses against rental income.

Mortgage Interest

Broadly speaking, interest on money borrowed to purchase, improve or repair a rental property is deductible in calculating your rental income for tax purposes, subject to certain conditions.

The allowable deduction for interest accruing on loans used to purchase, improve or repair rented residential property is restricted to 75% of the total interest accruing.

This 75% restriction does not apply to non-residential property. In the case of offices, warehouses, etc. 100% of the interest is allowable against rents receivable.

A further restriction was introduced in 2006. Unless the landlord has complied with the registration and payment requirements of the PRTB (Private Residential Tenancies Board) in relation to each and all tenancies in the rented property then the interest on monies borrowed for the purchase, improvement or repair or rented residential properties will not be an allowable deduction against rents receivable.

If the loan to purchase the rental property includes stamp duty, legal fees, auctioneers’ fees, etc. then the interest on the loan must be apportioned. Only the interest relating to the actual cost of purchase, repair or renovation of the property is allowable.

Interest incurred prior to the first letting is not allowable (pre-letting expense) neither is the interest incurred after the final letting (post letting expense). Interest incurred during a period in which the landlord occupies the property is not allowable.

Capital Expenditure – Wear & Tear Allowance

Wear and tear allowances are available in respect of capital expenditure incurred on fixtures and fittings provided by the landlord for the rented residential property. This includes furniture, showers, kitchen appliances, etc.

The rate is 12½% over eight years.

What Expenditure is not allowable?

• Pre-letting expenses – expenses incurred prior to the date on which the premises was first let. There are exceptions to this rule and they include auctioneer’s letting fees, advertising fees and legal expenses incurred on first lettings.
• Interest on money borrowed incurred in the period following the purchase of the property up to the time the first tenant enters into a lease and after the final letting.
• Post-letting expenses – expenses incurred after the final letting,
• Capital expenditure incurred on additions, alterations or improvements to the premises unless allowable under an incentive scheme or incurred on fixtures and fittings.
• Expenses incurred on lettings that are exempt under the Rent-a-Room provisions.
• NPPR
• Household Charge
• The landlord’s own labour

Rent-a-Room Relief

If an individual rents out a room in his/her sole or main residence as residential accommodation and receives up to €10,000 per annum this amount will be exempt from Income Tax, PRSI and the Universal Social Charge providing conditions are met.

The €10,000 limit includes rent, utility bills, laundry, food, etc.

If the individual receives in excess of €10,000, the Rent-a-Room exemption will NOT apply and the entire rent receivable will be liable to income tax, PRSI and the Universal Social Charge

An individual cannot avail of rent-a-room relief in respect of payments for accommodation in the family home by a child of the landlord under any circumstances. There is no restriction where rent is paid by other family members, for example, nieces and nephews.

The relief does not affect an individual’s entitlement to mortgage interest relief i.e. Tax Relief at Source.

The relief does not affect the individual’s entitlement to Principal Private Residence Relief from capital gains tax on the sale or disposal of the property.

You can opt out of the relief for a year of assessment by making an election on or before the return filing date for the year of assessment concerned.

Non Resident Landlords

If your landlord resides outside theRepublicofIrelandand you pay rent directly to them or electronically transfer the money into their bank account either inIrelandor abroad, you must deduct income tax at the standard rate of tax (currently 20%) from the gross rents payable.

Failure to deduct tax may leave the tenant liable for the tax that should have been deducted.

At the end of the year you are obliged to complete a Form R185 showing the tax deducted from the gross rents which you should then give to your landlord. The landlord can then submit this form to the Revenue Commissioners and claim this amount as a credit.

If, on the other hand the non-resident landlord has an agent who is resident in the state, then there is no obligation for the tenant to deduct tax from the rent. Instead the tenant should pay the gross rent to the agent.

The agent is then liable to pay income tax on the rents received from the tenant in the capacity of Collection Agent for the landlord. The agent is then required to register as self employed and submit an annual tax return and account for the tax due.

Foreign Rental Income

In general, rental income from property located outsideIrelandis calculated on the full amount of rents receivable, irrespective of whether or not it has or will be remitted intoIreland.

