Much has been heard in recent times about the tax affairs of internationally mobile corporations but internationally mobile private investors can also avail of certain tax advantages. These arise as a result of the difference in tax law between the concepts of “residence” and “domicile”.
An individual is deemed tax-resident in this country if they spend most of the year living here. They can also opt to be tax-resident here even if that condition does not apply. However, an individual is only domiciled here if they intend to make this country their permanent place of residence. Someone’s domicile is usually held to be their country of birth until they choose to change it.
A person who is tax-resident in Ireland but not domiciled here can apply for the remittance basis of tax assessment for their foreign-sourced income and foreign capital gains. Under this basis of assessment, the non-Irish income and gains are taxable only if they are brought back to Ireland by the individual concerned.
It should be noted that this is not a peculiarly Irish arrangement. It applies in many other countries and is part of the reason that London is such a magnet for fabulously wealthy overseas nationals.
The tax advantages are considerable but there are also some downsides to be aware of. The first is being at the whim of international currency markets when it comes to the value of overseas investments.
“Since last December, sterling has fallen by 20 per cent in value against the euro,” says Moneycorp director Bryan McSharry. “Back then, the euro was worth 70p sterling. It went as high as 88p and is now at 84p. The environment is extremely volatile at the moment and this presents massive challenges for investors with portfolios across multiple currencies.
‘Double whammy’
“For example, if you want to invest in a London apartment you might borrow for it in euros and it is valued in sterling. The purchase costs might go up if sterling recovers and the valuation of the apartment might go down in the post-Brexit environment. It’s a double whammy.”
“The only certainty in relation to currency markets is volatility,” he adds.
Investec head of tax and financial planning Andrew Fahy points to other dangers for such investors. “They have to be careful what they invest in as not every type of financial instrument qualifies for the remittance basis treatment,” he cautions.
He points to SICAV collective investments as an example. These are similar to US open-ended mutual funds and are hugely popular with investors in western Europe. “A lot of these are managed in Luxembourg and people might assume that they naturally qualify for the remittance basis of taxation but they don’t,” says Fahy. “It is absolutely critical for these investors to get the right advice from an appropriately resourced firm before investing.”
Davy financial planning director Brian Walsh points to another issue. “You have to put your investments in a structure that doesn’t allow them to enter the Irish banking system,” he says. “Irish tax will be payable on them otherwise.”
Lifestyle issues
There are other lifestyle issues arising from international mobility and these can include the necessity to move country periodically to retain the non-domicile status. For Irish people, this means having to establish tax residency in another country.
“You talk to people who have been to see some clever tax guy and they are thinking about this,” says Walsh. “But you have to ask them if they really want their lives to be driven by tax. For every 10 that might think about it probably only one goes ahead and does it.”