[ HTJ Podcast ] Webinar-U.S./Ireland Taxes for Expats – 12th February 2021
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Hello, good evening to most of you and good morning, have a good day to some of you who may be in other time zones. Thank you for attending our webinar. I'm going to mute everyone if that's okay, because sometimes we get some background noise and then we are actually recording this. So, you know how that goes. If you don't want your face to be on the recording that we are making, because some people can make it, please just turn off your video and then we won't be able to see you pretty simple. Now, what are we going to do is just talk like we we've done in previous sessions.
We are going to talk for, I'm going to talk about like 15 minutes on the US side and Damien is going to talk for 15 minutes on the Ireland side. And then that gives us the rest of the tan to go through some Q and A, and we think that super important because we know that's why so many of you who are here because you have a really burning questions for what you were looking for some kind of guidance, right? So, we want to make sure we devote as much time as possible to that we did receive for those who did send the questions through LinkedIn in advance. Like we asked, we did receive them. Thank you very much. And we will go through those first for those who did not get a chance to submit their questions ahead of time, please, there's a box below a chat box.
You can do, you know, channel your inner a keyboard warrior, just put all of those questions in and we will get it in, in, in, in due course. So, without further ado, I will now share my screen and run through my really quick 15-minute deck. So, my name is Derren Joseph and I run a semi-autonomous US TAX Team within a larger practice called the Moores Rowland. So, we have probably what, 30 offices and in 12 countries, I actually sit in Singapore. I'm not in Singapore right now, but based in Singapore. And I have been there for a little more than seven years now, now, because I am US qualified or, you know how this goes, you see is a very litigious society. So, we need to be very, very careful. I am not here to tax advice. I'm a tax advisor, but I'm not yet your tax advisor, which means that treat this as an education piece. We are having a general conversation with general principles. If you want, let's call it an actionable intelligence relevant to your specific case. You need to engage someone to do that. So, I'm not giving tax advice. We are having a general conversation, and I'm not encouraging you to pay less than your fair share of taxes in any jurisdiction to which you are exposed.
And that's how I keep my professional liability insurance premium as well. Thank you. And I have it in writing as well, just in case you may have missed it, please pay attention. I always like to flash these two guys, because when people ask c'mon is the IRS have a volunteer chase? People who outside of the U S the answer is these two guys, but we can circle back to them if it becomes relevant. When we get into the Q and A, what I wanted to do is just go through and basic Principles. So, from the US, as everyone knows is, citizen should be as Taxation and to be fair. Well, so is most of the EU, right?
So that's, you know, and that's, that's not a big deal, the difference between the us and other countries in the EU, or even, you know, okay. Is that in other countries, you have the ability to become tax non-resident. So, if you leave Ireland for sufficient number for a sufficient period of time, you will see to be a tax rate Ireland in the winter when it comes to the United States, no matter how long have you spent outside of the U S once you hold onto that passport or a green card, you are still a tax resident of the US. Even in that green card expires, you'll still a tax resident, have the US.
So, I just want to make that pretty clear. There are people ask me the question. Well, you know, I'm outside of the U S how has the IRS is going to know what I'm up to the answer is this FATCA, the Foreign Account Tax Compliance Act. What it does is it creates checks and balance. Yeah. So, the other Ireland has signed an agreement with the U S which mandates all of the financial institution's is talking about that. What I'm telling you, what all financial institutions in Ireland to go through their accounts and identify anyone they suspect of being U S exposed. I report them to the IRS, and I'm sure many of you just like me, I have more than one passport.
That's kind of common these days. So, he would walk in to a bank or a brokerage firm or whatever insurance company, and you open on the couch, or you buy a policy all the time using your other passport. There is a burden of responsibility on whoever that customer service person is with the financial institution to go to certain checks they have in their internal policy, by law. And if they suspect you are US person English or deny it, if we suspect that you are, they're required by law to report you, and that's how they figure it out. So that's how the IRS may find out who you are and that you have actively going on outside of the US.
So, in terms of what I say, US person, I know I mentioned passport and PRS or a green card holder, but there are also situations where people may have overstayed. And that was pretty common last year. You know, a lot of people who are impacted by they have flight disruptions, the travel restrictions, and they will track in a jurisdiction longer than they intended to. That may create a tax consequence. None of the IRS has provided some level of relief. So, we can have a separate conversation about that. I also want to call up accidental Americans because we are commonly having clients who, OK, one US person, marry a non-US person.
And this case, they had married an Irish national. And there's a child from that union, even though in that child's birth was not registered with the us embassy. They have no social, they have no passport, they have nothing. There is still potentially a U S citizen who will be taxed once they start earning money. And that's, that's that, that is a very strict, I mean, as one would imagine, that's a big part of our practice doing the so-called accidental. Americans, there's also the ability to make an election and a section 61, three G to have your Ireland or your non-US partner to be treated as a, a US person for tax purposes.
And if that's relevant, because there are certain tax advantages to that, and it can be part of a tax planning strategy. You, we can talk about that in the Q and A as well. So ok. What, what are your responsibilities, obviously, the taxes don't know what is somehow counterintuitive is that when it comes to international taxes, the IRS isn't about collecting money so much as it is about collecting information. And why I say that it's because the penalties for not paying are not filing. You are declaring it. Income well, you know, its interest plus penalties, and we're in a zero-interest rate environment. So, it may not be a lot depending on what it is, but if you have a bag of County in Ireland and you don't report it, that is not just civil penalties up to 50% of that and reported balance, but that a geo time.
