Who does the Domicile Levy apply to?

When the levy was first introduced in 2010, it appeared from the Budget speech of the Minister for Finance at the time, Brian Lenihan that the levy was aimed at non-Irish resident Irish-domiciled individuals. Mr. Lenihan stated on 9 December 2009: ‘our treatment of non-resident individuals is broadly in line with that of most OECD countries by we must ensure that every wealthy Irish domiciliary who pays little or no income tax makes a contribution to the State”.

By this statement, one could have assumed that the domicile levy legislation was never intended to apply to Irish-tax resident individuals but to a small number of wealthy Irish -domiciled individuals who were resident abroad but still retained significant ties with Ireland. However, this is not the case. The domicile levy can apply to both Irish tax resident and non Irish tax resident domiciled individuals.

To come within the domicile levy charge, an individual must fulfil all of the following conditions:

1. be domiciled in Ireland in the tax year;
2. have worldwide income for the tax year of more than €1m;
3. have a liability to Irish income tax for the tax year is less than €200,000;
   and
4. have Irish property on 31 December in the tax year where the market value of that property in excess of €5m.

As you will note from the above conditions, there is no reference to an individuals tax residency position.

Condition 1 - Meaning of “Domicile”

Domicile is a concept of general law. It broadly means living in a country with the intention of living there permanently. Individuals do not cease to be domiciled in a country merely because they leave it temporarily.

Therefore, it is extremely important for individuals moving to Ireland who believe that they do not come within the domicile levy charge on the basis that they are not Irish domiciled to consider their domicile position further. If they move to Ireland with an intention to live in Ireland permanently, this may cause them to fall within the domicile levy charge if conditions 2, 3 and 4 above are also satisfied.

This will also be the case where an Individual who has spent many years in another country but still may have retained their Irish domicile - they may fall within the domicile levy charge if conditions 2, 3 and 4 above are also satisfied.

Condition 2 - Meaning of “Worldwide Income”

‘World-wide income’ means essentially an individual’s gross income without regard to exemptions or reliefs. Capital allowances and losses are not allowed as a deduction in computing an individual’s world-wide income.

Condition 3 – Liability to Income Tax less than €200,000

Irish income tax paid by an individual in a tax year can be used as a tax credit against the €200,000 levy when calculating the amount of the domicile levy payable. Neither PRSI nor USC is allowable as a credit against the levy, as the view is that these taxes as not considered to be income tax.

Condition 4 – Irish Property with market value in excess of €5M

Irish property refers to all property located within Ireland to which an individual is beneficially entitled in possession, excluding:

• shares in a company that exists for the purposes of carrying out a trade or trades and
• shares in a holding company that derives its value from subsidiaries that carry out a trade or trades.

Compliance Requirements

The domicile levy must be paid via self-assessment on or before 31 October in the year after the valuation date. The valuation date is set at 31 December each year.

Conclusion

The number of taxpayers who have filed and paid the domicile levy to date is relatively low.

However, as the application of the domicile levy is broader than one might expect as outlined above, it is important that an individual reviews their personal circumstances to determine if they have considered all of the conditions correctly. Our expert team of tax advisors have significant expertise in advising clients in relation to their potential liability to the domicile levy and in assessing whether a client is Irish domiciled and the considering the meaning of  “worldwide income”.