The taxation of non-Irish resident landlords: Revenue manual published
William Fry, Dublin
Under the Finance Act 2021 (the 'Act'), non-Irish resident corporate landlords are now subject to Irish corporation tax at a rate of 25 per cent on rental income from Irish real estate. The change takes effect for accounting periods commencing on or after 1 January 2022, and results in an increase in the tax rate from 20 per cent to 25 per cent for non-resident corporate landlords. The Revenue Commissioners ('Revenue') published the Tax and Duty Manual on Taxation of Non-Irish Resident Landlords (the 'Manual') to provide guidance where:
- rent is paid directly to the non-Irish resident landlord;
- rent is paid to a person resident in Ireland who acts on behalf of the non-Irish resident landlord in the collection of rent (the 'Collection Agent'); and
- the tax charge where the non-Irish resident landlord is a company.
Rent paid directly to non-Irish resident landlords
Under the Irish tax code, a non-Irish resident landlord is either chargeable to income tax and the Universal Social Charge as an individual or to corporation tax as a company.
Where rents are paid directly by a tenant to a landlord that is based outside Ireland, the tenant is obliged to deduct tax at the standard rate (20 per cent) from the payment.
Rent paid to a Collection Agent
The law permits a variety of entities to act as Collection Agents; for example, an estate agent, management company, solicitor or simply someone nominated by the non-Irish resident landlord may all act as Collection Agents on behalf of the non-resident landlord.
If a tenant is paying rent to a Collection Agent, the tenant is not obliged or entitled to deduct tax from the rent. The landlord is assessable and chargeable to income tax or corporation tax in the name of its nominee, the Collection Agent. While the assessment is in the name of the Collection Agent, the tax to be charged is the amount that would be charged if the non-resident landlord was assessed in its own right.
Tax charge for non-Irish resident corporate landlords
Prior to the introduction of the Act, non-resident companies were liable to income tax at the rate of 20 per cent on rental income from Irish property. For accounting periods commencing on or after 1 January 2022, companies are chargeable to corporation tax, under Case V of Schedule D, in respect of rental income arising in Ireland.
The Act also contains provisions to ensure that capital allowances and rental losses carried forward are not lost because of the transition from the income tax to corporation tax basis of taxation.
Where corporation tax now applies, the non-resident landlord must register for corporation tax with effect from 1 January 2022. Once registered for corporation tax, the normal 'pay and file' rules for companies apply. If applicable, the registration for income tax should be cancelled. However, this may not be applicable to every case as some non-Irish resident companies may have other Irish income tax liabilities, so this is decided by each company on a case-by-case basis.
Where a Collection Agent is registered for income tax in respect of tax due by a non-Irish resident corporate landlord, the Collection Agent must also register for corporation tax under the same tax reference number.
Where a company has paid preliminary tax in respect of income tax for the year of assessment ending 31 December 2022, the Collector General's Division should be contacted to arrange the transfer of the payment from preliminary income tax to preliminary corporation tax.
For accounting periods commencing on or after 1 January 2022, non-resident corporate landlords are subject to Irish corporation tax at a rate of 25 per cent on rental income from Irish real estate. The change means an increase in the tax rate from 20 per cent to 25 per cent. The changes were introduced in conjunction with the introduction of the Anti-Tax Avoidance Directive interest limitation rules. The rationale for the transition from the income tax to the corporation tax basis of taxation was to ensure that non-resident corporate landlords are subject to the new Interest Limitation Rules (ILR) introduced in the Act.
The Manual provides helpful guidance for non-resident corporate landlords on the transition from income tax to corporation tax.
All non-Irish corporate landlords in receipt of Irish rental income should consider the impact of the new rules, including the potential impact of the newly introduced ILR.
 The Manual is available at www.revenue.ie/en/tax-professionals/ebrief/2022/no-0702022.aspx accessed 14 April 2021.