So, there will you get in a ditch, throw you in a, a, an orange jumpsuit for not declaring bank of gums outside of the U S and those two guys that I flashed at the beginning of my presentation, that was the situation. One of them used to be my friend on Facebook, and he no longer his, because he fell a fall to the IRS and he he's out now, but he is just staying off a Facebook, but it's, it's real important. Please take this seriously. Like, so reporting those Foreign accounts have super-important as well as transfer track what we call a transfer tax. So, there are also Taxes on gifts. So, like, if you give or receive a gift to your non-US a spouse partner, business associate friend, whatever that may trigger a reporting, not necessarily a task, but a reporting obligation.
Okay. So, I'm going to jump into this acronym that I, I think it's pretty cool. It helps you understand and remember what your US responsibilities would be and what I say, what the acronym I used as BSC. So do your best be a bank account. I remember the expanded definition of bank account would include financial accounts or brokerage accounts, a, a certain insurance policy and this cash into policy or a Casa, and the value of pension funds also needs to be reported as well. So, report your bank accounts. E stands for estimated taxes.
The IRS does not like to wait until the following year to get its taxes. So, this is one a week until April 15 or 2021 to get money or for 2020, you have to give it in at least quarterly installments file to do that, the underpayment penalties. So E, your estimate to taxes, please remember that. As a state taxes, you have 50 different States, 50 different rules, but most States are domiciled States, which means under certain circumstances, even though you have been in resident in Ireland all your lung, you may still have state reporting and steeped tax obligations, unless you are, you, you took specific steps to sever your tax residency in your given state.
So, you remember, you stayed in touch with the accident, then people think, well, I'm going to stay in Ireland. Who cares? The step does have a long memory. And we have many clients who have returned to the US retirement or whatever, or the state recognizes have their back in the throw a big bill at them because it’s got an interest in penalties over the years. So, it can be pretty shocking. So, state don't forget it last but not least your transfer tax is like I mentioned your gift taxes, but also, I know it's a bit morbid, but it is something that does base in consideration. You have estate taxes. Again, a part of our practice is a state tax is, you know, that U S partner who has Mairead the non-US partner and the U S department and passes on and they leave or a huge mess for the non-US pardon and to deal with it because there were not one at a hundred percent compliant, there was no planning around the handling of the estate.
So, you know, it's about making sure that you, your beneficiaries, your family don't have a difficult time with our IRS or on your passing. So, we need to think about how to speak with your chosen advisor. About I just want to run through a, just a few quick one's on the stimulus payment because people have been asking a lot. So yes, we had the first-round last summer and the second row was approved to the end of December. And most of you would have got it already. Once you fulfill those conditions that I have, that you have a valid Social United dependence, every citizen and green card holder, even though is a reside outside of the U S or intangible to it.
Or if you didn't get it, I do not fair to speak to you or your tax professional. You will get a recovery big credit. What does that mean? It means that if you would do a refund is going to be a bigger refund by the amount of the credit, which would be the stimulus type that you didn't get. And if you have a tax liability, you have to be reduced by the amount or the check, if you did not get it. So, we just have a conversation with your preferred advisor and also have a look of the IRS website. The guys' have spent a day guys and ladies as well have spent a lot of time keeping it up today with lots of FAQ's. You can put it in your band details that you can check where things are. So, I have a look at the website. If you have any questions, it's pretty well maintained. Most of our clients have higher income earners and the first thing they come, they're there to ring me up, where's my free money. A lot of the time, the answer is I'm sorry, but it's a price of your success. You earn too much, at least according to the IRS. So there, there have been some phase outs. So that's another thing. If you haven't seen any checks, just bear in mind that if it's above a certain, if you are in above a certain income, you don't qualify for it. So, you know, just something to be in my, and for those who are not sorry, before I get to the present, do you want, we forget that the rules around filing do change with time.
So, some people think, well, you know, I don't earn enough money. I don't need to file a tax return. And the us is not my problem. If you have a look at this and I took this out of the instructions for form 1040, if your filing married, filing separately, if your gross income was more than $5 attached to the Germans do so, you know, and that's think of that one in $5 of tax return as do so, please double check. Don't assume that you don't have to file the president by now during the campaign a, the, the campaign team, or at least a pretty comprehensive tax plan.
It is we'd too much to go through right now. So, I just cherry picked some items on the line items that may impact on expats an International entrepreneur right, bear in mind that the none of this has been passed or whatever. There's always negotiation is always given a take. There's always a cost straight in congress. So, it will be changed once it eventually comes out. But what is proposed is a higher tax with those earning more than 400K. So, they are what they perceive to be higher income earners. They're going to be subject to a higher level of taxation for builders who have corporate structures.
Yes. And the president Trump, it came down to 21%. President Biden wants who he is at a 20%, and that will impact the, and he also wants to empower. And those that have structures that are used in low tax jurisdictions that is subject to where we call it guilty are the global intangible, low tax income. Basically, what I want you guys to take away is that if you have a corporate structure, this, this, this, and I'm talking specifically to those who run their own businesses, think of your corporate structure, like your car, you need, you don't run your car for months and months, and months or years without getting it serviced. You need to have a look at the habit, examine to make sure it’s still fit for purpose.
Same thing with your corporate structure, to make sure you get an examine, to make sure there are fit for purpose. Given the rule changes that are constantly happening. So that's, that's kind of like a taster. So, what's been happening. Then there may also be some downward movement on the S and the state tax threshold there's is a unified tax credit from gifs in the state taxes. So, in terms of planning, now maybe the time to get things done before that threshold comes all the way back down. So, and with that in mind, I'm going to hit the pause button. Please put your, your comments and your questions in the box below. And I will now hand over to Damien.
Thanks, Derren. Hello, everybody, Damien Malone is my name and I'm the owner of Malone in Co we're at I suppose, as a general accountancy in tax practice at based in West Dublin. So, I'm just going to share my screen and what you are here now, just give me a sec, my first slide on the way by this is just to give you an introduction for any, anybody that would come to our Ireland. And I suppose as the taxes that they will encounter on a day-to-day basis. And then we have an eye on really what we have six-man tax heads on I've also put in what we call the local property tax. So, I'm going to give you just a brief summary about what each one is.
