Co-head of Tax, Niamh Caffrey examines the recent changes to Ireland’s tax regime for landlords renting out Irish commercial or residential property via a non-resident company. In addition, we discuss the new corporation tax filing deadlines which apply in 2023.
Key changes to the tax liability of non-resident companies renting out property in Ireland were introduced in the Finance Act 2021. We discuss the impact these changes will have on non-resident corporate landlords. Also, we provide guidance on the new regime and discuss the actions non-Irish resident corporate landlords will need to take under the new legislation.
Taxation prior to 1 January 2022
Prior to 2022, non-resident corporate landlords were not within the scope of Irish corporation tax in respect of Irish source rental income, except where the income was connected with a branch, agency or permanent establishment of the landlord in Ireland. Instead, such landlords were liable to pay Irish income tax at a rate of 20% on taxable rental income.
To ensure Irish Revenue collected the tax due from non-resident landlords, tenants were obliged to deduct withholding tax (20%) on rent payments to non-resident landlords. An exception to this rule allowed tenants to pay rent gross where the landlord appoints an Irish collection agent. In that situation, the collection agent assumed responsibility for filing and paying any relevant Irish taxes on the letting.
Taxation from 1 January 2022
From January 2022, non-resident corporate landlords are liable to Irish corporation tax at a rate of 25% on rental income. This is an increase of 5% in the rate which applied pre-2022. In addition, new tax filing requirements for the landlords and Irish collection agents were introduced.
In the case of a collection agent, it will be required to register for corporation tax under a separate tax reference number for the relevant landlord, file the corporation tax return and pay any tax due on behalf of the landlord. Under the new regime, tenants are still required to deduct withholding tax on rents paid to non-resident landlords, unless an Irish collection agent has been appointed.
Deductibility of expenses
While the rules governing deductibility of expenses for landlords remain largely the same, some differences may arise under the corporate tax regime. For example, interest deductions may now be restricted by deemed distribution rules and / or the new EU Anti-Tax Avoidance Directive interest limitation rule.
In addition, some transitional rules will apply. These provide for the carry forward of unused losses or excess capital allowances, as well as ensuring that in relation to balancing allowances and charges after 1 January 2022, there is no benefit or loss from the change of rate from 20% to 25%.
Capital gains on disposal
The effective rate of capital gains tax (CGT) on gains arising from a disposal of Irish property by non-resident landlords remains unchanged at 33%. However, landlords are now subject to corporation tax rather than CGT on a disposal of their property and such disposals will be included in the corporation tax pay and file regime. Note that the tax rules on disposals of development land are unchanged, ie such disposals are subject to the CGT pay and file requirements.
Filing of returns
The corporation tax regime applies to any profits or income earned from 1 January 2022 onwards. Therefore, irrespective of a landlord’s financial year end date, a new accounting period will be deemed to commence on 1 January 2022. As such, landlords which do not have a 31 December 2022 year-end date, will likely have two corporation tax returns to be filed for income earned in 2022.
In terms of timing, the corporation tax return must be filed on or before the 23rd of the ninth month after the end of the relevant accounting period. For example, for accounting periods ended on 31 December 2022, this will result in a filing due date of 23 September 2023. The corporation tax liability is due for payment by way of preliminary tax instalments during the accounting period, and a final instalment, if any, is due on or before the corporation tax return filing date.
2022 is the first tax year in which non-resident corporate landlords are subject to the corporation tax regime so landlords should take a pro-active approach and seek timely advice on their tax liability and filing obligations under the new regime.
For more information regarding these changes and how it may affect you, please contact a member of our Tax team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.