Key Post Brendan Burgess explains: The taxation of foreign deposit income

Brendan Burgess

Brendan Burgess

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I have copied the posts from a variety of threads into this thread and summarised the information. Corrections and comments welcome.

Anything in red is tentative and I would appreciate if anyone could confirm it.


This thread is only about the tax treatment. Posts relating to any other aspect will be deleted.




From Revenue’s [broken link removed]


What rate of tax applies in the State on my foreign deposit interest?
[FONT=Verdana,Verdana][FONT=Verdana,Verdana]A. [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]This depends on the location of the financial institution. If it is located in another EU country, tax on the gross interest earned is due at the same rate as tax on Irish deposit interest income – 20% up to 31[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]st [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]December 2008, 23% for the period 1[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]st [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]January 2009 to 7[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]th [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]April 2009 and 25% from the 8[/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]th [/FONT][/FONT][FONT=Verdana,Verdana][FONT=Verdana,Verdana]April 2009. In order to avail of this treatment, you must make a timely and accurate return of the foreign deposit interest and pay any tax due by the prescribed return filing date for the year concerned.
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[FONT=Verdana,Verdana][FONT=Verdana,Verdana] If the interest is earned from a financial institution outside the EU, tax is due at your marginal (highest) rate of tax.
Prior to 1 January 2005, all foreign deposit interest income, including interest from another EU country, was taxable at the marginal rate – that is, the higher or highest rate at which you pay income tax. Since 1 January 2007 the higher rate of income tax in Ireland has been 41%.
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In order to avail of this treatment, you must make a timely and accurate return of the foreign deposit interest and pay any tax due by the prescribed return filing date for the year concerned.
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This is very important. To get this beneficial rate, you must submit a Form 12 for 2010 tax year by end of October 2011. If you don't submit it on time, you pay tax at your marginal rate.


If your total income is below the taxable amount, you are better off making your deposit outside the EU.
In the EU, you will pay a level equal to DIRT. Outside the EU, you will pay tax at your top rate which might be zero.





Do I pay tax in the other country?

In other EU countries you should be able to get the interest paid gross.





[broken link removed]
 
Bcommercial said:
And if so, what if you're only paying tax @ 20%, or perhaps are below the income tax level altogether?
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This is an important question. If you are not in the tax net but have savings where the interest earned would still not put you in the tax net, do you still have to pay tax on interest earned overseas.

Also, is interest earned overseas subject to DIRT or subject to tax?
 
As I understood you need to ask the foreign bank if they can exempt you from any DIRT-like taxation as I did because you would need to let them know that any capital gain would be taxed where you reside, i.e. in Ireland. So I'm going to do if I'll unlock the funds I subscribed in Italy.
 
My wife is German and she has an account with NRW. If I transferred all my AIB savings into her German account would there be a tax penalty?
 
Not quite, rayn.

Your foreign deposit interest is taxed at DIRT rates only if you pay that tax to Revenue by the 31st October in the following year (presumably accompanied by an income tax return to declare it)

So, if you earn €1,000 in interest on your Italian deposit account this year, you need to pay the tax of €250 (i.e. at DIRT rate) by 31st October 2011 to qualify for the low tax rate.

If you forget and only pay the tax on, say, 1st December 2011, then you have to pay your marginal rate of tax
 
Is there a potential capital gains issue in the following situation?

- Deposit remains in EU bank account
- Ireland leaves euro and devalues new currency.
- You remit some of your savings back home in and convert to new Irish currency

Essentially the large FX swing has created a capital gain. Anyone any idea on this (hopefully) far fetched scenario?
 
shanegl said:
Is there a potential capital gains issue in the following situation?

- Deposit remains in EU bank account
- Ireland leaves euro and devalues new currency.
- You remit some of your savings back home in and convert to new Irish currency

Essentially the large FX swing has created a capital gain. Anyone any idea on this (hopefully) far fetched scenario?
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This had also crossed my mind, and considering the many people who undoubtedly have sizeable sums offshore in case of just such an eventuality, there would be lots there for revenue to claw back if they could. Having never had share dealings or foreign currency dealings myself I really couldn't answer that, but I'd assume it would be handled the same as such by revenue (ie, if it moves tax it!). However, if it were the case that revenue wanted a slice of any gain, one could then conceivably argue that until repatriation there is no gain, since the sum of €X was transferred offshore to country Y, and the exact same sum €X is still in country Y as before, with the exact same buying power as before. Interesting concept and would be interesting to hear from those who have experience of share and forex dealings on this.
 
I have compiled this Key Post from a variety of other posts.

Would someone who has checked out this situation, please check out my summary?

Thanks
 
Tax Treatment on Foreign Interest

I spoke to a tax consultant today and she told me that tax on Interest earned on foreign deposit accounts is charged at your magrinal tax rate (EU and Non EU). I read elsewhere on this forum that you are only liable to the Dirt rate on interest earned from banks in other EU countries. Can someone please clarify what tax rates apply on EU and Non-EU interest.?
 
This document states that interest income from a deposit account in another EU country is taxed at the same rate as interest income in Ireland ie at DIRT rates, as long as the interest is declared fully and on time.

[broken link removed]
 
looks correct to me apart form one possible issue; Revenue have *not* confirmed to me that deposit income from non-eu countries can be set against any tax credits. (e.g. in the case of unemployment and no other income). They have confirmed if your total income does not put you in the higher rate, marginal rate in their FAQ, does mean the standard rate,
 
Just looking at Form 12, can you just complete the part that relates to the foreign deposit income? Or do you have to complete all of the information on your PAYE, salary, pension etc., even though you have already been taxed on that as normal?
 
I wonder what the situation is regarding paying the tax on these accounts if you're exempt from DIRT here in Ireland? Are you still exempt?
 
Vega, you must complete all the relevant sections of the form; it is a return of your Total Income.

Omega, if you are exempt from DIRT in Ireland because your income is below the exemption limit, if you are still below the threshold including your foreign income, you should still be exempt. Get the offshore bank to pay your interest gross, without any deduction.
If your exemption has a different cause, I'm not sure. The offshore interest is classed as foreign income, I would expect, not deposit interest.
 
How do you actually pax the tax on foreign deposit interest? Form 12 just details your income, do you have to submit it well before 31 October so that they tell you how much to pay by then?
 
So if DIRT has been deducted by the foreign bank you can get a credit if it is a country with which we have a double taxation agreement, however in the case of taxed dividends you are liable to tax on the net amount paid with no credit for the witheld tax. Right?
 
I’m looking at the Form 12 again and it refers to “interest received” as opposed to interest earned. My only foreign account, while opened in November 2010, didn’t actually pay me any interest until February 2011 so does that mean that I don’t need to complete Form 12 by October 2011 and in fact don’t have to do it until October 2012?
 
It is correct that interest is taxed in the year received.
But you have to notify Revenue in the year any foreign accounts have been opened, so will still have to make a tax return for 2010.
 
Gervan said:
It is correct that interest is taxed in the year received.
But you have to notify Revenue in the year any foreign accounts have been opened, so will still have to make a tax return for 2010.
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Oh ok, many thanks for that.
 
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