Taxation in the Republic of Ireland
|An aspect of fiscal policy|
|This article is outdated. (December 2010)|
In Ireland there is an income tax, a VAT, and various other taxes. Employees pay pay-as-you-earn (PAYE) taxes based on their income, less certain allowances. The taxation of earnings is progressive, with little or no income tax paid by low earners and a high rate applied to top earners. However a large proportion of central government tax revenue is also derived from value added tax (VAT), excise duties and other taxes on consumption. The standard rate of corporation tax is among the lowest in the world at 12.5%.
The Irish tax system is primarily in place to pay for current expenditure programs, such as universal free education, taxpayer funded healthcare, social welfare payments such as old age pensions and unemployment benefit and public capital expenditure, such as the National Development Plan and to pay for the Public Service.
- 1 Taxes on income
- 1.1 Income tax
- 1.1.1 Tax year
- 1.1.2 Rates of income tax
- 1.1.3 Tax credits
- 1.1.4 Rules of residence
- 1.1.5 Exemption limits and marginal relief
- 1.1.6 Deductions from tax liabilities
- 1.1.7 How tax is paid
- 1.2 Pay Related Social Insurance (PRSI)
- 1.3 Income levy
- 1.1 Income tax
- 2 Capital gains tax (CGT)
- 3 Value added tax (VAT)
- 4 Deposit interest retention tax
- 5 Stamp duties
- 6 Capital acquisitions tax (CAT)
- 7 Corporation tax
- 8 Withholding taxes
- 9 Excise
- 10 Other taxes
- 11 Motor tax
- 12 Taxation evasion and tax avoidance
- 13 Local taxes
- 14 See also
- 15 References
Taxes on income
Income tax is charged in respect of all property, profits, or gains. For administrative purposes, taxable income is expressed under four schedules:
- Schedule C: public revenue dividends (i.e. coupon payments on government debt)
- Schedule D
- Case I: Profit arising from any trade, or from quarries, mines, works, tolls, fairs, bridges, and railways
- Case II: Profit arising from any profession not contained in any other schedule
- Case III: Interest on money or debts, annuities, discounts, profits on government debt not covered in schedule C, interest on certain government debt, income on securities outside the state not covered in schedule C, and income from possessions outside the state
- Case IV: Tax in respect of any annual profits or gains not covered by any other case or schedule
- Case V: Tax in respect of rent or receipts from any easement
- Schedule E: Income from public offices, employment, annuities, and pensions.
- Schedule F: Dividends from Irish companies.
Rates of income tax
Since 1 January 2012, the tax rates apply as follows:
At 20% (the standard rate):
- the first €32,800, for individuals without dependent children
- the first €36,800, for single or widowed persons qualifying for the One-Parent Family tax credit
- the first €41,800, for married couples.
The balance of income is taxed at 41% (the higher rate).
The €41,800 amount may, for married couples, be increased by the lesser of: €23,800 or the income of the second spouse. This brings the total maximum standard rate band for a married couple to €65,600, twice the single person's band. The increase is not transferable between spouses.
A taxpayer's tax liability is reduced by the amount of his tax credits, which replaced tax-free allowances in 2001. Tax credits are not refundable in the event that they exceed the amount of tax due, but may be carried forward within a year.
A wide range of tax credits is available. A few are awarded automatically, while others must be claimed by taxpayers.
The principal tax credit is the personal tax credit, which is currently €1,650 per year for a single person and €3,300 per year for a married couple. A widowed person in the year of bereavement, or for as long as she has dependent children, may claim the €3,300 credit as well; a higher credit is available to widowed parents during the five tax years following the bereavement.
The PAYE tax credit, which is also €1,650, is awarded to employees and others who pay tax under the Pay as you earn system (further details below), to compensate them for the time value of money effect; their tax is deducted from their incomes during the year, whereas the self-employed pay near the end of the year. The credit may not exceed 20% of the recipient's income during the year and it is not transferable between spouses.
Rules of residence
A person resident and domiciled in Ireland is liable to Irish income tax on his total income from all sources worldwide. In this sense, a person who spends:
- 183 days or more in Ireland during a tax year, or
- an aggregate of 280 days in the current and preceding tax year
is considered to be resident. Presence in Ireland of not more than 30 days in a tax year is ignored for the purposes of the two year test. Since 1 January 2009, a person is treated as present in Ireland for a day if present at any time during the day; before this, a person was only treated as present if he or she was present at midnight, a rule which was nicknamed the "Cinderella clause". A person may also elect to be resident in Ireland in a year in which he arrives in Ireland, once he can satisfy Revenue that he intends to remain there for the next tax year.
A person who is resident in Ireland for three consecutive years becomes ordinarily resident, and ceases to be ordinarily resident after he has been non-resident in Ireland for three consecutive years.
A person who is not an Irish resident but is ordinarily resident in Ireland is liable to tax on all Irish and foreign-sourced income in full, except for income from a trade, profession, office, or employment, the duties of which are entirely exercised outside Ireland, and on foreign income under €3,810 per year.
A person who is resident in Ireland, and is either ordinarily resident or domiciled in Ireland, but not both, is liable to tax on all Irish income in full, and on such foreign income as is remitted to Ireland.
A person who is neither resident, ordinarily resident, nor domiciled in Ireland is taxable on all Irish sourced income in full, and on foreign sourced income in respect of a trade, profession, or employment exercised in Ireland.
