Ireland is the European jurisdiction of choice for corporate entities, including securitisation companies and investment funds. It is also the world's leading jurisdiction for aircraft finance and leasing. What is less well known is that Ireland's tax system has the key features and flexibility to be an ideal base for high net worth individuals ("HNWIs") and senior foreign executives in multinationals and financial institutions. Moreover Ireland boasts superb infrastructure, air connections, a first class education system and a mature residential property market, all of which are important considerations for someone basing themself in Ireland.
The Irish rules regarding residence and domicile are similar to, yet far simpler than, many other jurisdictions, including the UK. The UK is introducing changes which will impact long term non-domiciled residents of the UK ("non-doms"). Ireland offers a potential solution to UK non-doms who are going to be affected by these changes (coming into effect in April 2017) as well as other HNWIs who are looking for an attractive place to live and to benefit from clear tax rules that will assist them in managing their wealth.
This article explains the rules and advantages of Irish non-domiciled status for qualified HNWIs.
Ireland's Non-Dom Tax Regime
Like the UK, Ireland has the concept of domicile as well as residence. Broadly, a non-domiciled Irish tax resident individual is subject to tax on income from Irish sources only. Foreign income and gains are only taxable to the extent of amounts remitted to Ireland ("remittance basis").
The UK's Non-Dom Tax Regime
Similar to Ireland, the remittance basis for UK income taxation applies to UK non-doms. However, in the UK. non-doms are subject to a regime of variable charges after specified periods of residence.
Broadly, those UK non-doms who have been resident in the UK for at least seven of the previous nine years must thereafter pay an annual charge of £30,000 if they choose to be taxed under the remittance basis regime. Those resident for 12 of the previous 14 years must pay £60,000 and those resident for 17 of the previous 20 years must pay £90,000.
There are no such charges levied in Ireland.
Changes were introduced in the 2015 Summer Budget which will affect many UK long term non-doms.
Non-dom status for long term residents is to be abolished. From April 2017 anyone who has been resident in the UK for more than 15 of the last 20 tax years will be deemed domiciled in the UK for all tax purposes. They will be subject to UK tax on their worldwide income and gains on an arising basis and to UK inheritance tax on their worldwide assets. A UK non-dom will have to become non-UK resident for at least five complete tax years to lose this deemed domiciled status.
The UK government has clarified that only gains arising and accruing on their offshore assets after 5 April 2017 will be subject to capital gains tax ("CGT") under this new deemed domicile regime.
Another change that has been introduced is that individuals with a UK domicile of origin will no longer be able to claim non-dom status while they are resident in the UK. They will be treated as UK domiciled for all tax purposes as soon as they become UK tax resident again.
The UK changes will pose difficulties for HNWIs who have been long-term residents of the UK, who will need to consider their options if they wish to avoid the consequences of deemed UK domicile status. Ireland should be considered as a potential solution.
Both systems would have to be navigated together when planning to exit the UK. For example, when a UK non-dom becomes deemed domiciled after 15 years of residence, it takes five years of non-residence to lose this status. An individual can reside in Ireland for five years before they become subject to capital acquisitions tax ("CAT") (a tax on gifts and inheritance).
As noted, the Irish non-dom regime can also be of benefit to Irish non-dom senior executives relocating to the Irish operations of multinationals and financial institutions. While they do not benefit from the remittance basis on Irish source employment income, they may be able to obtain relief from income tax through the Special Assignee Relief Programme.
Ireland - Residence and Domicile
The Irish rules with regard to residence are much simpler than those in the UK and are based exclusively on a definitive "number of days" test.
An individual is regarded as tax resident in Ireland for a tax year if:
(a) they spend more than 183 days in Ireland in the tax year or;
(b) broadly, they spend over 280 days in Ireland over two consecutive years.
An individual can also elect to be a tax resident in Ireland, provided the Revenue Commissioners are satisfied they will meet these same minimum residence requirements in the following tax year.
By contrast, the UK rules around residence are more complex and a revised statutory residence test has been in effect since April 2013. This test takes into account a variety of factors such as the amount of "ties" an individual has to the UK including accommodation, employment and family relationships.
The concept of "domicile" is also of crucial importance because if an individual is not domiciled in Ireland they are not taxed on foreign income and gains unless they are remitted to Ireland.
There is no statutory definition of domicile under Irish law; it is a common law legal concept and the basic principles are the same in the UK. Every individual is born with a domicile of origin. It is possible for a person to lose their domicile of origin and acquire a domicile of choice or to lose their domicile of choice and revive their domicile of origin.
Finally, in Ireland there is relief from CAT provided for non-doms in certain circumstances. The relief provides that although an individual may be tax resident in a given year for income or CGT purposes, they will only be treated as tax resident for CAT purposes where they have been tax resident for the five previous tax years, prior to the year of assessment in which the gift or inheritance arises. This statutory test gives non-Irish domiciled individuals certainty as regards the CAT position and an ability to manage their arrangements.
In broad terms, any EU citizen may reside in Ireland. There are also a number of residency programmes operated by the Irish authorities to facilitate the acquisition of Irish residence by non-EEA citizens. The EEA is the European Union, plus Norway, Lichtenstein and Iceland.
The Immigrant Investor Programme is open to non-EEA nationals and their families who commit to an approved investment in Ireland. Approved participants in the programme and their immediate family members are granted rights of residence in Ireland which allows them to enter the state on multi-entry visas and to remain there for a defined period with the possibility of ongoing renewal. The programme allows participants, over time, to establish a permanent relationship with Ireland and to acquire residency status.
The Start-up Entrepreneur Programme is another available programme that allows non-EEA individuals and nominated family members to be resident in Ireland, provided they have an innovative business proposal and funding or financial backing of at least €75,000. This programme further provides for multi-entry visas, if required.
Attractions of Living in Ireland for HNWIs
Apart from the favourable tax regime for Irish non-dom residents there are a number of other attractions to living in Ireland. Ireland is a safe and stable EU country and is the only Eurozone country where English is the principal language.
Ireland's infrastructure and air connections are well developed. There are international airports in Dublin, Belfast, Derry, Shannon and Cork and regional airports in Donegal, Galway, Kerry, Knock, Sligo and Waterford (which operate some international routes). Most European cities are easily accessible within two to three hours flying time, whilst London is reachable within one hour. Ireland also has an excellent motorway network linking the major population centres.
Ireland has a first rate education system and is home to two of the top 150 universities in the world. It also has a world-class private healthcare system.
The Irish property market is vast and varied, from prestigious country estates to luxury city centre apartments, and offers greater value for money compared to other European countries.
Before taking up residence in Ireland an individual would need to carefully consider the steps required both to break their existing residence and to become Irish resident. There is also important pre-entry tax structuring such as establishing segregated bank accounts. This would be undertaken to ensure that income and gains realised before an individual moves to Ireland can be remitted to Ireland tax efficiently once they become Irish resident. Accordingly, it is important that legal and tax advice is taken well in advance of moving, which would include creating step plans and statements of affairs.
UK resident non-doms affected by the new deemed domicile rules have a window from now until 6 April 2017 in which they can avoid becoming UK domiciled by taking up residence in Ireland. Such individuals could enjoy the same benefits of non-dom status as they enjoyed in the UK.
Each individual case requires careful consideration of its own unique circumstances. Once these circumstances have been successfully navigated Ireland can prove itself as an excellent base for HNWIs.