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Therefore, non-resident corporate landlords (‘NRCLs’) were subject to income tax at the standard rate of Irish income tax (20%) on their Irish rental (Case V) profits. Finance Act 2021 served to bring NRCLs within the Irish corporation tax regime, meaning that from 1 January 2022, these landlords are now subject to Irish corporation tax on these profits at a higher rate of 25%.
The purpose of this bulletin is to highlight the other key implications for NRCLs as a result of the introduction of these legislative changes.
To facilitate the migration from the income tax to corporate tax regime, the legislation included a number of transitional provisions such as allowing rental losses and capital allowances carried forward under the income tax regime flow through to the corporate tax regime. In addition, where the NRCL disposes of an asset for which it had previously claimed capital allowances prior to 1 January 2022, then any corresponding balancing allowance or charge will be adjusted so that it will be deductible / taxable at the effective rate of 20%.
Obligations of the tenant (both residential and commercial)
These largely remain the same as applied pre-Finance Act 2021 in that where rents are paid by a tenant to a landlord whose “usual place of abode” is outside of Ireland, then they are obliged to deduct income tax at the standard rate of income tax (currently 20%) and remit this to the Irish Revenue. This obligation to withhold income tax on rental payments can be mitigated where a NRCL appoints an Irish tax resident “collection agent” to collect the rents on their behalf.
Obligations of the NRCL and collection agent
A variety of entities may be nominated to act on behalf of an NRCL in the collection of rent e.g. an estate agent, a management company, a solicitor, or someone the non-Irish resident landlord has nominated to act on its behalf.
The NRCL is assessable and chargeable to corporation tax in the name of the Irish collection agent. The collection agent should be set up under a new PPS number for the collection activity and register for corporation tax – as should the NRCL. Although the Irish collection agent is not entitled to deduct tax from the rent on payment to the NRCL, it may retain a sufficient portion of the rents to satisfy the tax payable on the rents which should be paid to Revenue when filing the corporation tax return. It is important to note that while the assessment is in the name of the Irish collection agent, the tax to be charged is the amount which would be charged if the NRCL was assessed in its own right.
Where collection agents fail to meet their obligations in this capacity (i.e. submit annual corporation tax returns and associated filing obligations as well as pay any tax liabilities due on behalf of the NRCL), interest, penalties and surcharges, as appropriate, will apply.
- From 1 January 2022, NRCLs will be subject to tax by reference to accounting periods rather than years of assessment as was the case under income tax rules.
- Upon coming within the charge to corporation tax, a new accounting period for tax purposes will commence.
- Both the NRCL and collection agent should cancel their existing income tax registrations (where appropriate) and register for corporation tax effective from 1 January 2022 (under the same tax reference number). Once registered for corporation tax, normal ‘pay and file’ rules for companies will apply.
- Where an NRCL has paid preliminary tax in respect of the year of assessment 31 December 2022 under income tax rules, the Collector General’s Division should be contacted to arrange the transfer of the payment from preliminary income tax to preliminary corporation tax as soon as possible.
- Where an NRCL has unused rental losses or excess capital allowances at the end of the year of assessment ending on 31 December 2021, these should be claimed on the corporation tax return for the first accounting period ending after 1 January 2022.
- It will be important to consider the possible application of corporation tax anti-avoidance provisions i.e. interest limitation rules etc. which may not have been applicable to NRCLs prior to the legislative change.
Get in touch
For additional information on any of the foregoing provisions please contact a member of the Real Estate Tax Advisory team or your usual Grant Thornton contact.