This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax.
Hello, good evening. Good afternoon. Good evening. Good morning. Depending on which time zone you’re in. Welcome. Good to see you all. Thanks for joining us. So, as you would have heard, this is actually being recorded. So, if you don’t want yourself to appear on our video recording, you’re free to switch your camera’s off. For those who would not have joined us before our process. And I’ll proceed is pretty straight forward. I’ll just talk for probably like 10 minutes on US taxes in general, Damian will talk as well on the Ireland side of things. And then we will open up for Q and A because I know you guys came with lots of questions and, and we’re anxious to hear what you have to say.
So, without further ado, I’m just going to share my screen. So, as it shifts screen, and here we go. All right let’s talk a little bit about US taxes. So, as I mentioned, my name is Derren and I’m a part of a regional practice Moores Rowland Asia Pacific. I’m actually based in Singapore. Officially I’m not in Singapore right now. I’m actually in London right now. But since 2013, I’ve been based in Singapore and we’re a member of Fusion International, which gives us access a lot of expertise and particularly within Europe, which is how I’m connected to Mr. Damien Malone, who is joining us this evening. Because I’m US quantified, you know how this goes. I’m legally required to tell you that nothing I say here should be construed as advice. I may be a tax consultant, but I’m not yet your tax consultant. So, there is no advice, you can treat this as education or entertainment, but should you wish to retain us or anyone to help you do your taxes? You would need to enter into a legal arrangement with them. So social media, YouTube or live streams cannot be tax advice. And last but not least nothing that I say here should be construed as encouraging you to pay less than your fair share of taxes in any jurisdiction in which you may be exposed. All right, that’s how I stay out of trouble. And here it is in writing.
So, people ask me, you know, come on, I’m outside of the US who’s going to catch me. The IRS has no time for me. So, I normally flash these two gentlemen, because these are two gentlemen who had the same thoughts. They thought that they outside of the US, nobody’s going to come bothering them. They’re too far away. But IRS agents found it within, you know, their very busy schedule to jump on a plane and meet with them, wearing a recording device. And one is out of jail, and one is still in jail. So, we can get into that later on. Should that be of interest, but normally just flashing their pictures is enough to get your attention. So, what I’m going to do is just give you a basic overview of your US tax responsibilities. Should you find yourself outside of the US for example, if you’re in Ireland, what your responsibilities would be as an expat.
As you would be well aware the US practices, citizenship-based taxation, which means it’s almost impossible to break free of US taxes without either giving up your passport or green card. So that, that’s basically the only way I know there’s a lot of misinformation online about once it’s below a 100K or once this a one-stop to, once you go here, once you do this, for the most part, it’s all, unfortunately not true. It’s fake news. You are tied to the US until you give up your passport and get a CLN, a certificate of loss and nationality, or you give up your green card and you get an I407, which is the state department’s way of saying we have received your green card.
You get to go, unless you get one of those, you’re still under the rule of the IRS, a citizen still if you lose your green card, if your green card has expired, if your passport has expired, we’ve heard it all. The answer is still, yes, you’re within the US tax net. So, then people ask, well, okay, if I’m in the US, I get a 1099, I get a W2, I get K1’s. So, I get copies and IRS got copies. So that’s how they know what I’m up to. How do they know what I’m up to when I’m outside of the US? That’s impossible, right? This is the answer. FATCA, Financial Account Tax Compliance Act.
Contrary to popular opinion, it’s not a tax. It’s a framework for information exchange. So, what the IRS has done since 2011, the US government has been empowered to enter into bilateral agreements with countries all over the world and countries that you would not expect to sign like China and Russia, they’ve all signed. So of course, Republic Ireland has also signed. And what this means is that the Republic of Ireland has agreed to waive its local bank secrecy laws. So, banks or financial institutions, not just banks. So financial institutions in general, in Ireland, I know legally required to go through their list of account holders and identify anyone that they suspect of being American. So even if they have an Irish passport, they have some other passport and they opened the account under the other nationality. If the financial institution suspects that they may be US exposed, and there are certain indicia or flags that they look for, if there’s a suspicion, even though the account holder denies it, they’re legally required to report that person’s the IRS. So that’s, this is a check and balance in the system, a FATCA information exchange that’s happening already.
So, we discussed more or less what is a US person, obviously, a US passport or a green card, but quite commonly especially within recent times has been those that trigger what we call Section 7701 substantial presence because of the health situation. I’m not allowed to say what it is because otherwise we get kicked off of certain platforms. So, because of the health situation, and you know what I mean, travel has been severely disrupted. So, people who did not intend to spend a lot of time in the US and they were counting their days, they ended up over overstaying, not from an immigration perspective, but from a tax perspective. So, by spending more than 183 days, but the calculation is a bit convoluted, but the point is that they are in the US tax net because they spent more than they expected to in 2020, into 2021.