And I suppose the main points that I would relevant to each tax head. So, our force is general income tax. And basically, I not kind of comes in under a tree, separate strands. And if you like, we have PAYE, we have USC and we have PRSI. So PAYE is pay as you were in, which really is the income tax. And it really should be called income tax. And we kind of have two rates of pay. So, we have a 20% rate on a 40% rate the amp, depending on what circumstances. And it determines at what point you move from the 20% rate to the 40% rate. And then we have what we call these tax credits, which again, depending on your circumstances, it, that will determine how an entitlement to these credits you have and they reduce your PAYE to use is what we call the university of social charge.
If this was introduced just after to the time of our session or a year as over here is that as an additional measure of to try and, and raise additional coffers or the exchequer here, we were struggling and there is a couple of different rates. And again its, its, its graduated in line with a more Income and <inaudible> at the top and one is our Social insurance and it's a parasite. So, we call it pear relays in social insurance. And again, is generally there's different. Rates About depending on whether you are an employee and if you are an employee, how much do you wear? Or if you're self-employed but as a general rule we have for most of our clients, the level of Income day with Erin is it's 4% and there is also employers PRSI you, or if you are an employee and you don't own, the company are employed by your employer would pay this separate and the separate social insurance.
And as well as the, the, the, the social insurance, that's what held on your own on your own wages. The corporation tax is obviously if you set up a corporate structure and the tax you would pay on, on those profits. And I suppose again, most clients to come to us and doc and, and, and ruining our business operations to accompany because obviously we have, we're well known for which is a low 12 and a half percent tax rate, which is our tax rate on and on essentially trading Income. So, trading Income the start of on a, on the business activity that you are generally working in are buying and selling or providing services or whatever.
It may be as distinct to passive activity, which is really an investment. So, if you're buying a property and your rent out that property is, if you buy it and if you buy the stocks and you are in receipt of dividends and so forth, and that's considered passive and that's taxed at a different rate of 25%, and we also have a few exceptions to that. So that are there. I think in fact, we have six Rates of corporation Tax in Ireland. But I suppose don't only over. What I want to mention at this point would be are low 6.2 a 6.25% rate that we call our knowledge development box, which is really a special rate for an IP type and profits that are generated.
Or if you come over and over and set up a company in Ireland and invest into your, invest into your intangibles or your IP, any profit from that, you could potentially qualify it for this low 6.25% or a capital gains tax is where you make gains on disposal of assets. Currently, the headline rate for capital gains tax for both individuals on companies is 33% percent and life with a corporation tax. We do have a variance of that and some quite useful exemptions, as well as for a capital gains tax that are geared towards, I suppose, as business owners, which are touching on the laser prophet of the acquisitions tax is the tax that is imposed on. And anybody comes in to an inheritance our receives a gift and it's the basis of a non-tax is on. If you look to see the relationship you have with the person who you are either inherit from are, get the gift from, and we have two or three different and classes, essentially. And depending on your relationship with that person that will determine the class that you'll fall into each class has a threshold. And when you go over that threshold, your PE this capital acquisitions tax at a rate of 33% percent over that threshold amount is the only body that is going to come into a gift or an inheritance. And I suppose we would do quite a lot of planning work and all of that to make sure that and any, any tax is kept at a minimum value of the tax.
And sure, you all know is a tax on goods or services within the EU. And we've generally to me in Rates of it in Ireland 14 and a half percent than 21%. Now we just the standard rates. So, and on your, your day to day, essentially does you, will you, you, you, you would pay a dash and you have to pay it out outsourced when you are at the point of transactions. If your set up a Business, you will be obliged to registrar for value at a tax on charge, TAX on our charge VAT on your suppliers and to your clients on collect on behalf of the Irish tax office is not designed to be a tax on business. So, when you’re in business, you collect VAT on behalf of the government on you're entitled to recover on the VAT, you incurring in the course of your business.
And it's really a consumer base tax. Stamp duty is our tax on the stomping of certain documents and contracts and so forth. So, if you come over to art and to buy a house or your pay stub on Judy, on the side, on the closing of that house and the signing up the contract, and Foreign dead there, the raid for your time, Judy has generally 1% for a residential property up too many in your role at 2% thereafter. And it's at w for a commercial property. And for honor, and instruments that rate can be quite higher at the current rate for a commercial property of 7.5% have been only 2%, maybe four years ago, three, four years ago.
So, there's been a massive jump in dosh over the last few years. The last time I have there at the local property tax, where, and this was a, Tax introduced again a couple of years ago, where if you own a property and Ireland your payment on your tax based on, and the dead, the tax authorities is deemed value of property. So, moving to, I suppose, determines at the charge tax in Ireland, when you come to live in Ireland, we have these treaties very, I suppose, in partner concepts in ours, tax law, one is tax residents and the next is ordinarily a resident, an undefined.
The one is domiciled to look on the residents for US. So, residence is essentially a days’-based tests. And if you are in this state for 183 days are more, you are automatically considered to be tax resident in that year of assessment in Ireland. There's a separate provision whereby if you're in our own for two consecutive years, and you're in the state here for more than 280 days. So that will be 140 days per year on, on, on a per, per annum, you will be deemed to be a tax resident in Ireland in a second of those years. So obviously when you're a tax resident triggers and doc triggers a couple of things as regards that the scope of your income to Tax in Ireland, obviously any of your Irish source income and will it be liable to tax.
