Irish Tax Residency For Denis, Allowable Expenses, Capital Allowances, And Commencement Rules For A Business

Tax residency position for Denis

1.Tax residency position

The Tax consolidation Act 1997 under section 12 provides that income tax is applicable on all properties, gains or profits. The tax liability is dependent on the fact whether the individual is a resident or has a permanent home in Ireland (Stewart et al. 2017). The section 819 of the Tax Consolidation Act 1997 provides that taxpayer is considered as resident if:

  • The taxpayer has resided in Ireland for 183 days or more in a tax year; or
  • The taxpayer has resided in Ireland for 280 days or more in the tax year including the previous year. However there should be minimum 30 days in each year;

In addition to this, Section 820 of the Tax Consolidation Act 1997 provides that an individual is regarded as an ordinary resident if he resides in Ireland for three consecutive years. The individual ceases to remain ordinarily resident after the individual has been nonresident of Ireland for three consecutive years (Kennedy and Phelan 2014).

In this case, Denis has left Ireland for Canada in 1 July 2015. The calculation of number of days he resided in Ireland in the year 2015 is provided in the Appendix below. It can be seen that Denis has resided in Ireland for 181 days in 2015 it is less than the required 183 days. However, he resided for the entire year in 2015. Therefore, it can be said that in 2015 Denis has satisfied the second residency test as he has resided in Ireland for more than 280 days including the previous year. It can be said that in 2015 Denis is resident of Ireland for the purpose of tax. Denis is also regarded as ordinarily resident. In the consecutive years of 2016 and 2017 Denis is nonresident of Ireland, as he has failed to satisfy any of the above rules. However, he will be continued to be considered as ordinarily resident.

2.The impact of tax residency has for Income Tax purpose

 In case, the individual is a nonresident for the income tax purpose then tax is required to be paid on the income that has source in Ireland. The foreign employment income will be taxed if the duties of the employment are carried out in Ireland (Godfrey et al. 2015).

The individual can be non-resident but be ordinarily resident then in that case, the individual will be charged to tax on worldwide income except for the following:

  • The income received from profession or trade where no part is carried out in Ireland;
  • If all the duties are carried outside Ireland then  income received from office or employment are not taxable;
  • The foreign income if it is less than €3,810 each year then it is not taxable.

In this situation as discussed, earlier Denis is resident for tax purpose 2015 so all the income will be taxed in Ireland. In 2016 and 2017, Denis is a nonresident but ordinarily resident so above-mentioned rules about taxability of income shall apply.

Impact of tax residency on Irish income tax

3.The tax compliance implications for having an Irish rental source of income

The income received from renting out property commercial or residential is subject to income tax. The property owner receiving income from rent is obliged to submit the tax return annually (Stuart 2017).

In this case, Denis has a residential property that he rented while leaving for Canada. There are few important steps that Denis needs to follow being the first time landlord:

  • The property should be registered as landlord with the revenue after completing the Form TR1.
  • The records of all the expenditures should be maintained properly. It will be helpful if a separate bank account is maintained.

In case of Nonresident landlords the tenant should deduct 20% from the amount due and remit that amount to revenue department. The tenant is also required to complete the Form R185 at the end of the year on behalf of the landlord.  

4.Allowable expenses that can be deducted from Gross rent

The allowable expenses that can be claimed against the rental income are discussed below:

  • The expenses relating to the repairs, maintenance, insurance, management of property and others are allowed as deductible expenses.
  • Rates that are paid to the local authority;
  • The interest expenses incurred on the money borrowed for repairing, improvement or replacement is allowed as deduction.
  • The capital allowance can be claimed at 12.5% annually on the costs incurred.

The mortgage interest paid between the purchase of property and the time it is first rented out cannot be claimed as deduction. It should be noted that 75% of the interest paid is only allowed as deduction (Hemels and Goto 2017). However, for 2017 the 80% of the interest on mortgage paid can be allowed as deduction.

5.Expenditure on Plant may qualify for capital allowances

In Ireland depreciation on fixed assets are not allowed as deduction for the purpose of tax. That means depreciation on fixed assets cannot be claimed as deduction from income while calculating the taxable profits (Picard et al. 2016).

The section 284 of the Tax consolidation Act 1997 provides that a wear and tear allowance of 12.5% is provided for expenditure on plant or machinery that is used in the business. However, the issue whether the expenditure on plant can qualify for capital allowance has been subjected to many court cases (Ho and Ting 2014). The two court cases for each circumstances are discussed below.