Of course, there are accidental Americans. These are people who are born to least one US parent that is deemed to be taxed domicile in the U S. And we can discuss that if it is of interest last, but not least is, would be those as a US person who may have an Irish spouse, and they can elect for that non-US spouse to be treated as a US taxpayer. That is an election that can be made. It may ask, that’s crazy. Why would anybody do that? There are certain strategic advantages to doing that. If you are interested, we can talk about that a bit later responsibility of a US person. So obviously we’re going to talk about tax, but what is a bit, perhaps counter-intuitive is the idea that when it comes to international tax, the internal revenue service is less concerned about collecting revenue than it is about collecting data. Data is a new gold. So, the forms that you need to fill out and submit that declare what your investments are overseas, including what you what’s in your bank account overseas. Cause that’s reportable as well to getting into that, the penalties for not complying with those actually higher than the penalties for not paying your, so they, until the revenue service, the US government is big on information. In fact, for not reporting certain investments or accounts, it could not just, it’s not just civil penalties, but criminal as well. You can go to jail.
So, this is a nice acronym, at least I think it’s cool that I’ve come up with to help you remember what your responsibilities are as a US person abroad. So we’re asking you to do your best, B-E-S-T. B bank accounts. And when I say bank, I also mean financial accounts, brokerage accounts, whatever. So, bank accounts, remember I say, I said, criminal penalties apply for non-compliance. So, B report them. They don’t normally factor into calculating a tax liability. It’s simply reporting requirement, no harm and telling them what you’re up to. E- estimated taxes, obviously when you in the US to get paid on a W2, and you’re typically subject to withholding when you’re outside of the US there would be no withholding, right? Cause you’re outside. So, it’s your responsibility to work with your preferred tax professional, to work out what your estimated taxes would be and pay them in a timely fashion that do four times a year, quarterly payments. S- state taxes. Again, it comes as a surprise just because you’re not in your home state doesn’t necessarily mean that you have no tax obligations to them because most states are domiciles states, which mean that you have to take specific actions to sever your tax connection. With those states, some states are stickier than others like Virginia and California. What we do is we work with clients to sever the residency with certain states and instead plant a flag. And one of the nine states where there is no income tax like your Texas or Florida, or Alaska, Nevada, Tennessee, et cetera. Right? So, state tax issues, again, you think y’all decide what they’re going to do to you. They just buy their time, and they wait, and we’ve seen it time and time again, at some point in time, you will go back home, you will visit, you may return, and then they’re waiting for you with a nice big tax bill. And we’ve seen it time and time again, unfortunately. T- transfer taxes also easy to forget. If it is that you receive, or you gift, you give an asset or a sum of money to someone, even though they may not be a US person, especially when they’re not a US person that is reportable gifts are reportable. And of course, we help you with estate tax planning because unfortunately it’s a bit morbid, but it is that one needs to consider because we also work with families who have loved the loss. Who’s lost a loved one who is US exposed. And because they weren’t planning ahead in terms of taxes, they’ve left their loved ones with a huge mess to wait through and accounts have frozen, and they can’t get it. You know, kids and dependent spouses cannot get access to money, et cetera, et cetera, et cetera. So, tax planning for estate taxes is something that we would advocate as well.
Just a few slides on the stimulus payments. Obviously, there were two last year and they’ve been one or two this year as well. The IRS has spent a lot of time and a lot of effort getting the stimulus payment section of their website, up to date, the FAQ’s and you know, the, the ways of updating your address or your bank account or whatever the case may be. So do spend some time on the IRS website. And most times the information would already, whatever question you may have in mind would already be answered there.
Now, many of our clients are high income earners. So, then they ring me up or they WhatsApp me and say, well, like, where’s my money, where’s my free money. And if it is that you are also on the higher income earning side of the spectrum, then bear in mind that these stimulus payments do have phase outs. So, if you haven’t got anything, it could be because your income is on the higher side. If you didn’t get anything last year, work with whoever your chosen tax professional is to do your returns, because you can get a recovery rebate credit. So, you will get a credit on your tax return. If for whatever reason you did not get a check, or you didn’t get anything credit to directly to your account.
Okay. There’s also misunderstanding that people think, you know, I’m not earning that much money, right? So, I don’t need to file any US returns. Sometimes that is not exactly correct because the filing thresholds can be pretty low. So, if, for example, you file separately. You can see that the filing threshold is actually $5. So, if you made more than $5, a tax return is due. Now, Ireland is a relatively high tax jurisdiction. So often enough people would not actually have a tax liability to the US but that doesn’t mean a tax return is not due, you still need to file a tax return even though no taxes may be due.