And, and, and then when we come to an ordinary, a resident and more partly Thomas all in a minute, I'll explain how that impacts on your foreign income. So, the concept of ordinarily residents or ordinarily residents are when you have been a resident and Ireland for three consecutive Tax years, you take up this point to have been ordinarily resident, and that has implications. And for particularly capital acquisitions tax which is the tax on inheritance. So more important than again, is it's the concept of domiciles. And I suppose one of the features of coming to work and coming to live in Ireland, if you're a non-national essentially, or a non-domiciled, is you qualify for what we call it, the remittance taxes.
So, this room in the space, this of tax and, and I want you to just pay tax on your foreign income, as you are admitted into Ireland. So, if you have overseas investments or a business overseas that you, that you manage and be, you know, during the year or whatever it is, you can avoid having to expose any of the, one of the profits that you would make on that from Tax in Ireland just with a bit of careful planning. And so, it's all based around this concept of a, a domicile, and really everybody generally, your, your domicile in the first instance, we'll be the country or born in our, the country or a father who was born in.
And we would generally be at the starting point, Florida, and to lose your domicile at any given time is not an easy thing to do. And really, I suppose the case law that stair over the years, what not to look at is I suppose, to the extent to which you set in the country that you take or a residency in, and the likelihood of you and ever leaving that country and returning home. And, and because it's quite hard to lose, your domicile of origin as we called it, which is you're done the size of a barter or where you are born and reared, you know, it is quite easy to plan around that and ensure that you, if it suits your circumstances, when you come to Ireland, that you want to ensure that you are considered non domiciled, and you can just kind of leave the door open, so to speak.
And by ensuring that your, you are living in Ireland, what you don't visit, you have to live in the rest of your days. And Ireland essentially, and it's the ball as are. You would do some, a bit of planning around and just to, and just to ensure that and your, your, your, your, your argument would stock over and the effect of it then is it basically applies to board income on to capital. So, if you have overseas assets that you are buying and selling, and you do make gains from those, those gains, won't be taxed in Ireland, unless it's the case that you, and that your remit those into Ireland, there are a large demand two and Irish bank account. So, the, it also facilitates an opportunity for if you have significant capital and significant wealth accumulation before you come to Ireland to take up and to take off residency, or once you can clearly distinguish to that capital.
And that wealth was generated before you came to Ireland, you can then bring that money into our Ireland. It's really only from the point, your take on residents that, and that the Irish authorities would be focused on ensuring that you have, and that's, you have declared any social media remittances that are, and a library to Tax in Ireland. And one final point just on this area is from Date from, from, from the inheritance is point of view. And then again, it's, it's, it's a slightly different, and that in order for, at a non-domiciled, a person to fall within the scope of Irish in is Tax, which is the capital acquisition stacks. You generally have to be a resident for five consecutive years here in the state, and to be liable for that, unless the person who received that Dee the inheritance from his residents themselves are the value of what you have received is what we call our we situate property, which is essentially London buildings that are, that are in the state here.
So, I suppose not, it gives you an overview of, and how far in income is taxed in. Ireland when you come up to take over a residency are so to touch on, am I supposed to what your obligations are? If you come and live, and if you are a Coleman live and maybe start a little business in Ireland. So, the first thing that you do is you'll be registered under the income tax system. So, it's quite a straightforward process, it’s a self-assessment process. So, I want you to do is you would come to the likes for ourselves to complete the, the necessary paperwork on all of that. And that doesn't even take a week to get it, to get into the system. Once you'll have the social security number here, which can, we can wait, we will obtain a, on a regular basis with our international clients and the year-end tax returns called a form of 11 and it gets filed at the end of October for the proceeding calendar year or so in October of 2021.
And we will be filing tax returns for the 20, 20 calendar year on, on this year at the fair, obviously what's your tax bill Income is. And more importantly, I suppose there's been quite a lot of change with, with the pharma and lay out of the return. And the last couple of years, you've declared quite a lot of information now about your circumstance and in particular your, your, your residents, your ordinary resident's in your domicile’s status. And so, it's important to make sure that whoever is submitting your tax return knows exactly, you know, what they're doing with it. We do come across quite writerly. People have a goal at some of these returns themselves and think is quite straightforward. And so, a professional advice is always, you know, or should always be solved to make sure to what you declare is factually and correct as regardless of circumstances, protects any of the declaration on the figures, comparation tax return, what we call a CT won.
And basically, when you incorporate the company, you have discretion to choose to a company period, and you, or generally do it the end of the 12th month after the company is in cooperation, but there is no discretion there. Then you'll file your annual, your tax returns. So, if you are, let's say you incorporate as the company in January of 2021 and your first-year end was December 21. You or your first corporation tax return, wouldn't be due until the 23rd of September 2021, obviously a statement of the company profits and gains that you have to pay your tax on it. We do have in preliminary tax regime and Ireland, so it doesn't apply for when you come to Ireland for your first year, but every year thereafter you do have to make quite significant down payments in the year of the assessment, which is essentially an estimate of what the, what the liability is going to be, or you can choose to pay and base it on what the prior year liability was so important to be aware of that from a cashflow perspective.
And when you have been living in an Ireland between year one and a year or two, and if you are set up a little Business here, you'll obviously have VAT return obligations and this can be a, they can be a bi-modal and in return for, or a six monthly or annual, depending on the type of business at the size of the figures and an uncertain other factors at the tax office and for doing a payroll is if you set up your own business and it's just yourself, you'll have to register it as an employer or an, a payroll on debt. Essentially, the only salary that she would take out to a company is saying is if you are employing staff here, your, your, your file or a monthly return with the tax office, we have a new process that we call a PA while the modernization where this work is all done in essentially in real time.
