Making sense of tax liability on offshore fund in UAE

We lived in the United Arab Emirates for 14 years until 2014 and had invested in a fund. Since moving to Ireland, we have not paid into the fund. Now we would like to close it down and move it to Ireland for a down payment on a mortgage. Do we have to declare it? And pay tax on it? We are very confused.

Ms A.B., Cork

There is obviously a lot of focus right now on the issue of offshore assets as the Revenue has indicated its determination to clamp down on people who have undeclared assets abroad.

It is important to realise that the prime focus of the tax authorities is people who have been using untaxed income to acquire assets abroad. However, there is also an issue for many others, including people in your position who have invested abroad with properly declared funds but who may have made an investment gain on those funds.

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Essentially you were putting money into this fund when you were living abroad. If you were living in the United Arab Emirates for 14 years, you were certainly not tax resident here for that period. As long as you complied with local tax rules – and there is no personal income tax in the Emirates – you are fine.

The only issue arises from the time you moved to Ireland. Once you become tax resident here, you are obliged to keep your affairs in order with the Revenue.

Since you have not paid into the fund since your arrival here, there is no issue in ensuring that any contributions came from already taxed income. But there is still the issue of any investment gain. If you are resident here, you will be liable for any investment gain on the UAE fund in the years since you came to Ireland – ie since 2014.

Tax arrangement

I’m not very familiar with the tax arrangement on funds in the UAE and Revenue advises that the whole area of offshore investment funds can be tricky as the tax position differs with the type of fund, its domicile and whether we have reciprocal arrangements with that jurisdiction. In the case of the United Arab Emirates, Ireland does have a double taxation agreement in place.

Revenue’s clear advice is that, for the avoidance of doubt, anyone with such a fund should seek specialist tax advice.

There is also the issue of whether it is a “distributing fund” (one which distributes gains/income annually) or a non-distributing fund (where the profits accumulate within the fund). The default – unless a fund is registered with Revenue is that it is a non-distributing fund. Tricky, as you can see, especially as the tax arrangement differs according to whether it is a distributing or non-distributing fund.

In a distributing fund, any annual profit/income paid by the fund is liable to income tax, universal social charge and PRSI in Ireland and you will need to file an annual return to detail tax due. Any final gain on disposal of such a fund is liable to capital gains tax at a higher 40 per cent rate. Again, you need to proactively self-assess liability to capital gains.

If it is a non-distributing fund, and gain on disposal comes under the income tax regime described above, apparently.

In Irish funds, interest/investment gains are rolled up for the duration of the investment – or eight years, whichever is the shorter – under what is called a gross roll-up regime. The gain is then taxed when the fund matures or is drawn down. But the gross roll-up provision will not apply to this foreign investment

Aside from the investment gain, there is no problem moving the money here to use as a down payment on a property and no additional taxes will apply when you transfer the funds to Ireland.

Send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.