Exemption limits and marginal relief
A person aged 65 or over during the tax year is exempt from income tax if his or her income is under €20,000 per year. A married couple with income under €40,000 per year is also exempt if either spouse is aged 65 or over or reaches 65 during the year; the exemption amount is increased by €575 for each of the couple's first two dependent children and by €830 for each subsequent child.
A person or couple earning slightly over the limit may claim what is known as marginal relief. In this case, income over the exemption limit is charged to tax at a flat rate of 40%. A person or couple may choose to be taxed under marginal relief or the regular tax system, and will be granted whichever system is more beneficial, including retroactively.
Deductions from tax liabilities
Some items of expenditure can be deducted from a person's income for tax purposes, generally referred to as getting tax relief. In some cases the tax must be claimed retrospectively; in others it is processed as an increase to tax credits. The vast majority are only allowed at the standard tax rate of 20%.
A person purchasing private medical insurance is entitled to tax relief at 20%, which is usually given at source – the person pays 80% of the cost, and the government pays the rest directly to the insurance company. Persons aged over 50 are entitled to a further tax credit, which is normally paid in full to the insurance company to offset the considerably higher cost incurred by insurers in respect of members over 50.
Tax relief is available on medical expenses. With the exception of fees paid to approved nursing homes, the relief is only available retrospectively (i.e. by completing a tax return at the end of the year), and the relief is awarded at 20% since 2009. It can be claimed for a person's own expenses, or expenses which they pay on behalf of a relative, dependant, or, since 2007, anyone at all.
Medical expenses are construed widely, and include:
- Fees of doctors and consultants
- Prescription medicines (to a maximum of €120 per month, above which the Health Service Executive will repay the entire balance)
- Hospital costs
- Ambulance fees
- Non-routine dental treatments
- Nursing home expenses
- Special food for diabetics and coeliacs
- Overnight accommodation for a parent near a hospital where his or her child is being treated
- Travel expenses for dialysis patients or for the transport of children to and from hospital for children with life-threatening illnesses or permanent disabilities
The relief can be claimed in the year when the cost was incurred or in the year when the payment was made.
Permanent health insurance
A person may deduct from his income for the purposes of tax calculation up to 10% of that income which is spent on permanent health insurance. Relief is therefore given at 41% if the person is paying the higher rate of tax. If the payment is made by salary deduction the payment is treated as a benefit in kind (BIK) and as such is subject to the Universal Social Charge (USC) and PRSI.
Tax relief is allowed on service charges paid to a local council for domestic sewage disposal, as well as all payments for domestic water supply or domestic refuse collection or disposal. The relief is allowed in arrears – credit for payments made in 2007 is given in 2008 – and is given at 20%, to a maximum of €80 (where €400 or more was paid for service charges). It will cease from 2011.
Tax relief at 20% is allowed in respect of tuition fees paid for third-level courses, excluding the first €1,000 of the course fees). The maximum relief available is €1,000 per year (20% of €5,000). Courses must be of at least two years duration, except for postgraduate courses which must be of at least one year duration. The course must also be approved by Revenue and delivered in a college approved by Revenue.
As with medical expenses, since 2007 the relief could be claimed in respect of payments made by any person, irrespective of the relationship between payer and payee. It cannot be claimed in respect of administration, registration, or examination fees.
Relief is also allowed in respect of fees of over €315 for foreign-language or information technology courses approved by FÁS, of less than two years duration, which results in the award of a certificate of competence. The relief is for 20% of the amount paid, to a maximum of €254 (20% of €1,270) per course. It is not available for courses in the Irish or English languages.
Contributions to a pension scheme can be deducted from gross income before calculation of tax; tax relief is therefore allowed on them at 41% if the contributor is paying tax at that rate. Contributions (including AVCs) are subject to the Universal Service Charge currently at 7%.
How tax is paid
Taxpayers pay either on a "pay as you earn" system or a "pay and file" system.
The 'Pay As You Earn' (PAYE) system
Employees, pensioners, and directors generally have tax deducted from their income by their employers as it is paid. Under this system, tax is calculated by the employer on each pay day, withheld, and paid over to Revenue Employers receive notification of the tax credit and standard rate band applicable to the employee from Revenue. A PAYE employee need only file a tax return on form 12. if requested to do so by an inspector of taxes, if she has other undeclared income, or if she wishes to claim reliefs which are not available on another form.
The self-assessment system applies to persons who are self-employed or who receive non-PAYE income. Under the self-assessment system, a taxpayer must:
- pay preliminary tax for the current tax year,
- pay any balance of tax due for the last tax year, and
- file a return of income on form 11 for the last tax year
by the deadline each year. The deadline is 31 October for paper filings. It has historically been extended to mid-November for returns filed online, but it is not clear whether this will continue.
Preliminary tax must be at least equal to the least of:
- 90% of tax for the current tax year
- 100% of tax for the previous tax year
- 105% of tax for the pre-preceding tax year (for payments by monthly direct debit)
Revenue will calculate the tax payable for a person who files a return of income more than two months prior to the filing deadline.
Pay Related Social Insurance (PRSI)
PRSI is paid by employees, employers, and the self-employed as a percentage of wages after pension contributions. It includes social insurance and a health contribution. Social insurance payments are used to help pay for social welfare payments and pensions. Each week's payment earns the employee a "credit" or "contribution", which credits are used to establish entitlements to non-means-tested welfare payments such as Jobseeker's Benefit and the State Pension (contributory). The health contribution is used to help fund the health services, although paying it does not confer any entitlement to treatment or anything else. For the most part, the two amounts are combined together and stated as one deduction on payslips.
