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Wednesday, Oct 17, 2018

01:17

Tax News

Residence, Ordinary Residence and Domicile

Posted on: Wednesday, February 18, 2015

Section 819(1) TCA 1997 sets out the definition for “Residence.”

There are two basic tests:

1. The Current Year Test i.e. if an individual is present in Ireland for 183 days in a tax year he/she will be deemed to be Irish residence for Income Tax purposes.

2. The Look Back Test i.e. if an individual is present in Ireland for 280 days taking into consideration both the current and preceding calendar years together he/she will be considered Irish resident for Income Tax purposes providing that individual is present in Ireland for at least 30 days in a tax year. 


It is important to note that when determining an individual’s residence, an individual is counted as being present in Ireland for “a day” if he/she is present in the state for any part of the day.

There are, however, two exceptions to this rule:

1. In situations where the individual remains “airside” throughout their time in Ireland or
2. In a situation where the individual’s time in Ireland is due to “force majeure” circumstances. 


An individual may “elect” to be resident for a tax year if he/she can satisfy the Revenue Commissioners that he/she is in the State with the intention and in such circumstances that he/she will be resident in the State in the following tax year.  

If that test is satisfied then the individual shall for the purpose of the Acts be deemed to be Irish resident.



Section 820 TCA 1997 outlines a statutory definition for the term “Ordinary Residence”.

According to Section 820 TCA 1997, if an individual has been resident in Ireland for three years he/she will be deemed to be ordinarily resident in Ireland.

An individual ceases his/her ordinarily residence status in Ireland once that individual becomes non Irish resident for three consecutive years.



There is no statutory definition for determining whether an individual has an Irish “Domicile.”  Instead, it is a common law legal term with a large amount of case law surrounding it.

Under common law, every person must have a domicile. An individual can only have one domicile at any particular time but he/she cannot be without a domicile. 

There are three kinds of domicile to consider:
1. Domicile of Origin
2. Domicile of Choice
3. Domicile of Minors / Dependence.



Don't forget about the Domicile Levy under Section 531AB, TCA 1997 which is aimed at high net worth individuals who reside abroad i.e. outside Ireland

 The Domicile levy of €200,000 applies if the following conditions are met:
- The individual must be Irish domiciled 
- The residence of the individual is irrelevant
- The individual's Irish tax liability must be less than €200,000
- The individual's worldwide income must be greater than €1m
- The market value of Irish property held by that individual must be greater than €5m

Credit will be given for any Irish income tax paid 

The individual must submit the domicile levy return on or before 31st October in the year following the year of assessment.



Now that we’ve established the rules for determining an individual’s residence, ordinary residence and domicile, please find a brief outline as to how this individual will be taxed in Ireland:

• If the individual is resident, ordinarily resident and domiciled in Ireland he/she liable to Irish Income Tax on his/her worldwide income wherever it arises.

• If the individual is resident and domiciled but not ordinarily resident in Ireland he/she liable to Irish Income Tax on his/her worldwide income wherever it arises.

• If an individual is resident and ordinarily resident but not domiciled in Ireland the individual will be liable to Irish Income Tax on (a) Irish source income, (b) Foreign employment income to the extent it relates to the duties being performed in Ireland and irrespective of where the salary/wage is paid, and (c) Foreign income to the extent it is remitted into Ireland.

• If an individual is resident but not ordinarily resident and not domiciled in Ireland the individual will be liable to Irish Income Tax on (a) Irish source income, (b) Foreign employment income to the extent it relates to the duties being performed in Ireland and irrespective of where the salary/wage is paid, and (c) Foreign income to the extent it is remitted into Ireland.

• If an individual is non-resident but ordinarily resident and domiciled in the state then he/she will be liable to Irish income tax on his/her worldwide income with the exception of income from the following (a) a trade or profession no part of which is carried on in Ireland, (b) an office or employment where all the duties of which are carried on outside Ireland with the exception of incidental duties and (c) other foreign income which is less than €3,810 per annum.

• An individual who is non-resident, non-ordinarily resident but domiciled in Ireland will only be liable to Irish Income Tax on Irish source income and income from a trade, profession or employment to the extent that the duties are carried out in Ireland.

• An individual who is non-resident, non-ordinarily resident and non-domiciled will only be liable to Irish Income Tax on Irish source income and income from a trade, profession or employment to the extent that the duties are carried out in Ireland.



Residence– implications for a company’s liability to Corporation Tax

Under Section 23A(2) TCA 1997, the general rule of incorporation states that if a company is incorporated in Ireland then it is deemed to be resident in Ireland which means it is liable to Irish Corporation Tax on its worldwide profits.

There are two exemptions from this rule:
1. The Trading Exemption and
2. The Treaty Exemption 

In situations where one or both of the above exemptions exists, a company will be deemed to be resident in the place where it is centrally managed and controlled.

This rule also applies to non-Irish incorporated entities including branches or agencies.

“Central management and control” relates more the strategic control of the organisation rather than the control of day to day running of a company.

In order to determine the residence of a company in relation to central management and control the following questions should be asked:

• Where are the questions regarding policy made?
• Where are the directors’ meetings held?
• Where are the majority of directors resident?
• Where are major contracts negotiated?
• Where are major agreements concluded?
• Where are the shareholders’ meetings held?
• Where is the head office of the company?
• Where are the books of account kept?
• Where are the accounts prepared and examined?
• Where are the accounts audited?
• Where are the minute books, company seals and share register kept?
• From where are dividends declared?
• Where are the profits realised?
• Where is the company incorporated?

It is not possible to determine the tax residence of a company using just one of the above questions.  It would be expected that the answer to the majority of the questions would be that particular jurisdiction/country.



What about Non-resident companies operating through an Irish branch or Agency?

A non-resident company may be liable to Irish Corporation Tax if it carries on a trade through a branch or an agency in Ireland.


What is a Branch or Agency?

“Any factorship, agency, receivership, branch or management”. – Section 4 TCA 1997


Does that mean that all Branches or Agencies will be liable to Irish Corporation Tax?

A branch or Agency may fall outside the scope of Irish Corporation Tax where the level of activities carried on by that non-resident company in Ireland is such that they do not create a Permanent Establishment (P.E.) in Ireland.


What is a Permanent Establishment?

Article 5 of the OECD Model Tax Treaty defines a Permanent Establishment as “a fixed place of business in which the business of the enterprise is wholly or partly carried on”. 


Three criteria must exist in order for a Permanent Establishment to exist:

1. There must be an actual place of business.  If an employee from an enterprise in one state is purely visiting a client in another state on a short term basis then this will not constitute a place of business and a Permanent Establishment will not be created.
2. The place of business must be “fixed”.  
3. The business of the company/enterprise must be carried on through the fixed place of business.

Examples include:
1. a place of management
2. a branch
3. an office
4. a factory
5. a workshop
6. a building site or construction or installation project which lasts for more than six months. 

 

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