Cases where taxpayers were successful in obtaining capital allowances  


In this case, a movable partition was used in the office that cab be fixed to the ceiling and the floor. The reposition of the partition was possible by the ordinary maintenance staff and was fit to be used in other buildings. The court held that the partition was plant and therefore capital allowance was allowed on the partition.


In this case, a caravan park operator constructed a swimming pool. The swimming pool was provided as safe swimming facility to the visitors. The court held that the swimming pool should be regarded as plant as it was used in the trade or business (Bozio et al. 2015). Therefore, the caravan owner was allowed to claim capital allowances on the expenses incurred for construction of the swimming pool.

Tax compliance implications of having an Irish rental source of income

Cases where taxpayers were not successful in obtaining capital allowances  

Anchor International Ltd V CIR (2003)

In this case, it was held by the court that the artificial football pitch is not a plant. Therefore, the expenditure cannot be claimed as capital allowances.

McMillin (Mrs ME) V HMRC Commissioners (2011)

In this case, the taxpayer was not successful in claiming capital allowances for stone floors, windows, painting and decoration. The court held that it was part of building and cannot be considered as plant for claiming capital Allowance (Collier and Maffini 2015).

6.Commencement rule for business

The Income Tax Commencement Rule 1998/99 provides that there are different rules that apply at the basis of assessment at the beginning of trade and profession. It states that in case of Case I and Case II profits special arrangements are applied for determining the profit that should be charged to tax (Townend 2016). These rules are governed by section 65 and 66 of the tax consolidation Act 1997.

In the year of commencement of business the assessment for the purpose of tax is conducted based on profits made from the commencement of business to the following 31 December.

In the second year, the assessment depends on the number of accounting period ended during the year. In addition to this, the assessment depends on the length of the assessment period. If in the second year, more than one accounting period ends then in that case the taxpayer is assessable for the profit of the later of accounting date. However, it should be 12 month after the date of the commencement of the business (Tobin and Walsh 2013). On the other hand if there is only one accounting period ending in the second assessment year and the period is in excess of 12 months. In that case, taxable profit will be calculated based on the profits up to which the accounts are made up.

The section 65 of the Tax Consolidation Act 1997 provides that in the third year, the assessment is conducted based on the 12 months profit ending in that period.

In this case, Adrian has planned to close accounts on 31 October each year and has planned to commence business on 01/11/2017. The profits for the 12 month period are:

Year ended 31/10/2018 = €50000.

Year ended 31/10/2019 = €30000

First tax year ending 31/12/17

Assessable profit= (50000/12X2) = €8333

Second tax year 31/12/2018

Allowable expenses and capital allowances for Denis

Assessable profit = (50000/12*10) + (30000/12*2) = €46667.

Third tax Year 31/12/2019

Assessable Profit = (30000/12*10) = €25000.

7.Proposed partnership may not be treated as partnership for Income Tax purpose

The Partnership Act 1890 under section 1(2) provides that partnership is a relationship between two person that exists for carrying on business with the objective of earning profit. The section 1007 to 1013 of the Tax consolidation Act 1997 mainly deals with the taxation of partnership business. The law provides that for the tax purpose each partners are regarded as carrying on separate business and will be taxed in that manner. In the case of McCarthaigh v Daly [1985] IR 73 and Inspector of Taxes v Cafolla & Co [1949] IR 210, it can be seen that in order to consider a business to be partnership it should be formed as partnership. Therefore in this case as the partnership is not formed only proposed so the business so it cannot be considered as partnership for tax purpose.

8.VAT Registration

The section 3 of the Value Added tax Consolidation Act 2010 states that a tax namely Value Added Tax is applied and payable in case of the following transactions:

  • Supply of goods for a consideration by an accountable person;
  • The goods that are imported in states ;
  • The supply of service for a consideration by a taxable person;
  • The intra community acquisition of goods and new means of transport (Conway and Kavanagh 2015).

In this case, Adrian is planning to set up business of manufacturing specialist waste disposal bins. It is manufacturing and supply of goods so VAT will be applicable. Therefore, Adrian should register for VAT as soon as the commence of business because he will be an accountable person.

