Tax loopholes for Irish investors

This post goes into possible tax loopholes for Irish investors depending on residency and intention to live permanently in Ireland. A previous post highlighted why Ireland’s tax system gets too much flack. However, I am still on the hunt for any tax advantages I can get. I think I may have found some decent, legal options for people who do not intend to permanently live in Ireland.

Even if you do intend to stay in Ireland there may still be some info of use especially if you have foreign income.

A few months ago, I had come up with a number of questions I wanted to ask the tax offices in both Canada and Ireland but struggled to find a time where I could wait on the phone long enough to get through while the baby was asleep. Then I heard an interview on the Informed Decisions podcast with the company Expat Tax Services Ireland (ETSI) who specialise in taxes for people coming to Ireland from elsewhere and/or people coming back to Ireland after some time away, and I thought I’d chance reaching out to them to see if they could fill in my gaps. And that they did.

Below is an amalgamation of my findings which were kindly bolstered by Keith at ETSI.

Tax Terminology

Irish Tax Residence – you live in Ireland for more than 183 days from Jan to Dec or 280 days in the last two years, having spent at least 31 days in Ireland in each of the two tax years.

Ordinarily Resident – you have been a tax resident in Ireland for 3 consecutive years

Irish Domiciled – This one is a bit tricky – “Domicile” is not actually defined in Irish law, but in general it is understood to be the country where you intend to permanently reside indefinitely.

• If you were born in Ireland you are Irish domiciled unless you move to a different country with the intention of living there permanently. Revenue may ask where you plan to be buried as a determining factor for this
• If you become an Irish citizen through marriage or naturalisation, you do not necessarily become Irish domiciled unless your intention is to live in Ireland permanently
• That said, it is very hard to change your domicile one way or the other

You can find more detailed explanations in plain English here.

What this means from a tax perspective

Domiciled in Ireland but not living in Ireland with Irish income

Or Irish domiciled but not Irish tax resident

As an Irish domicile you will pay Irish tax on your Irish sourced income no matter where you live in the world (ie: you have Irish investments like rental income from a property or dividend income from investments). If the country you live in has a double taxation agreement with Ireland you may be able to get tax relief by way of credit or exemption in that country to ensure you are not taxed twice. An exception to this may be Irish domiciled ETFs where it is possible to be exempt from Irish tax on income from Irish domiciled ETFs (though I need to get clarification on this).

If you have purchased shares through an employee share purchase program for a US company that you work for in Ireland, the dividends and sale of shares may be taxable in the US as well as in Ireland. This one is a bit more complicated if you were to move to another country in retirement as you would need to look at the triangle of double taxation agreements and how they work (or don’t work) together. This is one we will need to seek more advice on once we decide where we want to live in retirement.

You will not pay Irish taxes on non-Irish sourced income. So if you moved to another country and are working there, you will just pay taxes there and do not need to report anything to Irish Revenue (unless you are ordinarily resident for a 3 year period).

Domiciled in Ireland and living in Ireland with foreign income

Or Irish Domiciled and Irish Tax Resident

If you are a tax resident in Ireland as well as domiciled you will pay Irish taxes on your worldwide income. So if lived abroad for a while and you have assets which are generating income in another country you will be liable for taxes on them in Ireland as well as possibly the country where you were living. Again you’d want to check out the double taxation agreement if there is one.

Living in Ireland but not domiciled in Ireland with foreign income

Or Irish Tax Resident but not Domiciled

If you are not from Ireland but currently living here and have assets generating income from another country, you are only liable for Irish taxes on any amounts you remit to Ireland.

Remit means any money you bring to Ireland, so this could be money that was transferred online or brought in in cash, but also means any money you spend in Ireland, so for example, if you have a foreign credit card which you load up with money from foreign assets and spend it in Ireland, that counts as remittance and you would be liable for tax on that portion.

If you remit cash which you have already paid income taxes on in your country of residence (not taxable on remittance) as well as foreign income from foreign investments (taxable on remittance) then Revenue will assume the total remittance is foreign income and therefore tax the while amount. In this case you may want to speak to a specialist or ring Revenue to ask how to classify the two sources separately.

Were living in Ireland for more than 3 years but not domiciled in Ireland and now living elsewhere

Or Ordinary Resident but no longer Tax Resident Nor Domiciled

If you were living in Ireland for 3 or more years and you built up some assets there but then moved elsewhere and are not domiciled in Ireland then you would still be liable for Irish taxes on any Irish sourced or foreign income for the 3 following years as you would still be considered ordinarily resident BUT only if that money is remitted to Ireland. Another note on this is that even if you remitted foreign income to Ireland, you can remit 3,810€ each year tax free.

After the 3rd year you no longer need to pay Irish taxes on any income, unless it’s Irish sourced (ie: Irish rental income). Foreign income would no longer be taxable and even Irish domiciled ETFs can be an exception if you are no longer an Irish resident.

