Non-EU (foreign) deposit taxation

taxdither

Hi,
I am looking for a definitive answer (probably a reference to revenue rule) on tax calculation rule for non-EU (foreign) fixed term deposit.
Say I have a 5 year deposit with a fixed rate and the interest is added back to principal every quarter with no provision for partial withdrawal. This means I get interest in hand only at the time of maturity (including a premature closure).
A few tax advisers I contacted tell me that I have to file tax return considering the yearly accumulation and pay tax accordingly but not able to give any reference other than citing reference to DIRT. For a domestic deposit, I can understand the bank can retain the tax and pay to Revenue. How can this be applied to a foreign deposit where it is not possible for the bank to pay to Revenue. Furthermore, when I am not able to withdraw the interest where would I get money to pay the tax on it.
Thanks

thegolfer

Best consult the DTA, double tax agreement of the country within which you have your deposit retained, say DTA Ire-US for example.

DTA's are available on the Revenue website.

Some DTA's provide that the interest is taxable only in the state you are a resident of, assuming Ireland. Some other DTA's provide for the primary taxing rights in the foreign country, and secondary taxing rights in the home country.

Also some of the DTA's provide for a minimum level of tax, say 10% to be applied.

Depending on the country a tax credit is available in Ireland, or relief for tax paid.

Assuming you are a Irish resident, ordinary resident, and Irish domiciled you are subject to tax on your world wide income, thus must pay tax, in the State, on all earnings where-ever located.

taxdither

Thanks for the reply. Yeah, I am tax resident in Ireland and have to pay tax here for my world wide income, learned at a huge cost though.

The foreign country doesnt cut any tax and the deposit nature is interest calculated quarterly but paid only on maturity. My query is how to calculate tax liability on interest - is it yearly or when interest is handed to me. If it is yearly, what is basis for this as I dont have income money in hand to pay it.

antoinolachtnai

In broad general terms, you pay it yearly.

The fact that you don't have the cash in hand doesn't make a difference. Tax liabilities don't always correspond to cash flows.

One way people get out of this is to get a loan to pay the tax bill. This is unlikely to make sense for this type of investment.

If you find you do not have cash flow to pay the tax then maybe the product was not suitable for you. There might be a benefit in tax and investment advice.

taxdither

Thank you "thegolfer". Things have moved on.
Learning and unlearning...the week has been quite exciting. I learned a new thing - domicile
Any foreigner (not born in Ireland) will be non-domicile by default unless he specifically acquires Irish domicile.
My reading of the following extract from revenue is non-domicile doesnt have to pay tax on income from abroad if it will not be remitted to Ireland.

"Non-domiciled individuals and the remittance basis of assessment

The remittance basis of assessment applies to foreign sourced income and foreign capital gains of an individual who although tax resident in the State for a tax year is not Irish domiciled for that tax year. Under the remittance basis of assessment, the non-Irish income and gains are taxable only to the extent that they are remitted to the State."

Is my reading correct? Can someone through some light on this

thegolfer

You would be right in that assessment of the notes.

If you bring the interest to the State, remit it, then it is taxable in the State.

You can bring in capital to the state, after tax capital, but must be able to show that it is not from 1) interest, and 2) mixed funds, ie capital and interest accounts.

Best approach is to have two accounts.

Income account, and a capital account.
Anything in the capital account is from after tax proceeds.

A foreign Domicile also means that you have the intention at some point to return home, and not remain in the State, Ireland.

If you have made a full break from home, where ever that is, intending never to return again, then in a slim chance, you might acquire a new Domicile.

Domicile is also picked up from your father. If he was Irish, travelled, met and married your mother, in another state, and he returned to Ireland, then your domicile is Irish also.

taxdither

Thank you Thegolfer. I am a bit confused about the capital. Just to give an example of my situation...
Over the last five years of my stay in Ireland, I have sent 10,000 euros to my domicile country and earning interest on it. I have no intention of bringing the interest back to Ireland. Considering I am non-domicile of Ireland and dont bring it back am I liable to pay tax on the interest income.

thegolfer

taxdither wrote: »

Thank you Thegolfer. I am a bit confused about the capital. Just to give an example of my situation...
Over the last five years of my stay in Ireland, I have sent 10,000 euros to my domicile country and earning interest on it. I have no intention of bringing the interest back to Ireland. Considering I am non-domicile of Ireland and dont bring it back am I liable to pay tax on the interest income.

On that basis as described above, you are not liable in Ireland, however may be taxable back home on the interest.

taxdither

Thank yo very much for the advice.