9.VAT Treatment for sales

The section 46 of the VATCA 2010 provides the following tax rates:

  • Zero rate 0%;
  • The agricultural rate 4.8%;
  • The low rate of 13.5% for certain goods and services;
  • The standard rate of 23%;

The above-mentioned VAT rates apply if the goods are sold within the state. There are certain special rules that applies if the goods or services are bought from other countries. These special rules also applies if the goods are sold to other countries (Tobin and Walsh 2013). If the goods are sold to the business within European Union then VAT is not charged if the customer provide valid VAT number. However if the customer does not have valid VAT number then VAT should be deducted at normal rate that is applicable in Ireland.

On the other hand, if the goods are sold to the consumers of other country then the business is required to register for VAT in that country. The business after registration for VAT shall charge VAT at the rate applicable to that country. The business is not required to register for VAT if the sales is below the limit set by that country. The two European Union countries selected are Italy and German. The limit set for Italy is € 35000 and in case of Germany, the limit is €100000.

Decided cases on capital allowances on plant

10.Explanation of the terms

Two third Rule

The section 41 of the value Added Tax consolidation Act 2010 states that if a combination of goods and service is provided for a price then the complete transaction  is treated as sale of goods if the value of the goods is above the two third of the total price (Keane 2016). This is known as two third rule,

Multi Supply

In case of Multi supply each item that is being sold together for a single price can be supplied independently.  The consideration received from multiple supply should be apportioned between the different items for charging VAT.

Composite Supply

The composite supply is one where two or more goods or services are supplied in combination with each other. In this combination, one of the element is regarded as the predominant element of supply and other are regarded as ancillary. The VAT rate of principle element is charged to the composite supply.

It is expected that the above advice is sufficient in clearing the doubts that have been raised in our last meeting. However, if there is any further query it will be pleasure further advice.

Thanking You


Bozio, A., Emmerson, C., Peichl, A. and Tetlow, G., 2015. European Public Finances and the Great Recession: France, Germany, Ireland, Italy, Spain and the United Kingdom Compared. Fiscal Studies, 36(4), pp.405-430.

Collier, R. and Maffini, G., 2015. The UK international tax agenda for business and the impact of the OECD BEPS project.

Conway, B. and Kavanagh, A., 2015. A New Departure in Irish Company Law: The Companies Act 2014-An Overview. Bus. L. Int’l, 16, p.135.

Duffy, D., Kelleher, C. and Hughes, A., 2017. Landlord attitudes to the private rented sector in Ireland: survey results. Housing Studies, 32(6), pp.778-792.

Godfrey, B., Killeen, N. and Moloney, K., 2015. Data gaps and shadow banking: Profiling Special Purpose Vehicles’ activities in Ireland. Quarterly Bulletin Articles, Central Bank of Ireland, pp.48-60.

Hemels, S. and Goto, K., 2017. Tax Incentives for the Creative Industries. Springer Science and Business Media.

Ho, D. and Ting, A., 2014. Hong Kong’s Corporate Group Structure: A Call for a Tax Consolidation Regime. Int’l Tax J., 40, p.49.

Keane, E., 2016. The flexicurity system in Ireland. European Labour Law Journal, 7(2), pp.310-320.

Kennedy, C. and Phelan, D., 2014. O’Flynn-The Need for Tax Certainty.

Picard, R.G., Belair-Gagnon, V., Ranchordás, S., Aptowitzer, A., Flynn, R., Papandrea, F. and Townend, J., 2016. The impact of charity and tax law and regulation on not-for-profit news organizations.

Stewart, J., Stewart, J., Doyle, C. and Doyle, C., 2017. The measurement and regulation of shadow banking in Ireland. Journal of Financial Regulation and Compliance, 25(4), pp.396-412.

Stuart, E., 2017. Whether or Not to Bite the Apple: Some Implications of the August 2016 Commission Decision on Irish Tax Benefits for Apple. Eur. St. Aid LQ, p.209.

Ting, A., 2014. Old Wine in a New Bottle: Ireland’s Revised Definition of Corporate Residence and the War on BEPS.

Tobin, G. and Walsh, K., 2013. What makes a country a tax haven? An Assessment of international standards shows why Ireland is not a tax haven. The Economic and Social Review, 44(3, Autumn), pp.401-424.

Tobin, G. and Walsh, K., 2013. What makes a country a tax haven? An Assessment of international standards shows why Ireland is not a tax haven. The Economic and Social Review, 44(3, Autumn), pp.401-424.

Townend, J., 2016. The impact of charity and tax law/regulation on not-for-profit news organizations (UK case study).

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