Sheltered housing

Down through the centuries emigration has been associated with poverty. But in recent years, a select group of people have opted for exile to protect their wealth.

Punitive taxation rates have driven many of those who can afford it into tax exile, often to sunnier climes where governments lay less claim to their riches.

Despite the recent controversy over bogus non-residency, this is a perfectly legal option, provided such exiles meet the legal requirements, the main condition being that they spend just half the year at home.

According to the Office of the Revenue Commissioners, there are two simple tests for determining whether an individual is resident in the Republic for tax purposes.

Individuals are regarded as resident in the State for a tax year if they spend 183 days or more in the Republic in that year or if they have a combined presence of 280 days over a two-year tax period. For the two-year rule to be applied, a stay of least 30 days in a given year is required. The tax man defines presence as the personal presence of an individual at midnight, basically an overnight stay.

But if the tests seem simple at first sight, the rules governing non-resident taxation can be more complicated in practice.

Individuals who are not resident in the State are generally only taxed on income and profits from Irish sources, including income from an employment carried out in the Republic.

But much depends on where the individual resides, and whether it is one of the 35 countries with which the Republic has a double taxation agreement. These include Britain, the US and most of the European Union.

Those residing in such countries may not be taxable on certain types of Irish sourced income, due to the operation of the treaty. Instead, they pay tax in their place of residence.

The type of income is also relevant as certain categories of income are liable for taxation in the Republic no matter where the individual resides - money earned from renting out Irish property, for example, is generally subject to tax here. Stock options, issued while someone was resident in the Republic, also tend to remain taxable here, no matter when or where they are exercised.

Capital gains tax is also payable on profits made from the sale of specified assets situated in the Republic, according to Mr Fergal O'Rourke, tax partner at accountants PricewaterhouseCoopers. These include buildings, land and minerals.

Becoming a tax exile is generally associated with the rich and famous. The list of wealthy Irish people who have chosen to reside outside the State in an effort to avoid high taxation rates is well-known and features many prominent businessmen.

Michael Smurfit, chairman and chief executive of the Smurfit paper and packaging empire, resides in Monaco, where he is honorary Irish consul.

The Limerick-born multi-millionaire gambler, horse-owner and financial wheeler-dealer J.P. McManus is now resident in Geneva where he heads a currency-dealing operation.

Dr Tony O'Reilly, though he has homes in Castlemartin in Co Kildare, in Dublin's Fitzwilliam Square and in west Cork, has not been a tax resident in the Republic since he went to work for Heinz in the US some 30 years ago. With houses in the US, France and the Bahamas he has plenty of options as to where to spend his time when not in the Republic.

Interestingly, although the list of those not resident for tax is top heavy with businesspeople, it does not include many artists. The generous tax treatment afforded to income from royalties has made it easier for multi-millionaire singers and authors to remain resident here.

But increasingly, it is not just the rich and famous who are concerning themselves with their tax residence.

The spectacular growth in the number of multinational firms investing in the Republic in recent years, along with the expansion of the computer industry, have created a situation where many workers find themselves transferring to work for their firms overseas.

Ms Anne D'Arcy, tax adviser with accountants KPMG, says she advises many people on their tax situation when they are being sent overseas to work. "We generally deal with professionals, sometimes returning nationals. It's mainly company driven."

Increasingly, software engineers, for example, are being sent abroad to work, with tax implications.

Any individual who has been resident in the State for three consecutive tax years becomes "ordinarily resident" with effect from the start of the fourth tax year.

They are not liable for tax on employment or trading income earned abroad or on other foreign income provided it does not exceed £3,000 (€3,809) in a given tax year.

But they remain liable for tax in the Republic on Irish-sourced income and may also face a tax bill on their foreign investment income if it exceeds the £3,000 figure, particularly if they live in a country with which the Republic has no tax treaty.

Those going to work in the Gulf states, for example, would do well to check their exact tax liability.

Proving non-residency is another issue. Financial advisers say non-residency is dealt with on the basis of self-assessment and there is usually a presumption of honesty. But the Revenue can at any stage challenge an individual to prove how much time he or she has spent in the State in a given tax year.

Typically, flight tickets, credit card statements, bank statements or air miles can be used to prove that someone has been spending the necessary amount of time outside the state.

So those who opt for this way of life should make sure not to chuck out those boarding card stubs. They might come in handy down the line.