So, we get a lot of questions, of course, about President Biden’s tax plan. That’s the point, it’s still a plan. So, nothing has been actually passed as yet. But having said that Democrats do control both houses, both the house and the Senate. So, I one would imagine that most of what he expects of what he has planned will come to pass. For what it’s worth, it’s designed to target higher income earners. So, it really kicks in for those who are in like 400k and above. Then there’s social security taxes, as well as the marginal tax rates go up. It also would impact those who have corporate structures, because right now, corporate taxes are pretty low. 21% President Biden wants them pushed up to 28%. So, you may want to look at your corporate structures for those of you who using an offshore jurisdiction. Like I do, there’s a GILTY Tax, Global Intangible Low Income Tax that was brought in at the end of 2017 by former President Trump, the GILTY Tax is roughly around like 10/2 a half percent or so it’s going to go up.
So, if you have a corporate structure using offshore jurisdictions, please keep that in mind. You might need to create some numbers to see whether it’s worth doing some sort of reorg or restructuring. What else? There’s a lot of buzz around the child tax credits from our understanding. It does not apply to Americans who reside outside of the US so it would be for people who are still on us soil. So, sorry about that. There are other bits and pieces, but I leave it there for now, but we can always pick it up in the Q and a. So, I’m just going to bust through this and now, and that’s it from my side, I’m going to pass it on to Damien and please you can save your questions for the Q and A, you can put them in the box below and we pick it up there. Damien?
Hi, everybody. Damien Malone is my name and I’m the managing partner and founder of Malone and Co. And we’re at an accountancy and tax practice. And with our headquarters in Dublin and we’ve recently set up a second office in east county Kildare. And so, I suppose by Irish standards, we would probably be at this stage, certainly considered a mature practice. And obviously, as I say, we do a lot of tax work, both from a compliance perspective, which is obviously, and submitting returns and so forth to the tax office. And then also from an advisory perspective. So, what I’m to do is I want to give an overview, I suppose, of tax in Ireland, you know, for somebody who’s coming to take up residency or to live here, whether it be from the US or somewhere, and go through what I think are the important and pointing important points that they’d need to be aware of and all of that.
And so, to make a start, I suppose, what exactly are exactly are the taxes in Ireland? So, from a personal perspective, so that would be income tax and I suppose, somewhat frustrating when you’re living in and of course, paying it in Ireland is not really broken into tree. As far as I would be concerned, we have PAYE which is pay as you are aware, we have the USC, which is the universal social charge, and then we have value, which is pay related social insurance. So, all three are essentially a tax on income. They all work and separately and independently of the other put at the end of the week or the end of the month or the end of the year, or whatever the case may be.
They all form part of the bill that you have to pay to the tax office. And as Derren mentioned from out of corporate level, which we’ll come to in a minute, Ireland is a very favorable jurisdiction, but for a person, a person that’s living and working here, not so generally once you get over a fairly modest and 35%, if you’re a single person you’re looking at paying 50% close in tax on every Euro thereafter and after corporate level. And we would do a lot of work with international clients who set up companies in Ireland in order to obviously avail of the low tax rate here and, and the other advantages of a corporate structure, which, and you know, which appeals, and I suppose the money international businessperson or investor.
So, we have all the seed 12/2 % and headline rate. And we have a three-year startup exemption at which I come to our, I have a few pints on later in the slides. And again, we’ve some variants out as well for software on tech type companies. It is possible to get a 6.2, 5% raise as well. And for passive income, which is essentially on errand income, say rents, our income from investments to corporation tax rate on dock would be 25% gains tax is where you make disposals of assets, whether it be shares or houses or currency are whatever it is.
And generally, the standard raise is target percent, but we do have very incident as well. And we do have some important entre, our business relief and business relief. That are important in the Irish tax code that I mentioned later, capital acquisitions tax is tox when you come into receipt of a gift or an inheritance, and that’s currently at target 33% as well. So, depending on the point at which that kicks in and is dependent on a number of factors, but generally it’s based on who are the relationship you have with that, you know, with the individual who was giving you the gift and who has passed away and you were getting done hurt. And from VAT value, added tax is a tax on consumers.
So not a tax on business. So, when you come over to live in Ireland or live in the EU, your pay value out of tax on a lot of your day-to-day expenditure, and if you set up a business over here, you’ll most likely have to register for value added tax and collect this tax on behalf of the tax authorities and pay it over and stamp duty is a tax on documents as such. So, if you come over and buy a known, buy a home to live in, or buy a property over here, you pay stamp duty on, on the sale price and anything that’s, I suppose, documented in a contract stamp duty applies also on share sales and or share purchases and, and so forth.
Local property tax was introduced maybe 7, 8, 9 years ago when we were going through our tough economic times over here. And that’s obviously a proper tax set that’s on property based on a and national market value. And again, for somebody who was coming to live in Ireland, if you did buy an expensive property over here, let’s say a million euros plus, which some of our clients would have done the property tax can be quite nasty on that. It actually kind of mounted to a couple of thousand euros a year. And unfortunately, it is what it is. You have no real way. You have no way of avoiding that. So, to move on to would determine when an individual and has potential exposure to pay tax in Ireland.