Broadly speaking, the same deductions are available in calculating the taxable rental income as if the rents had been received inIreland.

Income tax on these rental profits is chargeable under Case III of Schedule D.

In the case of an individual who is not domiciled inIreland, the taxable rental income is computed on the full amount of the actual sums received in the State without any deductions or reliefs for expenditure incurred.

Rental losses from the letting of property outside the State cannot be offset against rental income from the letting of property in the State and vice versa. Such losses can only be offset against future rental income from property outside the State.

Revenue have just published a useful guide on mortgage interest relief

The key points are:

1. Tax relief for mortgage interest on a home loan is tax relief given to mortgage holders based on the interest paid on a qualifying mortgage on your home.
2. This includes a new mortgage for a home, a top up loan used for the purposes of developing or improving your home, a separate home improvement loan, a re-mortgage or consolidation of existing qualifying loans secured on the deeds of your home.
3. The mortgage interest relief is given at source, by your mortgage provider, either in the form of a reduced monthly mortgage payment or a credit to your funding account.
4. You do not have to be earning a taxable income to qualify for mortgage interest relief.
5. You can also claim tax relief in respect of the interest on a mortgage paid by you for your separated/divorced spouse or former partner in a dissolved civil partnership.
6. You can also claim tax relief in respect of a dependant relative for whom you are claiming a dependant relative tax credit (i.e. widowed parent or a parent who is a surviving civil partner or elderly relative).
7. Switching lender or mortgage type to achieve a better interest rate is not the same as taking out a new loan. However, a new mortgage when you move home and take out a mortgage with a new or existing lender is eligible for relief.
8. A mortgage taken out from 1^st January 2004 to 31^st December 2012 used to purchase, repair, develop or improve your sole or main residence, situated in the state, is eligible for mortgage interest relief until 31^st December 2017.
9. Mortgages taken out after 31^st December 2012 will not qualify for mortgage interest relief.
10. Mortgages taken out prior to 1^st January 2004 are no longer eligible for mortgage interest relief.
11. Top up loans / equity release loans taken out since 1^st January 2004 on these pre-2004 loans may be eligible for mortgage interest relief provided they are used to purchase, repair, develop or improve your sole or main residence situated in the state.
12. From 1^st January 2012 the rate of mortgage interest relief for first time buyers who took out their first mortgage between the years 2004 and 2008 and are residing in the property increased to 30% until 2017.
13. If you took out a loan outside those dates the existing rules remain unchanged.
14. Mortgage interest on loans taken out for investment, rental, secondary or any properties other than your main residence does not qualify for interest relief.
15. If you are living in the state and paying a mortgage to a qualifying lender in the state but working in Northern Ireland, you can still claim mortgage interest relief in this country provided you have a PPS number.
16. Other loans such as loans in sterling (UK currency) are not eligible for relief through the Tax Relief at Source Scheme but may be eligible for relief from your local tax office.
17. Where a parent is a co-mortgagor/guarantor and is not living in the mortgaged property or making any repayments on the mortgage, the person’s eligibility for Mortgage Interest Relief at the rate applicable to the first time buyer is not affected by the fact that a parent is also party to the mortgage deed.
18. Home loans taken out in 2013 or later do not qualify for mortgage interest relief.

Introduction

Finance Act 2012 introduced a number of important changes to the stamp duty filing regime.

The changes apply to all instruments or deeds executed on or after 7^th July 2012.

Key Changes in Stamp Duty Filing Regime

Where the execution date of an instrument or deed is on or after 7^th July 2012:

1. Adjudication of the stamp duty liability will not be necessary or possible.
2. A late filing surcharge (5% or 10%) will apply where returns are filed late.
3. There are new criteria for making a valid “expression of doubt.”