So, if I'm making my monthly payment for my wages today, I sync my payroll with the, with, with, with the tax and with the tax office website that we call Ross. It tells me what my allowances and what my year-to-date figures and so forth are. And then the payroll, a calculator, and a payroll software, or does the calculation based on the information that it gets from sinking with the, with the tax office has portal, we do the calculation and then we submit their return in real-time and to the tax office. So, it's, it's, it's, it's quite a sophisticated process that they brought in. It's going to be like that for VAT in a very strong in, in, in a very sharp and periods of time as well. And it gives all of us a dead at the tax office.
Here are quite a lot of information and quite a lot of, quite a lot of useful data to, to monitor and to monitor tax payers. We do have a fairly and a, you know, a fairly, a heavy penalty regime if you want to relate which your returns and a, and all the dots. So, if you're late, you have an automatic, a surcharge that's applied today for the tax that you owe. There's an interest charge that can be Sanford to them. We have fixed penalties. And depending on the nature of the, depending on the nature of what gave rise to delay, this are the category of default.
If you'll follow your, your returns wrong in you, you will have more than what you have filed. It can eventually lead to a or B published in the us and in the local media here, of course, and not probably not quite as quick to throw on debt orange, the orange jacket is like what they're doing and the U S but nonetheless, it can happen over here. Although it's fairly infrequent when somebody gets a jail sentence and far attacks. And for, for, for a tax issue, we were in, in, in the content, what will one of the, one of the pieces we said we would cover is the social security system in Ireland. And this is the, this is the PRSI system.
So, as I touched on area, we have two strands. So, we have employee site, which is, if you take up a job in our Ireland, your patient is on your wage. It's not up to 4% on your gross wage, but it can't be less for a follower enters. And if you imply staff in our Ireland, and, and obviously for all of the Irish and priors to do, there's a separate employer, social arrangement. And again, there's two different rates, if not the highest paying, just under 11% on the lower rate, being an eight and a half percent in terms of the girl's wage. So, at this point is in today, the social security system in Ireland to fund a lot of the state of benefits that people are entitled to from the payments that day and that they make.
So, if your unemployment the inductions get paid at source. If you are self-employed, you have to pay those annually on your annual income tax return. Along with our, along with your tax declaration on your tax liability, we have a number of different what we call the classes of social insurance. And again, depending on your status and your circumstances and who you work for a, that will determine the process of this social insurance that you pay. So, I'm just going to talk about the two main ones in the two main ones or a class, a and plan. He says, so can I say, this is generally, where are you, are an employee, or you are in a row at director, but you don't have a controlling interest and the company that you are and what you are a director of.
And this is where you pay employers, peer recite unemployed, peer reside. This is the most generous class in terms of the benefits that it gives. And there is a whole array, all of them. And the main ones that I have listed at the bottom, there will be typically job Seacrest benefits, maternity benefit, and then a paternity leave. And those type of benefits. And obviously Dan and the state pension plan or a sass is when you set it up a hater as a self-employed person and Ireland, or you set up a company in Ireland and you have a controlling shareholding or a controlling interest into no, you don't actually pay to employers’ sites. So, there is a saving there, but it doesn't entitle you to the same level of benefit as those that am pay and contribute to a class, a sow.
And the difference is between the two, I have them and highlighted there, just give you an example of you don't get enough in this benefit. Kara has done is a health and safety benefit and occupational injuries benefit and up to about two or three years ago, you didn't get, and job seekers benefit Auditor. He didn't get the maternity benefit because of, I suppose, was what was purely a and a class that as a source of discriminatory, a practice or discriminatory regime against self-employed people in our Ireland, the government changed out and gave and gave those entitlements to the self-employed. So, my last slide, and just to finish up on a couple of points I wanted to touch on that would be relevant, but we would see to anybody comments and common to live in Ireland, a first is what we call the relief, which is a special assignee, a relief program.
This won't be applicable if you come over to take a job in Ireland on your, you know, on reasonably good wages or salary, it's has the effect of M relieving. You have tardy percent of your income over 75,000 count that 500,000 from the charge to income tax. So again, if you're on a half a million of a salary, it makes quite a significant difference. And that's what the same tax bill would be for an Irish person on the, on the same girls. And again, it was brought in to try and attract, and I suppose, an individual's a doubt, the type of caliper required to, to, to manage and set up a lead and foreign direct investment type and businesses that were, that were coming in with a three year or a corporation tax exemption that applies to everyone who sets up the company.
This is based on an employing staff on the ground in Ireland. If you employ staff, the employer's social insurance that you pay gets credited against your corporation tax bill for three years. So again, if you do have a business that you could potentially employ people through, this is a very, very useful the exemption ducks. There are ducks. You can save quite a lot of, quite a lot of money on and corporation tax BIK is what we call a benefit and kind, and I flagged this because it's something that in variably we will run into, or we see our International, Ryan's running into difficulty with, this is really a tax on any benefits. Your company may pay on your behalf and it’s kind of a catch all and it’s kind of a catch all of the tracks of obviously it applies to the likes of motor vehicles.
If your company is paying your, your, your private rent and your medical insurance and that sort of thing, there are some exemptions to With such as if you want me to come over and then drive an electric vehicle or your company can buy the electric vehicle for you are connected and you don't, you're not actually caught for any of this benefit and contacts and myself and, and Derren, we have just a quick chat on the differences and pension contribution relief before we went on the call here and I have it listed here is something to mention. So, we would often C for our international flights to come over to live in Ireland we would generally set them up in a company structure. We would encourage them to look at their pension provisioning arrangements.