Class A workers are employees aged under 66 in industrial, commercial, and service-type employment who are paid more than €38 a week from all employments, as well as to public servants recruited from 6 April 1995.
Class A employees earning under €352 per week are placed in subclass AO, and pay no PRSI/ Class A employees earning between €352 and €356 are in subclass AX; those earning over €356 but less than or equal to €500 are in subclass AL. Both subclasses pay 4% PRSI, but the first €127 of earnings are disregarded for this calculation/
Class A employees earning over €500 per week are in subclass A1, with the exception of those exempt from the health contribution, who are in subclass A2. Employees in subclass A1 pay 4% on the first €127 of their weekly earnings, 8% on the next €1,316, and 9% on the balance. Employees in subclass A2 pay 4% on all their weekly earnings except the first €127.
Employers of employees in the above classes pay 8.5% PRSI for employees earning under €356 per week and 10.75% PRSI for employees earning over that amount. The applicable rate applies on the entire wage, with no ceiling.
Classes A4, A5, A6, A7, A8, and A9 relate to community employment schemes and employer's PRSI exemption schemes. Class A8 is for income under €352 per week and has no employee PRSI liability; class A9 is for income over that amount and is liable at a flat rate of 4%, with the first €127 per week disregarded. Both classes have an employer's PRSI rate of 0.5%.
Classes B, C, and D
Class B workers earning under €352 per week are placed in subclass BO, and pay no PRSI. Class B workers earning between €352 and €500 per week are placed in subclass BX, and class B workers earning over €500 per week but exempt from the health contribution are placed in subclass B2. Both these subclasses pay 0.9% PRSI on all earnings except the first €26 per week.
Class B workers earning over €500 per week and not exempt from the health contribution are placed in subclass B1. They pay 4% PRSI on the first €26 of their weekly earnings, 4.9% on the next €1,417, and 5.9% on the balance.
Class C workers are commissioned officers of the defence forces, and members of the army nursing service, recruited before 6 April 1995. Class D workers are all permanent and pensionable employees in the public service not caught in classes B or C, recruited before 6 April 1995. Workers in classes C and D pay PRSI at the same rates as class B.
Employers of class B employees pay a flat rate of 2.01% PRSI on all their employees' earnings; for class C, the rate is 1.85%, and for class D it is 2.35%, although this is effectively a transfer of money from one government account to another.
Class H workers earning under €352 per week are placed in subclass HO, and pay no PRSI.
Class H workers earning from €352 to €500 per week are placed in subclass HX. Class H workers earning over €500 and exempt from the health contribution are placed in subclass H2. Workers in each of these classes pay 3.9% PRSI on their earnings except for the first €127 per week.
Other class H workers are placed in subclass H1. They pay 4% PRSI on the first €127 of their weekly earnings, 7.9% on the next €1,316, and 8.9% on the balance.
Employers of class H workers pay 10.05% PRSI on all their employees' earnings.
Class J workers are employees aged 66 or over, those earning under €38 per week, or those in subsidiary employment. They pay only the health contribution of 4% if their earnings exceed €500 per week, or 5% on the amount that exceeds €1,443 per week. The employer's contribution is 0.5%.
Subsidiary employment includes the employment of a person subject to class B, C, D, or H in his main employment.
Classes K and M
Classes K and M apply to income which is subject to the health contribution but not to social insurance, including occupational pensions. It also applies to judges, state solicitors, and income of self-employed persons aged 66 or over.
There was a ceiling of €75,036 per year on the employee social insurance element of the payment but this ceiling was abolished from 2011 onwards.
Where income is less than €500 per week, subclass S0 applies. Where income is above €500 per week, subclass S1 applies, except to persons exempt from the health contribution, to whom subclass S2 applies. The rate for subclasses S0 and S2 is 3%, and the rate for subclass S1 is 7% up to €1,443 per week and 8% on that portion of income above that amount.
The health contribution was replaced by the USC from 2011 onwards
How PRSI is paid
The income levy was introduced in the October 2008 budget to apply from 1 January 2009. It is an additional tax calculated on gross income prior to most deductions, such as those for pension contributions. It was amended in the emergency budget of April 2009 to apply from 1 May.
From 1 January 2009 to 30 April 2009, the income levy applied as follows:
- First €100,100 per year (€1,925 per week): 1%
- Next €150,020 per year (€2,885 per week): 2%
- Balance: 3%
From 1 May 2009, the income levy applies as follows to annual income:
- First €75,036: 2%
- Next €99,944: 4%
- Balance: 6%
A person with income under €15,028 per year, €289 per week or €1,252.33 per month is exempt from the levy. A person who earned under €15,028 in a year is entitled to repayment of any income levy he was charged.
A person holding a full medical card is exempt from the income levy, as is a person over 65 earning under €20,000. Any such person who is charged the income levy, whether by mistake or because his income in certain weeks or months exceeded the weekly or monthly limit, is entitled to have it repaid. A married couple where one or both are over 65 earning under €40,000 per year between them are also entitled to have the income levy repaid at the end of the year.
The income levy was replaced by the USC from 2011 onwards
Capital gains tax (CGT)
Rate of tax
The standard CGT rate is 30% in respect of disposals made from midnight on 7 December 2011. The rate of tax for disposals made between 8 April 2009 and 6 December 2011 is 25%. For disposals between 15 October 2008 and 7 April 2009 the rate of tax was 22%. The rate applying to disposals made on or before 14 October 2008 was 20%.
