Taxation of non-Irish resident landlords

A non-resident landlord is anyone that rents out a property, whether it is residential or commercial, in Ireland but lives in another country (including Northern Ireland). Any rental income earned on a property located in Ireland is subject to tax and the non-resident landlords must take steps to ensure that they are tax compliant. 

What steps must be taken?

Note: Revenue's rules for non-resident landlords are changing from 1 July 2023. See our updated guidance.

A non-resident landlord has a choice to either: 

1. Instruct the tenant to withholding tax on the payment of rent
   
   Where rents are paid directly by a tenant to a non-resident landlord, the tenant is obliged to deduct tax at the standard rate of income tax (currently 20%) from the payment. That means 80% of the rent is paid to the non-resident landlord and 20% is paid to the Irish Tax Authorities. The tax should be paid immediately after it has been deducted, but the Irish Tax Authorities will accept payment when the tenant files a tax return for the year in question.
   
   Following payment of the tax, the tenant gives the landlord a form confirming the amount of tax that was deducted, and the landlord may then claim a credit for same when filing their own return.
   
   
2. Appoint a Collection Agent
   
   A non-resident landlord may appoint a Collection Agent to act on their behalf. The Collection Agent must be resident in Ireland and register with the Irish Tax Authorities. An agent is typically someone the landlord trusts, such as a friend or a relative, or it is more commonly a professional, such as a property manager or letting agent.
   
   Once a Collection Agent has been appointed, the tenant can pay 100% of the rent to the agent without any withholding. The Collection Agent may then choose to withhold an amount to cover the taxes from any payment to the non-resident landlord. The amount withheld would then be used to pay the tax bill arising on the rent that the Collection Agent is ultimately responsible for paying to the Irish Authorities on submission of an annual tax return.

What is the best approach to take?

Both approaches have their benefits, but it ultimately depends on the circumstances of the landlord.

Tenant withholding may be a simple solution when renting to someone that the landlord knows (e.g. a friend, a relative of the family or a related company) as it doesn’t involve any third parties and would not incur additional costs. Some tenants may not even be aware if their landlord is non-resident, so extra care and attention is required to inform them fully of their obligations. 

Having a collection agent in place gives the tenant and the landlord peace of mind that all is being taken care of as the tenant can pay the agent without any withholding and the agent takes on full responsibility for the payment of tax on the rent.

Doing nothing is not an option as it may cause difficulties when it comes to the filing of tax returns. Where returns or payments are late, the Irish Tax Authorities reserve the right to impose interest and/or penalties and that may also result in an investigation of the tax affairs of the landlord.

What tax is payable?

Where the landlord is a non-resident individual, any rental income, after the deduction of allowable expenses, is liable to income tax and the Universal Social Charge (USC).

Where the landlord is a non-resident company, the tax treatment is dependent on the accounting period. 

For accounting periods ending on or before 1 January 2022, rental income is liable to income tax, unless the company carries on a trade in Ireland through a branch or agency, when it would be liable to corporation tax. 

For accounting periods commencing on or after 1 January 2022, rental income is liable to corporation tax, regardless of whether they carry on a trade in Ireland. The switch from income tax to corporation tax represents an increase in the tax payable (an increase from 20% to 25%) and to ensure compliance, non-resident companies need to address the following:

• The cancelation of their income tax registration and registration for corporation tax 
• Where a Collection Agent was used, they must cancel the income tax registration and register for corporation tax
• Where a Collection Agent is not used, the tenant continues to deduct tax at the standard rate of income tax (currently 20%) 
• Any rental losses or capital allowances can be carried forward and are allowable against rental income for corporation tax purposes
• Any preliminary income tax paid for 2022 can be transferred to preliminary corporation tax (a request would need to be submitted to the Irish Tax Authorities confirm same)

What expenses may be claimed?

Non-resident landlords are entitled to the same expenses as a resident landlord. Such expenses may include, but not limited to:

• Interest paid on loans used to purchase, improve or repair the property (some specific conditions apply)
• Capital allowances on the cost of furniture or white goods provided in the property
• Repairs and maintenance costs
• Insurance premiums
• Residential Tenancies Board (RTB) Registration Fees 
• Property management, advertising, accounting and legal fees (in respect of the letting)
• Rates paid to local authorities

Is there anything else to be aware of?

Local Property Tax (LPT)
Every owner of property in Ireland is liable to pay LPT based on the market value of the property. LPT is payable annually and failure to meet LPT requirements can lead to penalties applying to not only the amount of LPT due but also the application of surcharge on the submission of annual tax returns. Accordingly, it is essential that compliance with LPT is maintained at all times.

Registration of Residential Properties
For lettings of residential properties, the landlord is obliged to register every tenancy with the Residential Tenancy Board (RTB). Tenancies must be registered within month of the tenancy commencing and then annually on the anniversary of the tenancy commencing. Failure to register a tenancy can result in late filing fees and the non-deductibility of any interest paid against the rental income. Please see our article New changes to rental legislation – Residential Tenancies (Amendment) Act 2021 for a list of registration and late fees.

Should you have any taxation or business questions, our experienced tax team will be happy to share their insights with you.