property in Riga: Double Taxation for Rental Income?

[Rey77]

Hi

I have a property in Riga which i hope to be renting out in the next few months when it is finished. i have read through Revenue's leaflet

[broken link removed]

but am still a bit confused about some issues. I will be using a letting agency over there to handle the rent. I know I am liable to declare tax on income to Revenue here but what about paying tax in Latvia on the rental income?

As this is my first time doing this I'm learning as I go but is completely normal to pay tax in the foreign country AND ireland for rental income received? I don't think Ireland has a double taxation agreement with Latvia.

I'll be meeting my latvian solicitor next week in Riga armed with a bunch of similar questions however i am not in the business of hiring an accountant for this stuff unless absolutely necessary! (we're talking tiny cheap apartment here) Any comments appreciated.

R.

 

[Martin77]

Re: Double Taxation for Rental Income?

Hi

I have a property in Riga which i hope to be renting out in the next few months when it is finished. i have read through Revenue's leaflet

[broken link removed]

but am still a bit confused about some issues. I will be using a letting agency over there to handle the rent. I know I am liable to declare tax on income to Revenue here but what about paying tax in Latvia on the rental income?

As this is my first time doing this I'm learning as I go but is completely normal to pay tax in the foreign country AND ireland for rental income received? I don't think Ireland has a double taxation agreement with Latvia.

I'll be meeting my latvian solicitor next week in Riga armed with a bunch of similar questions however i am not in the business of hiring an accountant for this stuff unless absolutely necessary! (we're talking tiny cheap apartment here) Any comments appreciated.

R.

Twenty seconds on google proves your assumptions incorrect. You can find the text of the double taxation agreement between Ireland and Latvia here:

It looks pretty standard stuff to me. The relevant parts of the treaty are highlighted below:

Article 4 establishes where you are resident for tax. Primary deciding factor is your main "centre of interest." i.e. where you have your closest economic ties (assumed to be Ireland if you live and work there)

Article 6 covers immovable property. 6.1. states that you have to pay Latvian tax on income from your property physically located in Latvia. 6.3 states that this includes that you are liable to Latvian tax for rental income derived from a Latvian property.

Artice 13.1 says the property may also be subject to Latvian capital gains tax when you sell it.

Neither Article 6 or 13 exempt you from paying Irish taxation on the same item.
You have to pay Latvian tax AND Irish tax.

To make sure you do not pay "double" tax on your flat, article 23.1a allows you to offset the actual Latvian tax paid against your equivalent Irish tax (assuming the Latvian tax liability is lower than the Irish tax).

But beware: you can usually only offset the same type of tax in one country against exactly the same type of tax in the other country. i.e. you offset Latvian income tax against your Irish income tax. Latvian capital gains tax against Irish capital gains tax. etc. If Latvia does not happen to have capital gains tax at the moment you sell, you normally cannot offset the Latvian income tax against Irish capital gains tax liability.

And you cannot go negative on any single item... i.e. if the Latvian tax is more than the Irish tax, you can only take that particular Irish tax back to zero, and you will be out of pocket in Latvia.

So to summarise: you will have to pay tax and make tax returns in both countries. You can probably offset the Latvian tax you have paid against your equivalent Irish tax liabilities in the same year (assuming the Latvian tax is less than the equivalent Irish tax).

Make sure you get this confirmed by a tax advisor: I am not a tax advisor! I just work internationally.

 

[Kellypk]

Re: Double Taxation for Rental Income?

Can I ask you a fairly naive question.

You talk about paying tax in Ireland on income earned in Latvia. You live in Ireland.

Why would you declare the income from Latvia to the Irish tax authorities ?
If you dont declare the income, how would they know ?

Is it because legally you must declare it in Ireland ? Is it a legal requirement ?

Are you guilty of tax evasion (as opposed to tax avoidance) if you do not declare it in Ireland ?

 

[Bronte]

Re: Double Taxation for Rental Income?

Kellypk I believe the revenue are going to estate agents and asking them who they have sold property abroad to. I'm sure they've other means of finding out as well. There are threads on AAM about this. Revenue may not have got to grips with Latvia yet but one day they will. It wouldn't be nice in 10 years time to discover you owed back tax plus interest and penalties. Might wipe out the value of the property you've bought abroad. The one thing on revenue's side is time, they last forever.

 

[OverseasCafe]

Re: Double Taxation for Rental Income?

Kellypk,

as an Irish citizen you're obliged to declare all income made both inside and outside the country. At the moment the Irish tax authorities are unlikely to find income that you've received in Latvia. But they will be able to do so at some stage in the future as all the EU countries are working toward increased levels of co-operation to track down tax defaulters across borders.

In this scenario your short term gain will, most likely, turn into a far bigger long term loss.

If you take a look at the list of Revenue tax defaulters [broken link removed], you'll notice that the penalties often amount to more than the actual tax owed in the first place. The Revenue don't care when you pay it, but you will pay it, the later you do so the more you'll pay.

 

[ubiquitous]

Re: Double Taxation for Rental Income?

I can't believe that some people are already forgetting how Revenue hammered those who evaded tax using bogus non-resident accounts & non-resident accounts, and collected massive sums in tax owed, interest and penalties

[broken link removed]
[broken link removed]

 

[Martin77]

Re: Double Taxation for Rental Income?

Can I ask you a fairly naive question.
Why would you declare the income from Latvia to the Irish tax authorities ? If you dont declare the income, how would they know ?

Article 26 EXCHANGE OF INFORMATION ​

[FONT=LAKGDI+Verdana,Verdana]1. The competent authorities of the Contracting States shall exchange such information as is necessary for carrying out the provisions of this Convention or of the domestic laws of the Contracting States concerning taxes covered by the Convention insofar as the taxation thereunder is not contrary to the Convention.[/FONT]​

If the money goes through a bank account anywhere in Europe, they'll be able to find it one day.

Just look at the recent example of Lichtenstein. Germany has been touting that stolen data disk around all of the governments of Europe, and a number of high courts in various countries have already ruled that even this stolen data is acceptable as evidence in tax cases.

This will become more and more prelevant as tax and regulatory systems are harmonised within Europe. I personally want to be able to sleep at night having paid my taxes properly. Back tax bills sometimes not only come with additional interest, but with whopping penalties that wipe out most of the asset's value, and possible prison terms too.