Q&A: Dominic Coyle

I moved to the Middle East for work a year ago. I would like to invest in a structured product (90 or 100 per cent capital protected with dividends reinvested). The term is three years, 11 months and it is offered by Cantor Fitzgerald and is open to anyone. The investment is managed by KBC Bank. If I remain a non-Irish resident for the duration of the product term , am I then exempt from tax on the gains or the principal? The product is treated as a deposit (subject to DIRT) per the information published. I hope to invest €10,000.

Mr M.B., email

For tax purposes, there are four categories of people – those who are tax resident, those who are “ordinarily” tax resident, those who have Irish domicile and non-residents who are not Irish domiciled.

Most taxpayers are tax resident – that is, they are resident in the State for tax purposes even if they do not spend their entire year working in the State.

Under rules set down by the Revenue, you will be deemed to be tax resident here if you spend 183 days or more in the year in the Republic – or 280 days over two years.

People who are tax resident in the Republic are liable to the Revenue for tax on their global income, regardless of where it arises. So, you could have income from a US investment or a pension in Britain but, as an Irish tax resident, you are liable to pay tax on it here.

Of possibly more interest to you is the concept of “ordinary residence”. A person is deemed by the Revenue to be ordinarily resident in the State if they have been tax resident here for three successive years. The import of that is that, even if you leave the State, you will be ordinarily resident in the Republic for the three full tax years after the tax year in which you leave the State. During that time, you are liable to pay tax to the Revenue on all your worldwide income, with certain very relevant exceptions.

First, you will not pay Irish income tax on income earned in employment abroad, such as in your case. Second, you are also exempt from Irish tax on “other foreign income”, as long as that is below €3,810. Anything higher than that and all other foreign income is liable to Irish tax, not just the amount above the €3,810 threshold. This would apply, for instance, to foreign investment income.

But income arising in Ireland is still liable to tax – eg rental income from letting out your home or other property. However, in your case, although the income arises in Ireland, it appears no tax applies. You say the investment is treated as a deposit and subject to Deposit Interest Retention Tax (DIRT).

If you are non-resident, you are entitled to receive deposit interest gross, ie with no DIRT deducted. You should let KBC know and arrange to complete a Non-Resident Declaration.

Security of An Post savings
My wife and I have the following savings in our joint names: €120,000 in An Post five-year saving certificates; €20,000 in An Post three-year saving bonds; €10,000 in an An Post saving account; and €12,000 in prize bonds. I would be grateful if you could advise us on the security of these savings over €100,000 due to the developments in Cyprus.

Mr D.C., email

The deposit guarantee scheme – under which the first €100,000 of savings in any bank covered by the scheme is protected – does not apply to An Post savings at all.

Instead, the An Post “State guarantee” means the State backs the full amount of your saving with the post office.

You refer to Cyprus – the presumed fear is of a national bankruptcy. In that case everything – including the deposit guarantee scheme and state guarantees – would be up for discussion with those bailing the country out. The EU has stated it will respect the €100,000 guarantee. Nothing has been said beyond that – though the target for bailed in savings – ie large deposits that will not be protected – has consistently been stated to be corporate deposits and tax avoidance.

In any case, I would really advise you not to address your savings strategy in Ireland now on the basis of a national bankruptcy. There is nothing to suggest this is a reasonable scenario for our economy – even in its darkest days.
This column is a reader service and is not intended to replace professional advice. Please send your questions to Q&A, c/o Dominic Coyle, The Irish Times, 24-28 Tara St , D 2, or to dcoyle@irishtimes.com