And it’s, it’s really based on CRE and pre factors and tree, and I suppose, concepts that we have in tax laws. So, they are obviously being tax resident, this concept of ordinarily residents, and then this concept of domiciles. So, you’re a resident in Ireland for tax purposes. If you spend more than 183 days on the ground here in a calendar year are if you’re here for between 280 days between the current year on the preceding year. So, on average, that would be 140 days a year. So, our, I suppose our clients who do have to manage their residents to evaluate becoming tax resident in Ireland, it’s generally 140 days a year is what they have to work towards to try and ensure that they’re here for no more than that.
If it’s a case, that individual is sound as far as to talk to residents’ criteria in Ireland, and in order jurisdiction generally, and puck determines where they end up being tax resident is, is based on the double tax treaty on it. You know, generally it’s comes down to factors such as like, where is their center, a vital person, economic interests, and where is there at, you know, where I have to have permanent home available to them. And again, with a bit of planning needs to be done around that. If it’s a case, an individual is going to satisfy, you know, two jurisdictions resident’s criteria should you come and live in Ireland, the ordinary resident and concept, when your resident in Ireland for three consecutive years, you automatically become this, you know, ordinarily resident here.
And that’s just the way it is. It takes three years to lose that as well. Your domicile is really, and the country that you are born in, or the country that you’re for your father is born in is generally where you, you know, where your domiciles is. It can be very difficult to change that. And really, if you do intend on changing dash and you have to be, there has to be very clear on, you know, very definitive steps and take in as regards to that, like, you really can’t return to, you know, where it is you are, you know, you were originally domiciled. So that leads on to, and I suppose that my next slide, and again, that the importance of the concept of domiciles in Irish tax law, because for non-Irish domiciled people.
So, for any foreign individuals who come to take up residence in Ireland, they qualify for various, this very favorable treatment and called remittance basis of tax. So, what that means is, is that generally they only pay tax in Ireland under foreign income on what is remitted into Ireland. So they have quite a degree of control and scope over, and the extent of which their worldwide income will be exposed to tax in Ireland, which is the place they want to be given how highly personal tax rates are anonymous and generally as well, if you, if you have a degree of wealth and you want to come and live in Ireland, and that wealth has been accumulated prior to taking up residence in Ireland, you can generally bring that in once it’s clearly distinguish about dash and such wealth was generated long before, well, before the time at which you took up residence in Ireland.
And again, we would do a fair bit of work around that for our overseas clients and helping them ensure that you know, that from a record keeping perspective, that it’s very clear and it’s very clear, you know, where their funding her living in Ireland and fund her relocation and all that, that it doesn’t follow it into scope of Irish tax. Same with foreign, gains foreign capital gains, generally not taxable in Ireland, and until our, unless it’s decided that they would be remitted into Ireland at such time when you are a tax resident and from an inheritance tax perspective and slightly different in that if you are non-domiciled and in order to be within the remit of inheritance tax here, and you have to be resident here for five consecutive years to follow it into the scope of that.
So those gifts, I suppose those gifts some bit of flexibility and some bit of opportunity for planning and the only proviso to not is, if that person who you’ve at received in her hands from is that in themselves resident in Ireland at the day of there are ordinarily resident are, if what you’ve received is actually Irish situate property, which is really land and buildings that are, underground in Ireland. If the value comes from that. And in Ireland highway at do our filings and pay our tax. So, from an income tax perspective, when you come over and generally at the end of the year, you file a return call, a form 11, that generally is done no later than October each year.
So, in October 2021, you will be filing your tax return for the 2020 year. So we are so way behind, I suppose, the actual payment of tax as to when it is, and as to when it is generated from a corporation tax perspective, where if you set up a company in Ireland to obviously avail of the lower corporate tax rates, and they generally have a degree of discretion over at, you know, watch your end date, you would choose on you pay, or you file your corporation tax return on the 23rd day of the 9th month, and following the end of your financial period. And as I say, you do have discretion with that.
