Moving to Ireland - foreign investments taxes

JakubFranek

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TL;DR - Czech citizen moving to Ireland, possibly for several years. How to legally avoid exit tax on ETFs (which I already invested in while in CZ)?

Hello,

I am a 23y/o student from the Czech Republic moving to Ireland in July for a 1 year long work internship. After that I am going to return for 1 year to CZ to finish my studies, but its possible I will get an offer from the Irish employer and there is a chance I might return to Ireland for a longer period of time afterwards.

Before learning about the Irish tax laws I started investing this year (simply buying index ETFs such as IWDA monthly on DEGIRO). Czech Republic has extremely comfortable tax laws which I plan to exploit (accumulating ETFs are exempt from all tax after holding them for more than 3 years), however Irish law seems to be absolutely horrendous regarding UCITS regulated ETFs (41% exit tax with 8 year deemed disposal).

When I first started studying the matter it almost seemed that as a non-domiciled citizen I could simply never remit the invested money into Ireland (which I wouldn't do anyway, as I plan to hold the ETFs into retirement), but I learned that UCITS funds such as those ETFs I invest in are Irish domiciled, therefore they don't count for the remittance tax basis and I would have to tax them anyway by the nature of being Irish tax resident.

I assume this would not be a problem if I were to never return after the internship, due to losing tax resident status in 2021. However if I were to come back to Ireland, I would become ordinary resident quite soon (starting in 2022). As my investments started in March 2019, I guess the 8 year rule would imply that in order to avoid the exit tax, I would have to stop being ordinary resident by 2027. Therefore I would have to leave the country by the end of 2023 so that I would stop being ordinary resident in 2027, right? Is this a sound and legal way of avoiding this tax?

Also, just to make sure I understand the law properly, let's imagine that I invested in Irish domiciled ETF in August 2011 and I moved to Ireland for the same internship in July 2019, becoming tax resident for 2019 and the 8th anniversary of my earliest investment being August 2019. Does that mean I would have to pay the 41% exit tax based on the investments right away in 2020?

Thanks a lot for any answers.

Have a great day
Jakub
 
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Jakub - I'm very impressed by how much you know about the taxation of 'offshore funds' as are called in the official tax world. The taxation is horrendous and your analysis is largely correct. However, the remittance basis of taxation does not apply to offshore funds so you will come within the charge to this taxation regime from when you become resident. You will probably be okay for 2019 as you are unlikely to be Irish resident (not being here for 183 days) and for 2020 you may be resident.

If you want the technical basis it is that the remittance basis of taxation applies to income falling within Schedule D, Case III (generally foreign investment income) and not Schedule D, Case IV (which is the category that offshore funds are taxed under).
 
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