High-Tax Country Resident Planning To Go Offshore: Ireland

If you are resident, ordinarily resident and domiciled in Ireland (which will be the normal situation for a native-born Irish individual) then you are taxable on your world-wide income and capital gains. Capital acquisitions tax is chargeable on lifetime gifts and at death with respect to world-wide assets.

The rules for taxation of offshore (foreign) trusts are complicated, not least because they have been copied to a large extent from the equivalent UK anti-avoidance legislation without much attempt to adjust them to Irish circumstances, but the bottom line is that income and capital gains accruing to trusts (and non-resident companies) are likely to be assessed to the Irish-resident settlors and/or beneficiaries and/or owners of the trusts or companies, whether distributed or not.

One useful exception is that an offshore trust established by a husband and wife who are excluded from benefitting under it, and whose trustees are not Irish-resident, is taxed only on Irish-source income. If the beneficiaries are, for example, children or grand-children, the trust's assets are only going to get taxed in Ireland if remitted there.

Due to the rule that ordinary residence persists for three years after termination of residence as such, temporary absence from Ireland is probably not going to offer any additional offshore investment opportunities, although the Foreign Earnings Deduction will be available for extended periods of employment abroad. If an ordinarily-resident individual leaves Ireland permanently then foreign earnings as such will be outside the Irish tax net, but foreign investment income will continue to be taxable until ordinary residence ceases after 3 years.

If your intention is to leave Ireland permanently, either on retirement or for other reasons, then the combination of anti-avoidance trust taxation measures and the continuation of ordinary residence for three years creates a difficult situation within which offshore investment will be liable to Irish tax, unless, as explained above, a trust is set up from which the settlor is excluded. If it is possible to convince the tax authorities that Irish domicile has ceased at the time of departure, ie you are ordinarily resident but non-domiciled for the 3-year period, then only Irish-source investment income will be caught. The surrender of domicile on departure is probably quite hard to achieve, however.

Due to the anti-avoidance legislation, there are relatively few types of offshore investment available to Irish residents which can maintain deferral of tax until after departure. Some types of 'roll-up' fund do continue to offer deferral, and as long as this remains true (not guaranteed), then investments into them which mature only after domicile and ordinary residence have ended will have successfully have escaped the tax net.

Once departure has taken place, and the three years of ordinary residence have expired, or the authorities have accepted that domicile has been terminated, the situation is different, and if the decision not to return to residence is a firm one, the Irish expatriate is reasonably free to invest wherever he can get the best returns.

Once a definite decision to move offshore has been made, careful thought should also be given to existing Irish capital assets, including pension assets. Will it be possible to move them offshore without incurring capital gains tax? Is it desirable to move them early and pay the tax anyway? These are complex questions, and the answer will depend on individual circumstances, but for many individuals there will be interesting tax planning possibilities.

www.lowtax.net has full details of the offshore investment, taxation and legal regimes in 35 of the main offshore jurisdictions.

Individuals who have significant non-Irish business income may be able to make use of offshore corporate tax shelters, and need to give careful thought to how to structure this income once emigration has taken place, to ensure that it will not remain within the grasp of the tax authorities.

www.lowtax.net contains details of the corporate and partnership legal structures available in the 35 most prominent offshore jurisdictions, together with descriptions of the most important business sectors in each jurisdiction, local tax regimes, and the international treaties entered into by each jurisdiction.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.