How are these tax loopholes?

Canadian assets accumulation phase

For our Canadian investments, we may be able to legally avoid paying Irish tax on our Canadian investments if we invest as much as possible in my name rather than my husbands as he is liable for Irish tax on his worldwide income and I am not, as long as I don’t remit it to Ireland.

The only exception for my husband would be “income” or gains made in an RRSP. This is treated similarly to a pension in that income or gains are not taxable until draw down or withdrawal.

As investment options in ETFs are greater and with seemingly better performance (according to my two portfolio’s so far), one option for us would be to transfer our savings to Canada on a regular basis and invest it there, in my name only.

You can transfer money between spouses as much as you like without incurring any gift or inheritance taxes. You can also transfer after tax money from Ireland to Canada without incurring any taxes in Canada, once you have paid income taxes on it in Ireland (though I need to double check this with the Canada Revenue).

The downside to this is the currency exchange and transfer fees. Revolut seems to be the cheapest way to do this but Canadian banks charge a flat fee for electronic fund transfers. I’d need to work out if the expected loss in gains by not having the money invested while it accumulates would outweigh the transfer fees.

I know I struggled with paying monthly bank fees until I realised that the minimum balance required to avoid them would make me more money by having it invested and so now I pay bank fees and let my “minimum balance” cover the costs and then some by having it invested elsewhere. The transfer fees may require a similar mind shift.

TFSA complications

TFSAs are a bit trickier in that when you leave Canada and you let Canada Revenue know you are leaving (by filing a specific form), your contribution room stops accumulating. If you do not file the form your contribution room continues growing but if audited you will owe a percentage on any overages as well as tax on any gains made on those overages.

From an Irish perspective, any income or gains arising from a TFSA may be fully taxable in both Canada and Ireland if you are no longer resident of Canada. From an Irish perspective a TFSA is considered an offshore fund for Irish tax purposes and income/gains from the fund may be taxable in Ireland regardless of whether you remit the funds to Ireland. If you have funds in a TFSA and are planning to return to Ireland, it may be best to reach out to a Canadian cross border tax expert for clarification on this. I have had great help from Trowbridge in the past if you want to give them a shout.

Canadian assets withdrawal phase

There are already bloggers who are retired early and have documented legal ways to pay little to no tax on portfolio withdrawals from assets in Canada, the same cannot be said for Ireland, so the more assets we have in Canada come withdrawal phase, the easier it may be to withdraw tax free using tried and tested methods.

The risk here is that if we decide we want to stay in Europe, which is our current plan, then we will be subject to market exchange rate fluctuations.

Irish assets accumulation phase

In Ireland, it also makes sense to invest in my name only as once we are ready to “retire”, and say, move to Portugal where they have no tax on foreign income for 10 years, then we could avoid the deemed disposals and exit tax on our Irish domiciled ETFs (if we retire before the 8th year – which is our plan). The same could not be said if the investments were in my husbands name – where even if we lived in Portugal, as an Irish domicile, he would still be liable for the 41% exit tax on gains and dividends on his Irish ETF portfolio indefinitely.

Another option would be to invest in both our names but restructure or move the funds at time of retirement depending on what route we take, the exit taxes due in 4-5 year’s time may not be that bad.

Irish assets withdrawal phase

Move to Portugal (at least for as many days as required to be considered tax residents) where we pay no taxes on our Irish and Canadian portfolio withdrawals for 10 years (or as long as the scheme lasts, which may actually be changing this year – stay tuned for a post on that).

Reconsider our options once the 10 year mark approaches. Though I’m not too worried about it as my plans in “retirement” are to continue this blog and perhaps continue making money through teaching financial literacy somehow, or getting paid to speak at events, or possibly getting certified as a financial planner and working as and when I feel like it, so although we will have our base expenses covered in the most tax efficient way possible, I still plan on earning money and continue adding to our investments. If, after the 10 years, we need to start paying taxes at a higher rate, then so be it. As long as our base needs and a bit more are covered then I don’t really care about the rest!

So what do Irish domiciled investors do?

Marry someone that wasn’t born in Ireland as they can more easily claim they are not Irish domiciled?

No, but really if you don’t expect to be retired by age 50 (or 60) depending on your pension, then the best, most tax efficient thing you can invest in is a pension (as long as the fees are 1.25% or less and the performance is on par with what you could get outside a pension).

If you plan to be financially free before then, then some combination of investing in a pension alongside self directed investing might work out best (where you draw down on your non-pension investments in their entirety to bridge the gap between getting access to your pension) and take solace in the fact that you are still earning investment income even if your taxes are higher than if you were from another country.

Disclaimer:  Although I received general guidance from ETSI from an Irish tax perspective, this blog is based solely on my own knowledge and opinions and should not under any circumstance be interpreted as tax or investment advice.  Where tax advice is sought, readers should seek such advice from a tax or investment professional.