By law, all legal Irish entities are supposed to pay taxes on all chargeable income and gains. Ireland’s Taxes Consolidation Act which was established in 1997 is instrumental in the country’s taxation system.
According to Irish taxation guidelines, all income sourced in Ireland is taxable for everyone residing in Ireland. In regards to foreign sourced income i.e. income sourced outside of Ireland, it is only deemed taxable income upon remittance to Ireland.
At the end of each tax year, income tax is deduced through appropriate rates on gross pay earned.
Employees are generally liable for the following taxation
- Pay As You Earn (PAYE). This tax falls on all Irish sourced employment income. It is calculated at progressive rates.
- Universal social charge (USC) is tax payable on gross income from all sources after tax relief for capital allowances but before tax relief for pension contributions.
- Pay Related Social Insurance (PRSI) is used to fund various benefits for employees like unemployment and medical welfares. There is a progressive scale of rates, which depends on the classification of employment. the employee's rate of PRSI is generally of 4%
Tax on rental income is administered in a way similar to the tax on income from work. It is usually at the same rates. For most investors, the tax on rental income would be charged at 41%
Stamp Duty (Transfer tax)
Stamp duty is calculated differently for commercial and non-commercial properties. Non-commercial properties are taxed 1% for the first €1,000,000 of value. The cut off is 2% of the property value. Commercial properties garner a flat rate of 2% on all acquisitions after 6 December 2011.
Local authority rates are determined by the property’s value and the responsible local authority as per location. This form of tax on commercial property is regarded as a tax-deductible expense under Irish taxation.
Capital gains tax
Capital gains tax is generally charged at 33% on disposals of property. There is an exemption from capital gains tax on transfers of assets between spouses and an annual exemption of €1,270 per individual (non-transferable). New incentive relief for the first seven years of ownership for properties bought during 2012 and 2013 was announced in 2012. Eligible property held for seven years will not accrue Capital Gains Tax throughout that period.
Value Added Tax (VAT)/Sales Tax
The VAT is set at 23% on the supply of most goods and services. Items exempted from this tax include most exports, food, medication, children’s clothing.
Resident companies in Ireland are taxed on their global business profits (including capital gains). Non-resident companies are liable to Irish corporation tax only on trading profits generated within the country. Non-trading (passive) income includes dividends from companies resident outside Ireland (with some exceptions), interest, rents, and royalties.
Ireland is a signatory to over 70 tax treaties to date. The common model for these treaties is the OECD tax treaty model. These treaties cover double taxation avoidance. Whereby Ireland and another state have the right to tax again a credit may be available in Ireland for tax paid on the gain in the other country.
The Irish jurisdiction is very stern when it comes to tax compliance. Therefore it is very important that you stay au courant with all the taxes that your business is liable to and make sure to pay them in time. For further assistance and insights on the types of taxes in Ireland, you can reach out to our expert consultants at SIGTAX.