For both income tax and corporation tax. We have a preliminary tax regime where you do after your fourth year of filing, you do have to pay and essentially on account, which is generally based on what you paid that the prior year. So, you make a payment on account, get by a certain date for both income tax and corporation tax. And then when you do the actual filing, you do a calculation to see what the liability is, and you take away the preliminary tax that you’ve paid, and you later have to pay a balance or get a refund of the difference for if you set up a business in Ireland and you’ll have to register for VAT, and generally will be bi-monthly when you start. So, if you set up a business on the 1st of July 2021, your forced VAT return would be for July, August 2021. And you would file out in September, and it can be pushed out to four monthly or six monthly, or even annually as the business gets established. And the extent of the liabilities is ascertained the tax office, give a concession. And if you employ staff in Ireland or if you are employed in Ireland yourself, and you obviously that there’d be a payroll that would be operated, whether it be weekly, fortnightly or monthly. And it’s all done in live time now in Ireland under what we call PAYE modernization. So now anybody, when an apply, our director is going to take payment from their company. And what happens is that the agents like ourselves would sync our payroll software with the tax office software. And it tells us what a person’s tax allowances and so forth are to use in the calculations. We do the calculations; we give a pay slip on. We, we file a submission with the tax office for the tax that’s due there and then. So, it’s done on a live basis on how it’s being sold for the last two years, or are, are not since the modernization. We do have a fairly heavy penalty and regime if you are late. So, if you’re, if you’re late, would in complex your corporation tax, you pay a flat surcharge either 5% or 10%. And there’s very little discretion over that if you’re late. And there’s also interest, which is statutory at works out at about 9% per annum, and for more, I suppose, significant and for more significant and breaches or issues that may occur, and that there are higher penalties far out in, particularly if you come under an audit our investigation with the tax office over here, they can amount up very quickly. And it, of course, it can also amount to a possible publication in our national newspapers. When the liabilities go over a certain level, if you’re unfortunate enough to come under their focus and, and they audit you. We mentioned social security, which is an PRSI pay related social insurance in Ireland. And so, the slide here on data and religious two categories of doubt. when you’re an employer and you have to pay employer, peer recite on staff wages. And that is between am just over eight and a half percent on, I think it’s 10.9%. So, there’s two rates, all of us. I think when you go over 370 something euros a week gross, you kick in if you’re an employer today near 11% rate.
So, it is quite a significant pardon. If you’re an employer, for an employee, it’s generally 4% of what your gross salary are. If you’re self-employed with obviously self-employed income, our investment income is generally 4% on, on that figure. So, if you’re in employment, those deductions are made at source to the payroll. If you’re self-employed, you’re paid annually on your form, 11 w we’ve different classes of social insurance, the main ones being am class a and class S class, A’s generally where you’re an employee or where you’re working in a business that you’re not the owner, or you don’t own, at least 50% of the business process is where you are actually the, the owner or 50% or more shareholder in a business. And without getting into, I suppose, what day and title or two are the full extent of what they entitle you too generally. And if you’re a class, you will obviously job seekers benefit. If you lose, if you lose your work or you’re out of work state pension, which is a big one, we do have quite a, you know, a relatively generous state pension provision in far and far our M citizens on a residence, which generally comes to about 260 euros a week. Once you have enough insured insurance contribution, contributions made better to be a trash or process. Some of the differences between the two, if you’re self-employed, you actually don’t get endless benefits, careers benefits, injuries, benefits, or health and safety benefits.
So, they’re just a couple of them, even though you pay more or less the same amount yourself personally, that there is a, some degree of discrimination in the system and at far are self-employed people in Ireland. So just to wrap up my end, a couple of other points that I would, and I would flag that may be of some relevance. First is SARP relief, which is the specialist assignee relief and or the specialists on your relief program. Whereby if you are a highly, a relatively high-paid person, that’s coming to work for an Irish company, and you can avail of this relief where a certain part of your income over and 70,000 per year, and is exempted from, from the charge to tax in Ireland.
So, I take that day update at the highest level, the relief goes up to a salary of half a million a year, and that would potentially save tickets into region of about a hundred thousand in tax on that. So it is quite, it is quite advantageous on of some significance, if you are coming to work in Ireland and take up a relatively high level position and from a corporation tax perspective, if you come over and start up a new business in Ireland, and employed staff, and you’ll qualify for this three year corporation tax exemption, where you may not have to pay any corporation tax at all on your profits up to, up to certain levels for each of the first three years, we have BIK, which has benefit in kind. So, this is quite nasty. And this is where if you are, whether employed or self-employed, if your, if your employer or your company is paying benefits on your behalf, and it’s most likely going to get caught within these provisions. So, whether it is you provide a car, whether it’s medical insurance, whether you provide residential accommodation to live in all of these triggers, a charge to benefit and kind, and it’s something to be wary of. And pension contribution relief is something we’ve done is worked something of some significance in the Irish tax and in the Irish tax code, and just can come in a personal capacity where you’re making the contributions yourself and you get tax relief and get, and you can get tax back on the contributions that you make, depending on a number of factors, such as your salary and your age. And that will sort of dictate how much or what level of scope you have to am, I suppose to put it to put as much as you can away into your pension pot. And if you are a company director, and it’s even more advantageous because your company confirmed and quite significant amounts and get a tax deduction for it in his books to, you know, to build up quite a valuable pension pot. As I say, if you, if you come over and set up a business in Ireland and you are a director and shareholder, we have two very generous and business sale release. They’re called entrepreneurial relief and retirement relief. And on what days are entrepreneurial relief is when you sell a company, when you sell a company, shares it, you pay only 10% on the value of those shares up to a million euros and subject to some terms and conditions returned as relief work similarly, even though you can’t do it, you don’t have to be an incorporated entity far down and slightly more advantageous and not, there’s no tax at all up to three quarters of a million. Again, subject to terms and conditions, I suppose, for maybe more valuable, bigger businesses say, and the likes of say software businesses, again, the tend to get sold for money, multiples of earnings, or if of nowhere, things can still be so far, very significant storms based on their perceived value on their technology value and so forth. We have a very advantageous holding company structure in Ireland, whereby if you set up the company to hold the shares and you’re in your trading company, again, subject to some fairly straightforward and easy conditions to satisfy, you can sell your business and not pay any tax at all, all of the debt that the funding will stay in there, and we’ll stay in that the holding company and is not per se in your bank account.