We have very advantageous and pension arrangements that can be put in place for an owner manager and a company situation, you know, where they can see where the company can contribute in, in a tax efficient manner, quite significant sums. If the business is able to, you know, generate a reasonable profit, that is a very efficient way of managing, I suppose, profits that are, that one can generate for themselves. We have two and a very generous reliefs that our in our system for our business owners, there are a retirement relief, an entrepreneurial relief. And in, in a nutshell retirement release, if you sell a, a trading Business, you can essentially cell it for 750 grand and Ireland, and you're not liable for any capital gains tax entrepreneurial relief, because a step further on you can dance and its where you sell your shares and the company, you can sell them for unpaid the optimum in, in your own pay 10% capital gains tax on to dispose of the proceeds we would do at and some of planning every so often where we have come across cases, where are we can utilize Border these reliefs in the womb case and then in a staggered manner, which will essentially an enabler somebody's to sell a business and even potentially a husband and wife or a business that would be solar for a tree pine five minutes on a 210,000 tax liability, which is in bad.
And that's buy obviously where and the husband and wife owned the business or maximizing the retirement relief claim at 750 K with no tax on the next million or a 10%. My last point is in Ireland, we have a very advantageous holding company structure as well. So, for international business, people that have, and that are entrepreneurial I suppose, and have different business interests in Irish, a holding company is a very tax efficient vehicle for managing Derren investments. And the main feature of not is that the investment's in trading companies and so forth, it can be sold free. You have any taxes and legitimately hell for a reinvestment in, in the holding company’s structure.
Okay. That's the end of my slide’s guys. So, we're happy to take any questions that's there.
So, what I told the good is if, you know, just to acknowledge those who submitted their questions ahead of time, or we can just go through the questions and we got, so let me pull those up first. So, these a lot for your own pension. So, someone is saying as an American living in Dublin, married to an Irish citizen per the Treaty, what pension types are considered a qualified in either country. Unfortunately, the Treaty isn't a specific at all U S 401ks and IRAs, or they recognize a qualified and Ireland, and vice-versa from a us perspective, she she's absolutely a she or he or whoever submitted that is absolutely correct.
And that what is recognized as qualified is defined and the tax code for that country. So, in terms of, because people, what people are essentially and looking for is a tax win. So, in terms of a relief that reduces your taxable income contributing to a foreign on non-US, even though we may be a qualified under the jurisdiction pension plan, it won't give you that tax relief on the other side, when money is being pulled out, if it's from, if it's from a foreign qualified plan, then yes. At the certain circumstances to Treaty would allow from a tax benefit on a U S side, if you are putting on an Irish pension in, in Ireland.
So yes, on the withdrawal side, but largely known on the contribution side, Damien.
Yes. So, what we spoke about and Derren, just before we went on the call as well and an under distinction between the two that we can see in Ireland like this concept of like a qualified scheme or not like really every scheme in Ireland is a qualified scheme, like, because it has to be set open that way. It’s not like, and the example of that you made Derren were in America or if you have like taken a self-directed scheme and it's in its like it's investing in, in stocks and shares and that sort of thing you're actually paying its actually the scheme itself is as more or less disregarded from what you said and you’re paying your income tax, you know, based on gains that you've made from the true the scheme.
That's not what it's like and Ireland wants you have once you'll follow and wants the, the, you know, wants the, the scheme, the trust, our whatever structure it's set up by the pension and is approved by the tax office. It can really invest if your, a controlling, yes, you can really invest this, you see fit with the pension rules. And if it's under someone else's management and it, you know, data to the management for you and so on, are there, they all qualify? The issue is, I suppose, from an Irish pension side or an Irish pension scheme site is just ensuring data. And I suppose you don't take away to go to the pension scheme by over contributing and ending up having a phone that's in excess of what we call the standard from the threshold, because it just gets inefficient at that point.
And so once you plan and at plan your contributions and aim to try and protect your fund, to get that up to a level, if you're fortunate enough or the equivalent of what we call the standard from the threshold, that would be how one would go about optimizing their pension arrangements from, from an IRA from the Irish side. But we were not, if you set up a self-directed scheme, as we would encourage a lot of our business owners to do, you know, it can, you can invest in or whatever you see fit and, you know, subjected it that to the normal pension rules on its own. It rolls up the gains on the income from that roll of tax free. And there is no, you know, you're not themed to, it's not considered not qualifying because of what the, you know, pots audits invested in.
Right? So, I have grades, so that actually flows really nicely to the next question, which is for whichever Irish pensions, a qualified into view of the U S are you restricted on one investment can be in it, for example, ETFs. So essentially, I think many people would be aware of who have had this conversation with the advisors before. There is such a thing as a PFC Capacity of a Foreign investment company, which is basically a rule that was initiated, I think in the 1980s to essentially, you know, and just going to be completely honest, it penalizes you S exposed persons who invest in Foreign mutual funds. So that, that was the intent because what they US domestic financial institutions were complaining about is that Americans were investing overseas, I'm getting tax breaks.
So, there are flipped it on its head and it’s actually a penalty you're being penalized. So, when you invest in the form of mutual fund, regardless of how the mutual fund is disguised. So, if you could put it in an insurance wrapper because some of them, and sometimes you look in at an insurance policy, but really, it's an investment fund. Its, its tax advantage from a US perspective and then how to get it to pay for the treatment. Similarly with Irish pension funds and as Damien pointed out, every Irish pension is a qualified pension, but once you had and that's unit linked or it's invested in stocks and shares, there's a strong possibility that you are dealing with a Pacific from a US perspective, which means it's, Tax disadvantaged from a U S perspective, but that's not to say that you can do it because what may be required is, you know, some sensitivity analysis rip on that spreadsheet and run some scenarios, maybe the returns on it and the advantage of the tax breaks from the Ireland perspective, I'll to weigh the penalties from the US side. So, it can still be a green light. You just need to run the numbers and make sure it's a right fit for you. Or do you mean, do you want to comment?