Any person (including a company) resident or ordinarily resident in Ireland is liable to CGT on all chargeable gains accruing on all disposals of chargeable assets. A person resident or ordinarily resident, but not domiciled, in Ireland is only liable to CGT on disposals of assets outside Ireland and the United Kingdom where the gains are remitted to Ireland.
A person neither resident nor ordinarily resident in Ireland is only liable to CGT on gains from:
- Land and buildings in Ireland
- Minerals or mining rights in Ireland
- Exploration or exploitation rights in a designated area of the Irish Continental Shelf
- Shares (not quoted on a stock exchange) deriving their value from any or all of items 1, 2, or 3
- Assets in Ireland used for the purpose of a business carried on in Ireland
The gain or loss is calculated as the sale price less the purchase price. From the sale price can be deducted the cost of acquisition of the asset, including incidental costs such as conveyancing costs, the cost of the disposal, and costs of improving the asset.
Where the asset was acquired prior to 6 April 1974, its value on that date is used instead of the purchase price.
The purchase price, cost of acquision, and costs of improvement can be adjusted for inflation from 6 April 1974 up to 31 December 2002, and a table is published by Revenue for the purpose of calculating this adjustment. The inflation adjustment can only operate to reduce a gain; it cannot increase a loss or turn a gain into a loss.
Capital losses can be offset against capital gains arising in the same or later tax year. Non-chargeable losses (see below) cannot be offset against chargeable gains. In each tax year losses carried forward must be used before exemptions are applied.
Exemptions and reliefs
- The first €1,270 of net gains by an individual each year are not chargeable. The exemption is not transferable between spouses and cannot be carried forward from year to year.
- Certain assets are designated non-chargeable assets, including:
- Certain gains/losses are not chargeable, including:
- National Instalment Savings bonuses and Prize Bond prizes
- Gains from life assurance policies or deferred annuity contracts, except those purchased from another person or taken out after May 1993 with certain foreign insurers
- Gains on the disposal of wasting chattels, for example animals and motor cars
- Gains on the disposal of tangible non-wasting movable property worth €2,540 or less on disposal (the disposal of a set of articles to one person or to connected persons is considered a single disposal)
- Gains accruing to local authorities, and some gains accruing to pension funds, trade unions, and charities
- Gains from betting, lotteries, and sweepstakes
- Gains from the sale by an individual of his/her principal private residence (including up to 0.4 hectares of land) are not chargeable. If only part of the premises is a principal private residence, the relief is allowed on a proportionate basis. This relief does not apply where land is sold as development land.
- The transfer by a parent to his/her child of a site where the child will construct a principal private residence is exempt from CGT as long as the child lives there for at least three years.
- The sale by a person aged over 55 of a business or farm for under €0.5m, or to a family member, is exempt.
Transfers between spouses do not give rise to a charge for capital gains tax; the acquiring spouse is considered to have acquired the property on the same date and at the same price as the disposing spouse.
CGT is a self-assessment tax for all taxpayers. Tax on gains realised in the first eleven months of the year is payable by 15 December that year, and tax on gains realised in December payable by 31 January the next year. A return must be made by 31 October in the following year with full details of the gain.
A person purchasing a chargeable asset for over €500,000 must withhold 15% of the price and pay it to Revenue unless the Revenue has issued a CG50A certificate to the vendor prior to the purchase. The certificate CG50A is issued by the Revenue on application, provided that either the vendor is resident in Ireland, no CGT is payable on the disposal, or the CGT has already been paid.
Value added tax (VAT)
Ireland's value added tax (VAT) is part of the European Union Value Added Tax system. It is collected by VAT-registered traders on almost all goods and services they supply. Each trader in the chain of supply, from manufacturer to retailer, charges VAT on his sales and pays it to Revenue, deducting from the payment the VAT paid on his purchases.
A trader whose turnover exceeds the registration thresholds, or is likely to exceed them in the next 12 months, must register for VAT.
The registration thresholds are as follows:
- The basic threshold is €75,000 (provided no more than 10% of turnover comes from services and none of the other conditions below are met).
- The threshold for a person supplying services, making mail-order or distance sales into Ireland, or supplying goods liable at the VAT rates of 13.5% or 21% which he manufactures from zero-rated materials is €37,500.
- The threshold for a person making intra-EU acquisitions is €41,000.
- There is no threshold for a non-established person supplying taxable goods or services in Ireland, or for a person receiving so-called Fourth Schedule services (intangible, remotely provided services, like advertising, broadcasting, and telecommunications services) from abroad — any such person must register for VAT.
A person below these limits may register voluntarily. It is often beneficial for persons who mainly trade with other businesses to register for VAT even when their turnover is below the relevant limits.
VAT rates range from 0% on books, children's clothing and educational services and items, to 23% on the majority of goods. The 13.5% rate applies to many labour-intensive services as well as to restaurant meals, hot takeaway food, and bakery products. A 4.8% rate applies to supply of livestock and greyhounds. A 5.2% "flat rate addition" applies to the agricultural sector, although this is not strictly VAT – it is charged by farmers not registered for VAT to compensate them for VAT which they must pay to their suppliers. The flat rate addition is not paid away to the Revenue.
Traders collecting VAT can deduct the VAT incurred on their purchases from their VAT liability, and where the VAT paid exceeds VAT received, can claim a refund. The VAT period is normally two calendar months (other filing periodicity, such as four-monthly, and semi-annual also apply in certain circumstances).
A VAT return is made on the 19th day of the following the end of the period. However, if you submit the return on the website, i.e. ROS ("Revenue Online Service"), and also perform payment via ROS, then the due date is extended to the 23rd day following the end of the period.
