Residence, domicile top factors

Residency is an important factor in the tax liability of interest from domestic and offshore bank accounts. Some people continue to be under the impression that if they leave their funds offshore in an account which pays gross interest and move to another jurisdiction they can avoid paying income tax in that new country as well as here.

In his excellent summary of residence and domicile for tax purposes Sebastian Devlin in the 1997/1998 Money Pensions and Tax Guide makes the following points about new laws on residency and tax introduced in the 1994 Finance Act.

Your liability to Irish income tax on foreign income depends on your residence and domicile position in Ireland. You are considered a resident here for tax purposes if you spend 183 days here during the current tax year. If the combined days you spend here in the current tax year and the last tax year exceeds 280 you are also considered resident for tax purposes. You are considered an ordinary resident if you have been resident here for three consecutive tax years. Ordinary residence ends at the end of the third consecutive tax year in which you are not a resident. Domicile is another factor upon which a charge to tax is considered. Domicile is acquired by virtue of place of birth. Domicile of choice can be acquired by permanently moving to a new tax jurisdiction. If you are resident and domiciled in Ireland you are subject to Irish income tax on your world-wide income.

Double taxation agreements exist between Ireland and other states. Such agreements free Irish residents living and working abroad from the obligation to pay income tax in this State on income which arises abroad. The advantages of moving to a new tax jurisdiction or of putting funds offshore have been curtailed by new tax legislation. Tax clearance certificates are now required from depositors, says Denis McCarthy of Irish Intercontintal Bank and banks assisting in the establishment of foreign bank accounts must provide the Revenue Commissioners with details of the transaction. Until you fulfil the three-year residency rules (that is, cease to be an ordinary resident in year four) you will be obliged to pay Irish income tax, PRSI and levies on all world-wide income, unless a double taxation agreement applies.