Yeah. So for me, from our side, from the Irish side, really the eye will take it like if it’s a self-directed pension, because obviously if it's not a self-directed pension, you don't have control of where it's going anyway, you can really invest in and the assets as you see fit subject to, you know, a few exceptions such as like if you are an account by a holiday home for yourself and obviously you can buy property as tank's done now that there is, and there is talk and there is a, you don't know what is it, a new regulation or something that's common in to try and, and you know, they are trying to outlaw property as an investment as an investment class to be used in, in self-administered schemes. But it doesn't look like it's going to happen at any time soon.
And you can obviously buy assets from people that are connected with you, family members or something like that. You can buy the works of art. What other than that, if it’s just a list of stocks and shares and if it's, you can actually give low notes to your pension scheme, if it's on an independent, an arm's land basis and again, not to accompany that your connected with. So, there is a whole array of very useful, you know, very useful options that you can have if you do have a pension part to make use of, of the money that you have in that power. And again, is something that we do have a fair bit of work for a fair bit of work with our clients in, in trying to, I suppose, as think of IBD is as to how they can leverage that money for their own and for your own asset management and asset identification purposes.
Okay. Great stuff. So, moving on as an American living in Ireland it certainly seems beneficial to keep my US domiciled for tax purposes can a new domicile, it will be forced upon someone. What if I American we continue to live in Ireland for many decades or into all the age. Can I still keep my US domiciles? So, but again, we were talking about this earlier. It is a test of facts and circumstances, you know, that that drives it for in the us and, and Damien will comment on a case of an in the U S it's not in any IRS code. So, what we do is we need to rely on K on case law to understand how the courts would interpret domiciles.
So, I've written it a section in my book, but I also have on my website HTJ.tax. If you do a search for articles, I have like over a thousand articles on US tax in a friendly jurisdiction, or we would deal with it. I do quote at least 10 pivotal places in the US tax court would guide how the US authorities view from the South from a tax perspective. But essentially just to give you the real quick summary, it's a test of intense plus the deliberate action. So, what they do is look at, okay, what was your intent in live in the U S to go to Ireland? If it is that, you know, you, you, you know, you have to go and we a party, you, broadcast it on Facebook, live, all your friends came over and you said, goodbye guys, I’m not coming back, that's it, I'm gone. Good knowing you. So obviously you display I'm being extreme, but that is definitely an intent to shift domiciled. You are gone where's on the flip side, we have seen cases and pieces. I have been cited in courts where someone, they would fly back to the U S a once a year, twice a year to see friends and relatives, they maintain a membership and sit in social clubs. So, for example, in certain fraternal organizations or whatever, they maintain their membership, you know, and they maintain relationships and they maintain bank accounts in a team activity to suggest that it was not their intent to abandon the us in a permanent basis.
So, it’s really a test of facts and circumstances as to where you end up being domiciled, but it should not be left to chance. We would recommend that is part of a proper, a, a prophet, a state plan. As a, I mentioned in, in my book behind the because as you will not be aware of, if it is that you deem to be U S domiciled through your facts and circumstances, test your assets and Ireland and elsewhere in the world, maybe subject to the U S the state taxes. So that, that is something to keep in mind. You don't want to leave that sort of thing to chance Damien over to you.
Yeah, I think that's a very good explanation of the concept of, and on the side at Derren, again, to the old example that I always refer to is like, when there are it can come down to as much as where do you intend on being buried. And if it's the case, you are going to be buried in your country of residency, then eventually, what are the factors that you have touched on there? And it wouldn't be looking good for a year in terms of arguing to toss that you are, you're not on the side of the origin remains, you are on the side of it, but again, it should be easy enough. Or if your fingers on your circumstances are switched at that, and, you know, you have to use your, it makes such a difference to you to be non-domiciled.
It's generally easy and also to maintain what needs to be maintained to resist any potential challenge that could be there. I just answered a question. I see, hear, how do I save on my domiciled status in my state? So, like, as far as I know in most jurisdictions is again, a self-assessment at a self-assessment and its really a matter of each person to their own to determine who are their domiciles, the status is. And of course, it's only in the case of a query or a challenge that it, you know, that you may have to ask that you may have to account for your top process and so forth, we did. So, I suppose if your fingers are such, not that it's changed on the site is mirrored and planted early and takes the right advice. You probably won't go too far wrong.
Okay. We went on to the next of the pre submitted questions. Irish pensioners are often had the option to take a large lump sum tax rate at retirement. What would be the implications from a, from a US perspective? Well, with the pool of funds in the end, the pension, some of it would be already potentially already taxed depending on whatever the fund is. So, from a US perspective, remember, you didn't get a tax break and putting money into the Irish qualified pension plan. So, they, the initial investment would have already been taxed or what we call the core or the original investment or the returns on that investment may not yet have been taxed.
So therefore, what is required when you get that 25% of whatever the distribution, we have potentially been to bifurcate the, there is some coming up and assess how much of, what percentage of that represents previously tax income and what percentage of that represents a return on it. And then that the tax would be a tax on the, the return on your investment. Damien?
Yeah. So, in Ireland obviously yes, you can get a 25% off to a limit out tax free and subject to having a and I suppose as a guaranteed minimum income level, you know, based on your order and your order assets in your rotor or income streams, then if you qualify for a state pension under the lights, the doc, and what I had mentioned as well, as you can plan as part of your estate planning process and like using a pension or using pension wealth, it can be done quite tax efficiently as well. And it might alleviate it the need for that question. In the first instance, if you're sufficient, the wealthy, an old to have to have enough of them are a means to, to, to pay or livelihoods or to pay or your living expenses in your, in your retirement years, you can essentially leave. So, when you reach a certain age in Ireland, your pension intern into what we call an ARF, which is an approved retirement fund, and generally can be transferred to your spouse as a free of tax. So again, it might be one way of and managing your, your, your, your, your, your estate quite tax efficient way rather than triggering and upfront a tax in the US by virtue of US citizenship by taking periodic draw-downs out of debt, out of the pension pot.