Once a year a detailed breakdown of VAT returns must be prepared by traders and submitted to the government – traders may choose their own date for this. Traders with low VAT liabilities may opt for six-monthly or four-monthly payments instead of the standard bi-monthly one, and traders who are generally in the position of claiming repayments of VAT rather than making payments may make monthly returns.
Deposit interest retention tax
Deposit Interest Retention Tax (abbreviated as DIRT), is a retention tax charged on interest earned on bank accounts, as well as some other investments. It was first introduced in Ireland in the 1980s to reduce tax evasion on unearned income.
DIRT is deducted at source by financial institutions From 1 January 2014, DIRT is charged at 41% (was 33% in 2013) for payments made annually or more frequently. The tax is deducted by the bank or other deposit-taker before the interest is paid to you. DIRT will be charged at 33% for payments made less frequently.
Persons aged over 65 or incapacitated, whose income is less than the exemption limit (currently €20,000), may claim a refund of DIRT, or may submit an appropriate form to their banks or financial institutions to have interest paid free of DIRT.
DIRT does not apply to:
- Interest on deposits where the beneficial owner is a non-resident
- Deposits of companies which are chargeable to corporation tax
- Deposits of Revenue-approved pension schemes
- Deposits belonging to charities
Stamp duty is charged on the conveyance of residential property, non-residential property, and long leases, and also on company share transfers, bank cheques and cards (i.e. ATM cards and credit cards), and insurance policies.
Conveyance of property
Stamp duty is charged as a percentage of the consideration paid for immovable property, including goodwill attached to a business. A stamp duty return must be completed online for all such conveyances; physical stamps are no longer attached to documents.
On residential property
First time buyers (i.e. those who have not purchased a house before in Ireland or in any other jurisdiction) are exempt. One may also qualify as a first-time buyer if newly divorced or separated. New owner-occupied houses or apartments with a floor area of less than 125 m2 may also be exempt, and new owner-occupied houses with a floor area larger than this are assessed based on the greater of the cost of the site or quarter of the total cost of the house and site. In all cases, the rates exclude VAT.
For deeds executed on or after 8 December 2010 the rates of stamp duty are:.
- the first €1,000,000: 1%,
- excess over €1,000,000: 2%,
On non-residential property
Since 14 October 2008, conveyances of non-residential property are charged at an increasing rate starting at 0% for a property under the value of €10,000 rising to 6% for transactions over €80,000.
Exemptions and reliefs
Transfers between spouses are exempt from stamp duty, as are property transfers as a result of a court order in relation to a divorce. The stamp duty rate is halved for transfers between other blood relatives. Intragroup transactions, company reconstructions and amalgamations, and demutualisations, as well as certain transactions involving charities, approved sports bodies, young farmers, woodlands, or intellectual property also attract relief.
There is a 1% stamp duty on transfers of stock or marketable securities of any company incorporated in Ireland, except paper-based transfers where the consideration is €1,000 or less.
Bank cards and cheques
Credit card and charge card accounts are subject to a €30 annual duty. Automatic teller machine and debit cards are subject to €2.50 each annually. Cards which perform both functions are subject to the tax twice, i.e. €5 total. Cards that are unused in the entire year are not chargeable. The credit card tax is applied per account, but the ATM and debit card charge is per card. In each case, where an account is closed during the year, there is an exemption from double taxation.
Cheques (technically, all bills of exchange) incur a €0.50 tax, generally collected by the bank on issue of each chequebook. Non-life Insurance policies are subject to a 3% levy and Life assurance polices are subject to a 1% levy on premiums from 1 June 2009.
Capital acquisitions tax (CAT)
Capital acquisitions tax is charged to the recipient of gifts or inheritances, at the rate of 25% above a tax-free threshold. Gifts and inheritances are gratuitous benefits; the difference is that an inheritance is taken on death and a gift is taken other than on death.
The person providing the property is called the donor or disponer, or testator or deceased in the case of inheritance; the person receiving the property is called the beneficiary, donee or disponee, or the successor in the case of inheritance.
A gift is taken when a donee becomes beneficially entitled in possession to some property without paying full consideration for it. Tax is payable within four months of the date of the gift; an interest charge applies to late payments.
Tax is generally charged on the property's taxable value, which is computed as:
less liabilities costs and expenses payable out of the gift or inheritance
= incumbrance free value
less consideration paid by acquirer in money or money’s worth
= taxable value
A disposition is taxable in Ireland if it is of property in Ireland, or if either the disponer or the beneficiary was resident or ordinarily resident in Ireland at the date of the disposition. Special rules apply for discretionary trusts.
Exemptions and reliefs
CAT can be reduced or eliminated altogether under a number of headings.
For 2010, the group thresholds, indexed for inflation, are:
- €414,799 (Group A) where the beneficiary's relationship to the disponer is: son or daughter, minor child of a predeceased son or daughter. Child includes a foster child (since 6 December 2000) and an adopted child (since 30 March 2001).
- €41,481 (Group B), where the beneficiary’s relationship to the disponer is: lineal ancestor (e.g. parent), lineal descendant (not within A; e.g. granddaughter), brother or sister, nephew or niece.
- €20,740 (Group C) where the beneficiary’s relationship to the disponer is: cousin or stranger.
For gifts and inheritances taken on or after 5 December 2001, only prior benefits received since 5 December 1991 from the same beneficiary within the same group threshold are aggregated with the current benefit in computing tax payable on the current benefit.