What these changes mean

1. Instruments executed on or after 7^th July 2012 will no longer be subject to adjudication.
2. Stamp duty must be self-assessed in all such cases.
3. Where unclear about the stamp duty treatment of a particular matter in the return then there is an option to make “an expression of doubt” on the ROS form.
4. The criteria for making a valid expression of doubt are stricter.
5. Revenue can reject an expression of doubt as not being genuine.
6. If Revenue believes the expression of doubt is not genuine, they will issue a notice of rejection outlining the reasons.
7. To obtain a Stamp Certificate the filer must immediately lodge an amended return and pay the related liability.
8. The taxpayer will have the right to appeal to the Appeals Commissioner.
9. An expression of doubt will not be accepted where the Stamp Duty Return is filed late.
10. It is also possible to address technical tax queries to Revenue’s Technical Service (RTS).
11. Late Returns will be subject to a surcharge.
12. Revenue will continue to accept returns as being filed on time where filed up to forty four days after execution. (This is a Revenue Concession.)
13. A 5% or 10% surcharge will apply depending on the lateness of the Return. Further information is available on [http://www.revenue.ie/en/tax/stamp-duty/index.html].

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.

Introduction

Your residency affects your tax treatment in Ireland.

As an Irish resident, ordinarily resident and Irish domiciled individual you will be taxed on your worldwide income wherever it arises.

You will be taxed on all Irish and foreign source income in full and where possible you will be entitled to a tax credit for any foreign tax paid on foreign source income.

Residence

You will be considered to be Irish resident if you are present in the state for:

a) 183 days during the tax year in question or

b) 280 days or more over a period of two consecutive tax years.

Notwithstanding b), if you are present in Ireland for 30 days or less in a tax year you will not be treated as resident for that year unless you elect to be resident.

If you are not tax resident in the year of arrival under the above rules, you may elect to be tax resident for the year of arrival.

If you have any queries relating to whether or not you should elect to become Irish resident, please contact us on 01 872 8561

Ordinarily Resident

You will be considered ordinarily resident if you have been resident in the state for the previous three consecutive years.

Regardless of whether or not you are actually resident in the state in the fourth year, you will be considered ordinarily resident for the fourth year.

If you leave Ireland, you will cease to be ordinarily resident when you have been non resident for three consecutive years. You will not be considered to be ordinarily resident from the fourth year.

Domicile

Domicile is a general legal concept.

It is relevant to you in relation to how certain foreign source income will be taxed in Ireland.

Under Irish law, every person acquires a domicile of origin at birth. In most cases this is the father’s domicile, however, in situations where the parents are unmarried or the father has died prior to the individual’s birth, the domicile of the mother is taken.

Your domicile can change if you acquire a domicile of choice.

For more information, please contact us on 01 872 8561

Tax Treatment

As a non resident, but ordinarily resident and Irish domiciled individual you will be taxed on all Irish and foreign sourced income in full.

The following income is exempt:

a) Income from a trade or profession, all duties of which are exercised outside Ireland.

b) Income from an office or employment, all duties of which are performed outside the state.

c) Foreign income providing it does not exceed a threshold amount of €3,810 in a tax year.

As a non resident, non Irish domiciled but ordinarily resident individual, you will be taxed on all Irish source income in full and foreign source income to the extent that it has been remitted into Ireland.

Again, the following income is exempt:

a) Income from a trade or profession, all duties of which are exercised outside Ireland.

b) Income from an office or employment, all duties of which are performed outside the state.

c) Foreign income providing it does not exceed a threshold amount of €3,810 in a tax year.

As non resident, non domiciled and non ordinarily resident, you will be taxed on Irish source income in full and on foreign source income in respect of a trade, profession, employment or office where the duties are exercised in Ireland.

As an Irish resident and ordinarily resident but non Irish domiciled individual, you will be taxed on Irish source income in full and on remittances of foreign source income.

Should you have any queries in relation to residency, ordinary residency or domicile, we would be delighted to discuss them with you.

Please be aware that the information contained in this article is of a general nature.  It is not intended to address specific circumstances in relation to any individual or entity. All reasonable efforts have been made by Accounts Advice Centre to provide accurate and up-to-date information, however, there can be no guarantee that such information is accurate on the date it is received or that it will continue to remain so. This information should not be acted upon without full and comprehensive, specialist professional tax advice.