US Citizens in Ireland
Did you know that if you are a United States ‘Subject Person’ living in Ireland then you may have tax and other filing obligations in the US? There may also be some Irish tax consequences of which you were not aware.
The information outlined will apply to you if you are a ‘Subject Person’ - which includes the following:
- US Citizens
- US Green Card Holders
- Persons born in the US
- Persons born to US Citizens
If you are a US ‘Subject Person’ who has come to live and work in Ireland you may be tax resident in Ireland. The residency test is based on the number of days spent in the country. As a general rule if you are present in Ireland for 183 days in a year or 280 days over two years then you would be Irish resident. If you are in Ireland for any part of the day, that counts in the tally, so if you leave on Monday morning at 6am and return at 10pm on Thursday evening you would be present for 5 days that week. Once you’ve been resident for 3 consecutive years you would become “ordinarily resident”.
If you are resident and/or ordinary resident, this would give the Irish state taxing rights in respect of your Irish income but also potentially on other worldwide income or gains.
If you’re not Irish resident/ordinary resident then, with some exceptions, your exposure to Irish tax is limited. However, the US can tax US persons on their worldwide income irrespective of where they are resident.
Do I have to file in the US?
You might be required to file a US tax return if you are either a subject person or if you own certain US-situs assets/investments. You may also have to file if you are a US resident with US or foreign income as well as ownership in non-US bank accounts and/or non-US financial assets. There are circumstances where an exemption applies, however if you are a subject person you should seek advice to see if you qualify for such an exemption. Do not assume because your income is exempt that you don’t have a filing obligation. For example, there is a foreign earned income exemption available, but this means the qualifying income would not be taxable in the US, not that a return would not be required.
Do I have Tax obligations in Ireland?
If you are a US citizen and you’ve moved to Ireland then there may be some Irish tax consequences that you weren’t expecting. They are outlined as follows:
Gifts & Inheritances
- The US annual exclusion for gift tax of US$15,000 and lifetime rates of US$11,580,000 (as at 2020) are significantly more attractive than the Irish annual exemption of €3,000 and maximum lifetime exemption from a parent of €335,000 (at the time of writing and we’re not missing a zero, that’s three hundred and thirty five thousand!).
- The standard gift/inheritance tax rate applicable in Ireland currently stands at 33%, so while a gift from a parent of €4,000,000 may not result in any tax in the US, if it’s within the scope of Irish tax then a liability of €1.2million could apply.
- There are rules around when a non-Irish individual becomes liability to gift tax in Ireland and the liability can be managed if the individual is mobile and can break their residency. For gifts this can usually be addressed before large sums are passed from one generation to the next, but if a parent dies suddenly leaving the entire estate to an Irish resident child there could be some unexpected tax liabilities arising.
- A US citizen who is Irish resident would only be subject to income tax in respect of certain income on a remittance basis. The remittance basis is when you bring money from abroad into the country. Remittances out of income would be subject to income tax, but remittances out of capital should not.
- Where money is brought into Ireland from a “mixed fund” e.g. an account that received both income (say dividends or interest) and capital (say funds accumulated before becoming Irish resident) the income is deemed to be remitted first. If money is required from abroad then separate accounts for income and capital can reduce the Irish income tax exposure.
- If you’re leaving Ireland and you had acquired some Irish assets there may be some filing requirements depending on what you do with those assets. If, for example, you have an Irish property and decide to let it out then the rental income would be subject to Irish tax. There are also conditions in relation to informing the Private Residential Tenancies Board, obligations on the tenant to withhold tax unless an agent is nominated, and local property taxes.
- If the property is sold there could be an exposure to Irish capital gains. As noted above there is an exemption available for the private home, but if it is rented out after the owner left for a period of more than twelve months then the exemption may be restricted.
Tax Relief - Year of Arrival or Departure
If you have moved to Ireland in the middle of a year and taken up employment then you may qualify for a tax refund at the end of the year. The same could apply if you have been working in Ireland and are leaving during the year. This relief needs to be claimed and will not be applied automatically by your employer. The relief can be substantial depending on the tax paid and the date of departure. By failing to claim the relief, taxpayers could be losing out on thousands of euro.
General Note on Deductions
As an employer will deduct taxes from the payroll, employees often erroneously believe that their taxes will always be correct. However, the employer only deducts taxes based on the instructions they receive from the Revenue Commissioners for the employees allowances. It is important to be aware of the deductions and allowances that are available and how to claim them.
US Citizens in Ireland - we’re here to help
Ireland and the US have strong ties, going back many years. Around 34 million Americans list their heritage as either primarily or partly Irish. And HLB Ireland have strong ties with the States through our international network. Represented in over 55 locations in the US alone and 140 countries worldwide, we can provide international knowledge with local expertise in Ireland and America to ensure that your reporting requirements and obligations are met on both sides of the Atlantic.
If you are considering moving to Ireland, we can provide you with details of the Irish tax system and assist with the practicalities. Similarly, if you’re a US Subject Person (or worried you might be!) living in Ireland, we can guide you through your obligations and help you plan for the future without the stress.