An inheritance, but not a gift, taken by a parent from his or her child is treated as group A, where it is an immediate interest (but not a life interest) in property. In certain circumstances, the beneficiary may take the place of his/her deceased spouse for the purpose of determining the applicable group where that spouse died before the disponer and was a nearer relative to the disponer.
The other main exemptions from capital acquisitions tax are:
- Property passing between spouses is exempt from CAT. The exemption also applies to property passing by Court order between separated or divorced couples.
- Principal private residence. To qualify, the recipient must have lived: for three years ending on the transfer date in the residence, or for three of the four years ending on the transfer date in the residence and the residence which it has replaced. In addition, the recipient must not have any other private residence and he must not dispose of the residence for six years after the transfer to him.
- The first €3,000 of gifts taken in each calendar year by a beneficiary from a disponer is exempt.
- A gift or inheritance taken for public or charitable purposes is exempt.
- Objects of national, scientific, historic, or artistic interest, which the public are allowed to view, are exempt. This relief also extends to heritage property owned through a private company.
- Pension lump sums are exempt.
- Certain government securities acquired by a beneficiary who is not domiciled or resident in the State from a disponer who held them for at least three years.
- Personal injury compensation or damages, and lottery winnings are exempt. This exemption also covers reasonable support, maintenance, or education payments received by a minor child at a time when the disponer and the child’s other parent are dead.
- Property acquired under a self-made disposition is exempt.
- An inheritance by a parent from a child, where the child took a non-exempt gift or inheritance from either parent within the past five years, is exempt.
The other main reliefs from capital acquisitions tax are:
- A surviving spouse may take the place and relationship status in respect of property acquired by the deceased spouse.
- Agricultural relief. This applies to a farmer – an individual who on the valuation date is domiciled in the State, and at least 80% of the gross market value of his assets consists of agricultural property (i.e., farm land and buildings, crops, trees and underwood, livestock, bloodstock, and farm machinery).
- The relief is a 90% reduction of the full market value. The relief may be withdrawn if the property is later disposed of within six years of the date of the gift or inheritance and the proceeds are not reinvested within one year of the disposal (six years in the case of a compulsory acquisition).
- Business relief. This applies to relevant business property, i.e., a sole trade business, an interest in a partnership, and unquoted shares in an Irish incorporated company.
- The relief is a 90% reduction of the taxable value. The relief may be withdrawn if the property is later disposed of within six years of the date of the gift or inheritance and the proceeds are not reinvested within one year of the disposal.
- Favorite nephew (or niece) relief.
- Double taxation in respect of US and UK equivalent taxes.
- The proceeds of a life assurance policy taken out to pay inheritance tax or gift tax.
- If the same event gives rise to a liability to both CAT and CGT, the CGT charge may be credited against the CAT up to the amount of the CAT charg.e
When a person receives a gift or inheritance that, either by itself, or aggregated with prior benefits taken by the donee, would place him in a position of having used up more than 80% of any group threshold, he must complete form IT38 and return it to Revenue within four months, along with any tax due.
Discretionary trust tax
- a once-off charge of 6%, and
- an annual charge of 1%.
The charges must be paid within three months of the "valuation date", which may be the date the trust was set up, the date of death of the settlor, the earliest date on which the trustees could retain the trust property, the date on which the trustees retained the trust property, or the date of delivery of the trust property to the trustees.
Corporation tax is charged on the profits of companies which includes both normal income and chargeable gains. Certain expenses such as interest repayments can be offset against profits. The current rate of corporation tax in Ireland ranges from 10% to 25%, depending on the nature of the business.
The main rate, which is 12.5%, applies to trading income of companies. It is low compared to international standards and its longevity (introduced in 2003) has ensured widespread confidence among international enterprises in the value of investing in the Irish economy
The higher rate, 25%, applies to non-trading income such as interest gains, foreign sourced income and profits and rental income, and to profits from so-called "exempted trades", including land-dealing, income from working minerals, and petroleum activities.
The 10% rate, introduced in 1981, continues to apply to a limited number of manufacturing firms, IFSC finance enterprises and businesses located in the Shannon Free Zone; all typically large multi-nationals. It is used as a marketing incentive to attract foreign direct investment (FDI) into Ireland. Despite being credited with helping the IDA secure millions of euro worth of FDI and thousands of jobs, it is currently being phased out with the last year of the 10% rate likely to be 2010.
Certain shipping companies may elect to pay Tonnage Tax rather than Corporation Tax.
Several charges described as taxes are not, in the literal sense, actual taxes, but withholdings from certain payments made. In each case, the payer withholds the relevant percentage and pays it to Revenue. The recipient is still liable for tax on the full amount, but can set the withholding against his overall tax liability. If the amount withheld is less than the tax payable, the recipient is still liable for the difference, and if the amount withheld exceeds the tax payable, the recipient can set it off against other tax due, or obtain a refund. This contrasts with DIRT, which, while a withholding tax, discharges the entire tax liability of the recipient.
Relevant Contracts Tax
Relevant Contracts Tax (RCT) is a withholding regime applied to contractors in the forestry, construction, and meat processing sectors where tax non-compliance levels have historically been high.
Under the RCT system, a principal contractor must retain 35% of payments made to a subcontractor and pay it away to the Revenue, and give the subcontractor details of the deduction on form RCTDC, unless the principal contractor has received an RCT47 card for that subcontractor. The subcontractor can set off the amount deducted against any tax he is liable to pay, or reclaim the difference where the deduction exceeds the amount of tax.