And so, I suppose some food for thought in all of that, and I’m happy to answer any questions and, share my thoughts on any topics or points that you may have with Derren here now into questions and answers session. And thank you very much for your attention.
Right? Thank you very much Damien for that. So, we do have some questions. I’m going to ask them in the order in which we received on them, I’m going to read them out because there are people on other platforms who may not be able to see zoom. So, the first one who my screen moved is right, Alex is asking I’m an American came over to Ireland. I have had a civil union upgraded to marriage. I do not work. And I filed jointly in Ireland with my husband. What could be my liabilities?
I’m just going to touch a little bit on the American part. Although I know that she really wants to jump into the Ireland part. So even though you’re not working, if you have any income at all, like investment income, just please bear in mind that they may be US tax responsibilities to that. And if you have bank accounts, or even if you hold financial accounts jointly with your partner in Ireland, they may be a US reporting requirement. If there’ve been any exchange of assets back and forth, including cash, that may be reportable as well. And with that over to you, Damien?
eah. So, if it’s a case, there is no, you’ve no taxable income at all yet you would have done the right thing and be jointly assessed with your spouse because the advantage of that is his and he can get an extra, they can get extra tax allowances, namely the tax credit on our tax code which would save him tax on his salary. If it’s a case, he is self-employed, maybe drop me a line because you’re you, even though he may get the benefit of the extra allowances, you might be missing a trick with just, I suppose, maximizing what you can do with I suppose with the surplus business profit there. And obviously from your own point of view, as well, allowing for pension provisioning and so forth, if he’s in a position to imply you in his business, that could be advantageous and could be something to look out. So happy to do a follow up email or call to tease that out a bit farther with, with the person who asked the question, if they want.
Okay, wonderful. Moving on. Rick is a plumber in Louth, saying I’ve been living in Ireland for 20 years and learn about us citizens having to pay file taxes back in the US. I’m married with two kids; how can I stop filing now? Would I incur a huge penalty, Rick, you know, alone, because so many people living outside of the us, not aware of the US responsibilities, the IRS has a program, which is an amnesty in all, but name called the streamline compliance procedure. So just to briefly explain what it entails, the look back period is three years. So even though you may not have filed for 20 years, right? The look back period is three years. So, you’re looking at the last three years, which do they has already passed, which in this case will be 20, 19 and 18. Everything before that doesn’t matter, just the last three years, where due date has already passed and as driven by the statute of limitations, and then similarly with the foreign bank account report, because as I mentioned, you do need to report a foreign financial accounts. The look back period for that, it would be six years, which date has already passed the 2020 back six years. So, you pull that together. We help you work through the foreign bank account report. We help you pull together your tax returns and you submit them with a cover letter, which explains why you have been non-compliance. And of course, you agree to be compliant going forward. And once you are deemed to be non willful, which it appears that you may indeed the case for you, then you’re good and you’re free and clear. And of course, going forward, you file in, in a normal fashion as a normal tax return. So, the streamlined compliance procedure may, maybe what is right for you. So please reach out to, to ourselves whenever you’re ready to take that forward.
So, I’m going to move on to the next one. Carrie, I think is asking my wife is American. I am Irish. If we come home to retire, we would be pulling from US retirement savings, social security, et cetera. If we put that in Irish bank, we’re going to be taxed again or we only need to worry about that money earned in Ireland, Damien?
So, I suppose it depends on when it’s drawn down, out of the US pension account. And if it’s drawn down at such time, when the IRS and the Ireland then it definitely needs to be looked at, and it definitely needs to be looked at because I think it will be considered income, but I suppose the way the easy sort of what I’m thinking. The easy answer for that is, if let’s say if they wanted to come to take resident in Ireland next year is just draw down in this year on that way, she’ll be okay. They’re not going to be exposed to income tax in Ireland on it next year. So again, and I suppose, like with, and the answer to it, I suppose, a fair and fair number of questions such as this is just get the steps and get the timing of it right. And there shouldn’t be any problem. So that would be that one I’m thinking on that one.