Okay. And the last of the pre submitted questions was, do we need to routinely notify the US social security administration, or are there on the other side of the Irish State pension about living or working in the opposite country when it comes to contribution credits or are, they automatically not to, because of the totalization agreement from the us perspective, if some of this, this is really a situation when someone is self-employed. So, if someone is self-employed the US person being self-employed in Ireland typically there'll be subject to the same 15.3% self-employment tax as they would be subject on us soil. But because of the totalization agreement, once you making the requisite contributions to Ireland's social security fund, you won't be relieved of the Need to duplicate it by contributing to U S social security. And how do you notify the IRS that you are doing that it's on the tax return itself, speak to your tax advisor, and then make a note on a tax return, stay 10, because once they see the schedule, see, been triggered, the IRS is going to look for the self-employment tax, but a Note on the return. Let's the IRS Know that a contribution is already being made to Ireland. So, no need to look for, to levy the 15.3%. Okay.
And in Ireland on a paid basis. So, I, as we mentioned about the payroll that we pay modernization process, so your contributions or paid on a low basis, if you are an employee or a director of a company, if you are self-employed you pay to manually. So, it's a set of declaration. So we think, and Ireland, it's, <inaudible> the Irish Social Security is a system would be aware of what you're paying and the US post, if in a case when the time comes that you are, and you have an contributions in Ireland, or even if you don't have enough, and you want to make what we call a voluntary contributions to give yourself and documents to a state of pension in Ireland, there's a process you would go through at that time where they will review and assess to the actual contributions that you have made per the Irish social insurance system. It gives you the option to buy the biome contributions sufficient to give you a date, to give you the state pension benefit. I assume it will be in that context, not to query his ass. And it's not in a way to do with the benefits that we would have. So that's, that's my take on that one. Yeah.
Okay. I know we're slightly over, but just relatively few questions were submitted in the chat box. So, we can go through them quickly in the first one with about a streamline for seniors. So, if this applies to be someone who has not been 100% compliance from the US side and what they are and says, if your non-compliance is not willful, and again, that's not defined in code. So, we use that. We use our case to walk to understand what they mean by willful versus non willfulness. Once your non-compliance is non-billable. So, they are deliberately set out to receive or to evade taxes. Then they allow you to play catch up, no matter how long you have not had a client on this earlier to date, he hasn't filed taxes in a really long time, at least not complete returns, but the look back period has only three years because that's a statute of limitations three years. So, you filed three years returns and six years FBARS, which will be the Foreign bar and become a report. And the IRS agrees with two and a blind eye to everything that happened before that you play your interest, but no penalties, which is super important because penalties could be pretty draconian. So that's how this streamlined works. And you have your, you draft a statement that explains the reason why you are noncompliant.
If this is something you want to discuss further, please feel free to contact me. My colleague had a included my contact details above. So please reach out to myself or Hannah, and we can arrange a quick consult over the zoom to discuss that next one. How do I set on my domiciles feeds is in my state 50 different States, 50 different rules, but most States, as I mentioned, our domiciles States, and it's, you know, it's not really enshrined in any state statute? So again, we have to rely on case law, and you're looking at a test again of intent basically. So, what do you recommend side of the client really, to be wanting to make sure that he cuts ties with California for the door's swamping attention, California has been discussing the implementation of a wealth tax, like in Spain and some of the European countries, which, and know in California and how they have dealt with tax is in the past, it can be retroactive? So, we advise them or clients with any sort of connection to California, just as an example, to make sure we can cut all sides. And what do we mean registered to vote shift your voter registration under the state or your whole meal, have no whole meal in California, give up your California driver’s license, you know, anything, or if you have bank accounts in California, close them shift to the same bank under the state of California, know excuse attacks you. So, there are eight States, as you are aware that have no personal income tax, you know, Alaska, Nevada, a Texas, Florida, where, which is my home state. So, choose one of those States and basically plan to fly in one of those states so that your California is due, New York can somehow get a little bit grabby with your assets and your Income. So please, if you, again, if you want to discuss that further, just a reach out. Now I see two more.
Okay. This one, Derren so for a non-down on the side, individual in Ireland who was here a longer than five years, his county only tax debt becomes chargeable and worldwide gains orders are fine as long as nothing is remitted. So just like the wording on that, it is probably just not correct. So, track is in liable on a worldwide gain. So again, is distinct again is when you make a profit on their, on the disposal of an asset on the Irish law, like, can you relate to a gift or an inheritance? So that's, if your, if you receive the gift or inheritance, and yes, that would be, if your, if your resident here for more than five years, you will not be liable to accounts for obviously, if you're, you know you’re going to come in to either a gift or an inheritance it's, you can do some, you know, a fair degree of planting around all the dock to minimize the exposure they're in from a capital gains tax perspective, which is a gain on an asset disposal. Yes. If you’re a non-domiciled, a journey going to pay and capital gains tax on and on more wide gains that are admitted into Ireland are on gains from what we call a specified asset, which again is typically land and buildings in our Ireland and that sort of thing.
Yeah, wonderful. Thank you very much, everyone for attending and for your attention and for your really thought provoking questions. We enjoyed on answering them for you. If you want to find a myself, I'm HTJ.tax, all of my contact credentials over there.
Damien, how can people find you?
So, you can find me through LinkedIn a bit late to connect with you guys, if you want to send me a connection and our website is www.MaloneAccountants.ie I'm Damie@MaloneAccountants.ie. And if you have any questions or you want on your team to run by me, please don't hesitate to, to drop me an e-mail.
Okay. On that note, thank you very much. Have a good evening, everyone. Bye.
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