Since September 2008, the subcontractor no longer charges or accounts for VAT on supplies of construction services to which RCT applies. Instead, the principal contractor must account for the VAT to Revenue (although he will generally be entitled to an input credit for the same amount). This system is referred to as the VAT reverse charge.
Dividend Withholding Tax
Dividend Withholding Tax is deducted at the rate of 20% from dividends paid by Irish companies. It can be set off against income tax due, or reclaimed where the recipient of the dividend is not liable to tax.
Professional Services Withholding Tax
Professional Services Withholding Tax (PSWT) is deducted at the rate of 20% from payments made by government bodies, health boards, state bodies, local authorities, and the like, from payments made for professional services. Professional services include medical, dental, pharmaceutical, optical, aural, veterinary, architectural, engineering, quantity surveying, accounting, auditing, finance, marketing, advertising, legal, and geological services, as well as training services supplied to FÁS It can be deducted from the tax ultimately payable by the service provider, or where the provider is non-resident or exempt from tax, reclaimed.
Mineral oil includes hydrocarbon oil, liquefied petroleum gas, substitute fuel, and additives. Hydrocarbon oil includes petroleum oil, oil produced from coal, bituminous substances, and liquid hydrocarbons, but not substances that are solid or semi-solid at 15 °C In addition to the tax, a carbon charge is applicable to petrol, aviation gasoline, and heavy oil used as a propellant, for air navigation, or for private pleasure navigation, and this is scheduled to be extended in May 2010 to apply to other uses of heavy oil and liquefied petroleum gas, and to natural gas.
Alcohol and alcoholic beverages
Alcohol products tax applies to alcohol products produced in Ireland or imported into Ireland.
An assortment of other taxes are charged in Ireland, which do not fit under any other heading.
Local Property Tax
This ws introduced in the Finance Act of 2013, this Tax is levied for most properties at 0.18% of the self-assessed market value. The value assessed is the value in May 2013 initially. This initial valuation will be used until the next assessment date in November 2016. A higher rate of 0.25% of market value – the so-called Mansion Tax applies to properties valued at greater than €1,000,000.
Plastic bag levy
The levy does not apply to:
- Small bags used solely to contain any of the following, whether packaged or not:
- Fresh fish and fresh fish products
- Fresh meat and fresh meat products
- Fresh poultry and fresh poultry products
- Small bags used solely to contain unpackaged:
- Fruit, nuts, or vegetables
- Dairy products
- Cooked food, whether cold or hot
- Bags supplied on board an aircraft or ship
- Bags supplied airside in an airport or in the passenger-only area of a port, for the purpose of carrying the goods on board an aeroplane or ship
- Bags sold for 70-cent or more
A small bag is one smaller than 225mm wide, 345mm deep, and 450mm long (including handles). The law requires that the levy be passed on to customers.
Vehicle Registration Tax
Vehicle Registration Tax or VRT is chargeable on registration of a motor vehicle in Ireland, and every motor vehicle brought into the country, other than temporarily by a visitor, must be registered with Revenue and must have VRT paid for it by the end of the working day after it arrives in the country.
Vehicles are assessed under five categories for VRT, depending on the type of vehicle.
Category A includes cars, jeeps, and minibuses having fewer than 12 seats, not including the driver. The tax chargeable is based on carbon dioxide emissions per kilometre, ranging from 14% of open market selling price (for vehicles emitting under 120g CO2/km) to 36% of open market selling price (for vehicles emitting over 226g CO2/km).
Category B includes car- and jeep-derived vans. The rate of VRT is 13.3% of the open market selling price, with a minimum of €125.
Category C includes commercial vehicles, tractors, and buses having at least 13 seats (including the driver). The VRT chargeable is €50.
Category D includes ambulances, fire engines, and vehicles used for the transportation of road construction machinery. Vehicles in category D are exempt from VRT.
Motorcycles and motor scooters are chargeable for VRT by reference to the engine displacement, at a rate of €2 per cc for the first 350cc and €1 per cc thereafter. There is a reduction depending on the age of the vehicle, from 10% after three months to 100% (completely remitted) for vehicles over 30 years old.
Electric and hybrid vehicles
VAT is chargeable (on the VRT-inclusive price) on new vehicles (but not tractors) imported unregistered or within six months of registration outside Ireland, or on vehicles with an odometer reading under 6,000 kilometres at import.
A vehicle on which VRT should have been paid but was not is liable to be seized.
Non-principal private residence levy
The owner of a house other than a principal private residence must pay a charge, as of 2010[update] €200, per year. The charge for 2009 was payable in September, but in subsequent years, it is payable in March.
The charge applies to "residential properties", which includes a house, maisonette, flat, or apartment, but excludes:
- Buildings which are of scientific, historical, architectural or aesthetic interest and are open to the public, subject to approval of the Minister for Community, Rural and Gaeltacht Affairs and Revenue
- A building which is part of the trading stock of a business and has never been used as a dwelling, nor has any income been derived from it
- A building let by a minister of the government, a housing authority, or the HSE
- A building let by a body approved by a housing authority
- A building let to a housing authority, or to the HSE
- A building subject to commercial rates
Additionally, the following persons are exempt from paying the charge in respect of the building or buildings in question:
- A person occupying a building as his sole or main residence (which includes a person who so occupies part of a building and claims rent-a-room relief on the remainder)
- A charity or a discretionary trust
- A divorced or separated person whose former spouse lives in the building
- An incapacitated person living in a place which he does not own (e.g. a nursing home)
- A person who allows a relative to reside, free of rent, in a building within 2 kilometres of his own residence (vernacularly called a "granny flat")
A person who moves house is not liable to the charge in respect of either of the houses that year.