Can I just ask a follow up? Sorry, so if we, we drew down say monthly after we were there, I mean, we’re not going to pull all of our money out at once. Right. So, if we are or annually to support ourselves in Ireland, that would be considered income.
Yes. And Carrie in that scenario, you definitely would be, it definitely would be liable to go on your tax return in Ireland. And how or whatnot would equate to in actual hard cash for you on an annual basis, like would really be dependent upon your circumstances if there is any, I don’t know, would there be any tax on the US end and if there was, there may be some double tax relief that you could avail of. So, I suppose we’d have to look at that. Do an estimate of what your total anticipated earnings would be in a year in Ireland and sort of give you a bit of guidance from that like so you could assess how and how you’d feel about what the tax exposure in Ireland would be budget. I I’m fairly sure it would be caught in Ireland because it will be classed as income.
Okay. Well, we’ll give you a call Damien, because you can bet, we will be taxed when we pull it out here. So, we’re over there. We’ll just give you a call so we can narrow that down. Thank you so much.
Just remember Carrie, like, could it be an option to look on? And again, it all depends on, on how much capital you have, or like watch your phone provisioning is, but if there was enough in it like that, you could draw down a certain percentage of it and you were quite comfortable with what was there in the remainder. You know, you could, I suppose, take a lump sum out in the year before you arrive, or before you take up residence here and use that to fund you says for a couple of years, like that might be one way to, it all depends on what the numbers are and, what level of pension provision and you have. So, I suppose we can have a chat about that at some stage. Great.
Thank you, Damien. Appreciate it.
And just to add to what Damien has said, and for people who may be in similar situations, there is both countries recognize foreign tax credits. So, in addition to which there is a tax treaty in play. So, it’s very unlikely that you’d be taxed twice in the same income because we’d be able to leverage tax credits and, or the tricky itself.
So, with that in mind, I’m going to move on to Alex. Sorry. Someone said, someone asks a question now. Okay. Moving on. Alex has asked if I take retirement to be paid in Ireland, one of my responsibilities. And can I then declare him as my dependent, I guess your partner as your dependent, Damien?
Sorry, Derren. Just say that again there because my zoom just for is just froze as you were starting.
Okay. No problem. So, Alice has a follow-up question. He’s asking if I take early retirement to be paid in Ireland, what are my responsibilities? And can I then declare my partner as my dependent?
So is Alex currently U S resident that is thinking of coming to Ireland to take early retirement.
Alex, do you want to unmute and clarify please?
No, my partner and I came back when civil union came to effect, which was not recognized in the States he’s been working. Okay. I’ve been his dependent, but now I’ve passed my 60 years of age. I’m entitled to, if I want to take early retirement from the States, which I have all my credits done fulfilled many times over. If I take that, then can I declare him if he’s not working as a dependent of mine?
Well, first of all, like you have to qualify for the State pension, the ages now it’s 66, isn’t it. So, you’re not going to qualify for that, Alex.
No, no. Under American law, the way I understand it, I fulfilled my 40 credits and then some requirement from the US so I could ask for an early taking a certain percent and at that stage, he can stop working. Can I declare him as a dependent of mine there or here?
But you won’t see any advantage on this point in Ireland with that. I think the advantage might come when you are to return at the age in Ireland which is 66. I think you might have entitlement to an additional pension than if you have a dependent at that point, what I don’t see, I’m not aware of any benefit you could get on the IRS side. Now, Alex, when you’re 60. No, I’m talking about the American side because I’m still an American citizen from America. So, the pension is talking about what the common from America, not Ireland. Okay. So, Derren, do you know, and do you know anything about how the US state pensions work in that regard with dependence.
To put it into context right now, I’m living here. I’m not working. He’s my dependent and he gets a tax credit for me. I get my pension from the State, okay? I receive it here, but he’s not my dependent. Do I get a tax credit in the states for that? Or does it have to be worked out here?
The sole well system of getting exemptions for partners and for dependent kids or independent parents, or whatever was kind of thrown up in the air under the tax cut and jobs act at the end of 2017. So, there are no more exemptions in the first place. So, yeah and so at this point in time, unless things change, there are no dependent exemptions at this point, generally speaking. From the US perspective.
Okay. Okay. Got it. Okay. Thank you.
Okay, great. Okay. Sorry. There’s another question. Good to know, get to know Derren.
This is from Carrie again. Is there a limit on that income tax credit? Meaning could we own a shield from certain amount from double tax? It really, so I guess we were talking about between Ireland and the US the double tax agreement. It really depends. It really depends. It’s hard to speak to generally, but what I want you to, to, to take away is that it’s unlikely that you’ll be taxed on the same income twice. Chances are, you’ll just be paying the higher of whichever one it is. If Ireland is going to be how you’re going to pay, it’s unlikely the US is going to be higher. So, you know, it’s not going to be tax twice.
