The levy was introduced after the financial crash, as a way of ensuring that wealthy individuals whose permanent home is in Ireland but who live overseas for tax reasons make some contribution to the Exchequer.
A flat charge of €200,000 a year, it applies to those whose worldwide income exceeds €1m, whose assets in Ireland are valued at more than €5m, and who paid less than €200,000 in income tax.
However the numbers paying the levy have been dwindling, and it raised less than €2.5m in 2023. In reply to a Dail question, the finance minister Paschal Donohoe said the total raised from the levy since 2019 was just €11.5m.
At the time the levy was introduced by the late Brian Lenihan as finance minister, about 5,000 Irish people were declaring themselves non-resident for tax purposes each year. In 2009 the chairwoman of the Revenue Commissioners, Josephine Feehily, said 440 of these were “very wealthy”. If all of these paid the levy, it was noted, this would raise €88m.
Tax “exiles” are allowed to spend 183 days a year in the State, or 280 days over two years. Some political parties had suggested that instead of introducing a domicile levy, it would make more sense to reduce that number of days instead.
In his response, Mr Donohoe said that based on data available from the income tax returns for 2022 for self-employed people, 27,500 reported that they were non-resident.
One of the few people known to have paid the levy is the horse-racing tycoon JP McManus, who did so in 2012. The fact that he was tax resident outside the State emerged in court papers in America, after he attempted to recover about $5m in tax that was with-held after he won a backgammon game.
A letter from Revenue to the American authorities in 2015 said that Mr McManus had not been registered for income tax in Ireland since 1995, but confirmed that he paid the €200,000 domicile levy in 2012.
Four years ago an unnamed Irish businessman failed in a legal challenge against the validity of the levy. The Tax Appeals Commission ruled that it is not a “tax”, and that it does not interfere with the free movement of capital.
Ireland’s Domicile Levy: Is It Working? An Expert’s Insight
Time.news Editor: Welcome, everyone.Today, we’re diving into a somewhat obscure but significant aspect of irish tax law: the domicile levy. to help us understand this, we have Clara O’Connell, a leading expert in international tax law.Clara, thanks for joining us.
Clara O’Connell: It’s a pleasure to be here.
Time.news Editor: Clara, let’s start with the basics. What exactly is the domicile levy in Ireland, and why was it introduced?
Clara O’Connell: The domicile levy is essentially an annual charge of €200,000 imposed on individuals who are domiciled in Ireland but may be tax resident elsewhere. It was introduced following the 2008 financial crisis as a way to ensure that wealthy individuals with strong ties to Ireland, even if they structure their affairs to minimize their Irish income tax, contribute something to the national Exchequer. The idea was to capture revenue from those who benefit from being Irish, regardless of where they primarily pay their taxes. The levy applies if yoru worldwide income exceeds €1 million, your Irish property is valued at over €5 million, and you pay less than €200,000 in Irish income tax [2].
Time.news Editor: So, who is considered “domiciled” in Ireland? Is that the same as being a tax resident?
Clara O’connell: That’s a key distinction. Domicile is a complex legal concept and it’s not the same as residency. Generally, it refers to the country you consider your permanent home, where you intend to return to eventually. You can only have one domicile at a time. Tax residency, conversely, is steadfast by the number of days you spend in a country during a tax year or other more complex factors. You can be tax resident in multiple countries simultaneously, but you’re only ever domiciled in one. The Irish Insider details differences between these terms [3].
Time.news Editor: Recent reports suggest the revenue from the domicile levy has been quite low. In 2023, it raised less than €2.5 million. Why is it not generating the expected revenue?
Clara O’Connell: Several factors are at play. Firstly,the eligibility criteria are quite specific. Many high-net-worth individuals likely structure their finances to avoid triggering all three conditions simultaneously. They may keep their worldwide income below €1 million, reduce their Irish property holdings, or ensure they pay at least €200,000 in Irish income tax. Secondly,some individuals may choose to change their domicile if faced with this levy consistently. Tax planning is a sophisticated field, and wealthy individuals have access to advice on how to minimize their tax liabilities.
Time.news Editor: The article mentions that only 15 “super-rich” tax exiles paid the levy in 2023 [1]. That seems remarkably low. What are the implications of this?
Clara O’Connell: It does raise questions about the efficacy of the levy. Is it achieving its intended purpose of generating revenue from wealthy individuals with close ties to Ireland? Or is it simply incentivizing tax avoidance or domicile shifts? The fact that so few individuals are paying the levy suggests that the current structure may need to be re-evaluated.
Time.news Editor: what alternatives have been suggested, and what are their potential benefits and drawbacks?
Clara O’Connell: One suggestion has been to reduce the number of days that tax “exiles” are allowed to spend in Ireland. Currently, they can spend 183 days a year, or 280 days over two years, in the State. Reducing this limit could possibly force more individuals to become tax resident in ireland, thereby increasing their overall tax contribution. However, this could also deter investment and discourage wealthy individuals from spending time in Ireland, which could have negative economic consequences. Another option is to simplify or broaden the criteria for the domicile levy, making it more tough to avoid.
Time.news Editor: What practical advice would you give to our readers who might be affected by the domicile levy or are considering moving to or from Ireland?
Clara O’Connell: The key is to seek professional advice. Tax law is complex and constantly evolving. If you are domiciled in Ireland and have significant worldwide income and assets, it’s crucial to understand the implications of the domicile levy and how it might affect you. Similarly, if you’re considering moving to Ireland, it’s essential to understand the differences between domicile and residency and how they each impact your tax obligations. Don’t rely on general data – get personalized advice from a qualified tax advisor.
Time.news Editor: Clara, thank you for shedding light on this complex issue. It’s certainly given us a lot to think about regarding Ireland’s tax policies and their impact on wealthy individuals.