Motor tax, payable to the local council where the owner lives, arises when a car or other motor vehicle is used on a public road. A circular receipt, known colloquially as a tax disc, is issued on payment and must be displayed in the front of the vehicle. Certain vehicles, including state-owned vehicles, fire engines, and vehicles for disabled drivers are exempt from motor tax.
The tax for private cars first registered from July 2008 is calculated on the basis of carbon dioxide emissions; for cars registered before that, the rate depends on engine displacement. Goods vehicle tax rates are determined based on gross vehicle weight, the tax for buses is based on the number of seats, and flat rates apply to other types of vehicles.
Taxation evasion and tax avoidance
Tax evasion in Ireland, while a common problem historically, is now not as widespread. The reasons are twofold – most people pay at source (PAYE) and the penalties for evasion are high. The Irish Revenue target specific industries every year. Industries have included fast food take away restaurants, banks and farmers.
Tax avoidance is a legal process where one's financial affairs are arranged so as to legitimately pay less tax. In some cases the Revenue will pursue individuals or companies who avail of tax avoidance; however their success here is limited because tax avoidance is entirely legal.
The areas where tax evasion can still be found are businesses that deal in a lot of cash. The trades, small businesses, etc., will sell goods and perform services while accepting cash for the good/service. The buyer will avoid paying VAT at 21% and the seller does not declare the monies for Income Tax. Revenue perform random audits on businesses to discourage and punish this. Businesses are regularly taken to court for tax evasion. Revenue claim a business will be audited roughly every seven years.
Other methods have also been employed by government to combat tax evasion. For example, the introduction of a Taxi Regulator and subsequent regulations for the taxi industry has meant that the opportunities for taxi drivers to avoid declaring cash income have dwindled. By law, taxi drivers must now issue an electronic receipt for each fare, effectively recording their income.
Prior to 1977, all property owners in Ireland had to pay "rates" – based on the "rateable valuation" of the property – to the local council. Rates were used by local authorities to provide services such as mains water and refuse collection. Rates for private residences were abolished in 1977, with local authorities instead receiving funding from central government. They continue in operation for commercial property.
In recent years, the government has introduced new local taxes. A charge for water will be introduced by 2014. A bin tax, for domestic refuse collection, was introduced in the last 15 years. Opponents claim that this is double-taxation – that in the aftermath of the abolition of domestic rates in 1977, their taxes were increased to fund local authorities. However, with the ever rising cost of providing these services, council funding is no longer sufficient to cover costs and user charges would free up council budgets for more worthwhile projects.
Motor tax is paid into the Local Government Fund and is distributed among local authorities.
Life in Ireland
- Air Travel Tax
- Celtic Tiger
- Central Bank of Ireland
- Economy of the Republic of Ireland
- Economic history of the Republic of Ireland
- International Financial Services Centre
- Irish topics
- Office of the Revenue Commissioners
- Personal Public Service Number
- S12, TCA 1997
- S17 (1), TCA 1997
- S18 (2), TCA 1997:
- S19, TCA 1997
- S20 (1), TCA 1997
- Section 819, TCA 1997
- Section 820, TCA 1997
- Revenue Leaflet IT6, revenue.ie
- S1084, TCA 1997
- S1078, TCA 1997
- S1086, TCA 1997
- Section 531B, TCA 1997
- Section 531D (2)(a), TCA 1997
- Section 531B (3), TCA 1997
- Section 531D (2)(b), TCA 1997
- Section 531B (2)(a), TCA 1997
- Section 531K (2), TCA 1997
- Section 531B (2)(b), TCA 1997
- Section 531B (2)(c), TCA 1997
- Section 531K (3), TCA 1997
- "Voluntary Register". Ralph Smith.
- A comprehensive list of VAT rates applicable to specific products and services is available from the Revenue Commissioners at 
- VAT Guide, section 1.9
- VAT Guide, section 11.5
- Part 3, Chapters 2 and 3, Capital Acquisitions Tax Consolidation Act, 2003
- Section 21 (e), Capital Acquisitions Tax Consolidation Act, 2003
- Section 30, Capital Acquisitions Tax Consolidation Act, 2003
- Section 94, FA 1999
- Section 96 (1A), FA 1999
- Section 60 (1)(e), Finance Bill 2010
- Section 63, Finance Bill 2010
- Schedule 1, Finance (Excise Duty on Tobacco Products) Act, 1977
- Section 75, Finance Act, 2003
- Waste Management (Environmental Levy) (Plastic Bag) Regulations, 2001
- Waste Management (Environmental Levy) (Plastic Bag) (Amendment) (No. 2) Regulations 2007, irishstatutebook.ie
- Section 2, Local Government (Charges) Act, 2009
- Section 4, Local Government (Charges) Act, 2009
- Section 7, Local Government (Charges) Act, 2009
- Section 4 (2), Local Government (Charges) Act, 2009
- TCA 1997: Taxes Consolidation Act, 1997, as amended
- FA 1999: Finance Act, 1999, as amended
- VAT Guide: revenue.ie
- Revenue.ie Office of the Revenue Commissioners
- Irish Statute Book
- Irish Tax Law Online
- Irish Taxation Institute
- BASIS – is a government help site for business.
- Citizens Information – Tax section – Citizens Information (formerly known as Oasis) is a government help site for individuals.