IRISH TAX ON OVERSEAS PROPERTY LETTINGS

If you are resident and domiciled in Ireland you must pay tax on your worldwide income. This includes rental income from foreign properties.

Resident

An individual will be regarded as resident in Ireland if they spend at least 183 days in a tax year in Ireland, or if you spend 280 days in the State over a two year period.

Domicile

Generally an individual's domicile is the country in which they were born, "domicile of origin". An individual can acquire a new domicile, "domicile of choice", but they can never have more than one place of domicile. It is very difficult to change you place of domicile.

Tax Treatment

The rental profits on foreign property assessable to tax are calculated in the same way as Irish rental income. Certain allowable expenses are deducted from the Rental Income due in the year.

Note rental income is assessed on the income earned in the year, not what was actually received.

Although the income is derived from rent, as it is from a foreign source, it is taxable under Schedule D Case III (foreign income); however, the rules for calculating the taxable income are the same as Irish rental income.

Unfortunately, as the rent is foreign source, any rental losses or property based tax reliefs from Irish property cannot be utilised to reduce the taxable income.

Expenses and allowances - what counts?

You can deduct that same expenses and allowances from overseas property as from Irish rental property, including travel costs. In order for an expense to be allowed it must be incurred wholly and exclusively for rental purposes. Therefore, expenses, including mortgage interest, management expenses, accountancy fees, repairs and insurance are generally deductible in determining taxable foreign rental income.

What happens if you've already paid tax on the income abroad?

Currently Irish has taxation agreements with 44 countries. Thus if you pay tax in a foreign country with which Ireland has an agreement a credit is given against the Irish Tax for any foreign tax arising.

Note however, that the credit system will not give rise to a refund of tax. If the foreign tax is greater than the Irish tax, then the credit offset will result in no additional Irish tax being paid.

Normally, if the income arises in a country with which Ireland does not have a tax agreement the foreign tax paid is treated as a deduction against the Irish taxable income.

Note that the rules for calculating taxable rental income differ significantly between countries. Thus the taxable rental income in the foreign country is not always the same as the taxable foreign income in Ireland.

Tax if you dispose of your overseas property

Again if you are resident and domiciled in Ireland you are subject to Irish Capital Gains tax on your worldwide capital disposals.

If you are non-domiciled you are only liable to Irish Capital Gains Tax on the amount of monies remitted to the State.

In addition, to the Irish Capital Gains Tax liability an exposure to foreign Capital Gains Tax may also arise. Again, similar to the taxation of rental income, the rules for calculating the taxable gain differ between countries.

If the property disposed of is situated in a country with which Irish has a Capital Gains Tax agreement, then credit is normally given against the Irish tax for the foreign tax paid. However, a word of caution is that some of the very old tax treaties, e.g. France, do not contain a Capital Gains Tax provision, thus no credit is available for the foreign tax paid.

Capital Acquisitions Tax

A gift or inheritance made by an Irish resident and domiciled person will come under the gift and inheritance tax rules in Ireland. It is irrelevant where the property, the subject of the gift or inheritance, is situated or where the beneficiary resides. The level of CAT to be paid depends on the relationship between the disponer (the person making the gift or inheritance) and the beneficiary. A charge to gift or inheritance tax may also arise in where the foreign asset is situated. Unilateral relief is available for foreign tax suffered to ensure that the Irish taxpayer does not suffer double tax on the same transaction, where a tax treaty in not in force.

Other Issues

In many jurisdictions, it is recommended, or even a requirement, that property be acquired through a corporate structure. Careful consideration should be given to such arrangements, to ensure that the tax implications are fully understood. For example, S.590 TCA'97 will impose a charge to Irish Capital Gains Tax on Irish resident participators on gains accruing to non-resident companies.

In addition, gains arising out of certain "off-shore funds" are liable to Income tax at 42%. Funds in EU/EEA and OCED countries with tax treaty agreements are taxed at 23%.

This document, which is intended as a general guide only, is based on current legislation and revenue practice in Ireland and in foreign countries, and may be subject to change. Formal advice from foreign tax professionals is advised.

For further advice on the tax implications please contact a member of the Anne Brady McQuillans DFK, Tax Department.
Niall Grant - Tax Manager - ngrant@annebrady.ie , Tel: 01-4786620
Lisa Ahern - Ass. Tax Manager - lahern@annebrady.ie, Tel: 01-4786617

For further information regarding properties aboard, please contact Aquarius Properties Abroad. Tel 01-2782900, or email noreen@aquariusproperties.com .

TURKEY

Income Tax

An individual is considered a Turkish resident, if they spend at least 183 days in any calendar year in the country. Non-residents earning income in Turkey through ownership of property, are subject to taxation on their income derived in Turkey.

The Tax year in Turkey is the calendar year. The rate of Income tax is progressive ranging from 15% to 40%. Expenses directly relating to the rental income, e.g. repairs, management fees etc. are treated as tax deductible expenses. Entertainment expenses are deductible to the extent that they are 'plausible' for business purposes. For non-residents, withholding tax applies on rental income. The rate varies between 10% and 25%. It does not apply to residence of countries with which Turkey has tax treaty agreements.

A tax return must be filed by March 31 in the year after the tax year. Advance tax is paid in four equal instalments by the 17th day of the second month following the end of the quarter. The penalty for late payment is 4 per cent per month. The taxpayer must also pay two equal payments in March and July after the tax year.

Capital Gains Tax

Capital Gains arising from the sale of property are treated as income in the year of assessment and are taxed at the marginal rate. The first TRY10,000 of inflation adjusted capital gains is ignored. A capital gain arising on the sale of Turkish securities held for more than a year is exempt. Non residents must return details of the disposal within 15 days of the event.

Property transfer tax

A 1.5 per cent tax is payable on the sale of land or buildings, which is paid by the vendor and seller. An annual 0.3 per cent tax applies to holdings of land and buildings. It is payable in two instalments, one between March and May, and the other in November.

Stamp Duty

Stamp duty is levied as a percentage of the value of the document at rates ranging from 0.15% to 0.75%.

Inheritance and Gift Taxes

Items acquired by way of gifts or inheritances are subject to taxes between 1% and 30% of the item's value. Tax paid in a foreign country on inherited property is deducted from the taxable value of the asset. Inheritance tax is payable over the period of five years and in two instalments per year.

Property Taxes

Property taxes are paid each year on the tax values of land and buildings at rates varying from 0.1% to 0.6%. In the case of the sale of property, a 1.5% levy is paid on the sales value by both parties.

Vat

The standard rate is 18 per cent and the reduced rates are 8 per cent and 1 per cent.

At present Ireland and Turkey have not signed a tax treaty agreement, but it is expected that one will come into force in 2006/7.

This document is only to be used as a guide to the tax systems in each country. It is not to be relied upon for tax planning reasons. Please contact Anne Brady DFK for advice if you require more information.

There is currently no dual taxation agreement between Ireland and Turkey