Yeah. That’s a good answer, Derren. It’s likely you pay whichever is the higher, and that’s probably the best way to look at this.
So, okay. So yeah, that could make difference. If we were taking out that let’s pick a number a hundred thousand a year, 200,000, whatever it is, we may end up paying 50% on that. If we’re living in Ireland.
Well, you pay 50% on some of it, Carrie, and this is what I was, this is what I was kind of touching at. The way I’ve been trying to angle this is I’ve been trying to project what your income is likely to be in such a way that you to pay or you’ll have you know up to your caught off point, whatever that may be. So, you’re only going to be exposing your income up to 20% paye plus USC and plus PRSI and how you, then I suppose, our volume for want of a better way to put it is you allow Parda through your capital, you know, through what existing capital and wealth that you have. So, we try and work out and project how you could optimize your, your finances with that in mind. If that makes sense.
Okay. I don’t exactly understand, but okay. I won’t drag every time.
If you can. Yeah. If you, if you can, if, if you’re, if you’re in a position where you can extract whatever percentage of your wealth, now, that is not being exposed, when you bring it into Ireland and then plan, whatever income you’re going to generate thereafter, whether it be from work or pensions or whatever, to bring it as close as you can, to put off point in Ireland, which is the point at which you go from the lower rate to the higher rate, and whatever that figure is, you use dash on your pre and your pre residents capital to maintain and provide for yourself in Ireland. And that’s how I think you would go about optimizing your tax affairs.
Sorry, if that’s, if I’ve lost you on that and if it’s not clear.
I think I understand. Yes. Right. I think it’s worth a call. So, thank you so much. Well, we’ll contact you. Yeah.
Okay. Another question. You mentioned Damien, the remittance basis. So can someone who is a dual citizen, so US Ireland, they moved to Ireland. Can they qualify for being taxed on the remittance basis? And if so, what is the process for registering?
If there are dual citizen, a good question, where would it be considered domicile, I suppose. So, I think we’d probably get into the case law. The case law, and where do they see their, you know, where do they see their real home to be? Is it actually Ireland? Or is it America? If it’s the case it’s America, then yes, they will qualify for the remittance basis. But if it’s a case it’s not, it’s Ireland. they wouldn’t, that would be my answer to that. And obviously we’ve got to have a look and see, we could maybe share with them the kind of factors that have been, that the courts have looked at before to make an assessment like that, like school question, yes.
Okay. Another question that I’ve been personally getting a lot of as well, crypto, how does the Republic of Ireland view crypto?
Yeah, there’s quite a lot of that floating around. And of course, there’s quite a lot of people in Ireland that probably aren’t in any way and experienced in business that decided to put their life savings into crypto and have turns, whatever their life savings was into a multiple aware it is. And now realize, so what the tax office in Ireland says is? it’s really the same as trading in any currency. So, in most cases it will be liable to capital gains tax the gains.
So, it’s view as a currency in Ireland.
Yeah, yeah, yeah, yeah, yeah.
Right. Blah, blah, blah, Rick. Yes, you can, so Rick is asking about the streamlined compliance procedure. You can reach out to me directly and what Hannah will do she will type our email address in the chat box below.
Okay. Another question for you, Damien, the three-year corporate relief. How does someone qualify for that? Or is it just by incorporating an entity in Ireland?
Yes. By incorporating an entity and carrying on a qualifying trade. And most businesses are a qualifying trade but with few exceptions such as professional services. So, we’re accountants and lawyers and so forth. They wouldn’t qualify. And, but it’s really only on anything else, really, aside from the excluded activities that’s there, which are only a handful. And the key to it is you have to employ staff. So, when you employ staff and you’re paying the employers’ periods are you paid that gets credited against your corporation tax bill. So, it is very much linked to employment generation, but it is quite generous. You can shelter, or you can shield almost a million, your own profit without paying any corporation tax on it. If you do employ an off staff and all of that. So, and again, say the likes of hospitality businesses and adopt that would have, that would have you know, very high at payroll cost in comparison to the return over the likes of those would, you know, would benefit, very, very well from us. And it’s a self – asses in Ireland like anything in our own, it’s a self-assess process. So, your online accountant in Ireland at the end of the year, if you qualify for it just makes a declaration under the corporation tax return and that’s it.
Okay. Wonderful. Any other questions? Anyone? So, I’m just going to have a quick look on the other screens just in case anyone on Facebook asking. Nope. Okay. So, I think that’s it.
Damien, thank you for your time sharing your expertise with us here this evening, and everyone thank you for joining. And please feel free to reach out to Damien and or myself. And we can definitely look after you have a good evening.
Here are four ways we can help you.
- Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax
- Stream premium education or videos at www.HTJ.tax
- Contact us for Tax optimization consult via zoom
- High Net Worth. We can quote for doing your US International taxes returns.
Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at firstname.lastname@example.org to engage us to advice on international tax or business matters.