This document covers tax issues concerning overseas property in the following Countries: Spain, Portugal, Italy, Cyprus, USA, Germany, Hungary, Poland, Bulgaria, Croatia, Estonia, Montenegro, Brazil, Mexico, Morocco, France, Malta.
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 .
We advise you to take expert tax advice when purchasing property abroad so that you understand what your responsibilities are as a property owner abroad.
Tax Information for Overseas Property Investment from Ireland