Changes to the Irish tax treatment of rental income for Non-Resident Corporate Landlords

Changes to the Irish tax treatment of rental income for Non-Resident Corporate Landlords

Finance Act 2021 introduced a change to the tax treatment of Irish rental income earned by non-Irish resident corporate landlords (“Relevant Landlords”).

Prior to Finance Act 2021, Relevant Landlords were liable to income tax at 20% on rental income from Irish rental properties “Relevant Properties”. Now Relevant Landlords are subject to Irish corporation tax at 25% on rental income from Irish rental properties. In its simplest form, this has resulted in an increase of 5% in the tax rate for Relevant Landlords.

The change takes effect for accounting periods commencing on or after 1 January 2022. This change has also altered the compliance requirements where Relevant Landlords are disposing of Relevant Properties. Relevant Landlords will be chargeable to Corporation Tax on any gains on disposal of Relevant Properties. This should have no impact on the effective rate of tax paid on gains incurred. There is an exception for gains made on the disposal of development land, which will remain chargeable to capital gains tax.

Finance Act 2021 contains provisions to ensure that any capital allowances or rental losses carried forward under the income tax regime can be claimed on the corporation tax return for the first accounting period ending after 1 January 2022.

To assist Relevant Landlords, Irish Revenue have released an updated Tax and Duty Manual on the ‘Taxation of Non-Irish Resident Landlords’ to provide guidance on this matter. It outlines the impact the tax change may have on non-Irish resident corporate landlords in receipt of rent from relevant properties.

Establishing the applicability of Corporation Tax charge for Non-Resident Companies

A non-resident company (including a Relevant Landlord) is not within the charge of Irish corporation tax unless it does either of the following:

• It carries out a trade in the State through a branch or agency; or
• Has either of the following:
• Profits which are chargeable to Irish tax under Schedule D Case V (i.e. rent from Irish-situate properties).
• Chargeable gains (other than those gains realised on development land) which are attributable to assets, profits or gains from which are subject to corporation tax under Schedule D Case V.

Compliance impact of changes on Relevant Landlords

As corporation tax is now applicable to Relevant Landlords for the first time, they must register for corporation tax with effect from 1 January 2022.

Once this request is complete and the registration is confirmed by Revenue, the normal pay and file rules surrounding corporation tax should come into effect. Relevant entities must do the following:

• Calculate and pay preliminary tax by the specified due date.
• Complete and file a CT1 form and a 46G by the return filing date.
• Pay any balance of tax due by the return filing date.

The return must be filed, and payment made 9 months after the end of the accounting period.

Preliminary tax is due in the 11^th month of the accounting period. For example, a company with a year end of 31 December 2022, the CT1 form and any balance of tax due must be filed and paid by 23 September 2023. Preliminary tax for the year ending 31 December 2023 will be due by 23 November 2023.

Transfer of preliminary Income Tax to preliminary Corporation Tax

Irish Revenue is aware that some Relevant Landlords will have paid preliminary income tax for the tax year of assessment ending in 2022 and have made provision for such. They ask that the Collector General’s Office be contacted to arrange for the transfer of the preliminary tax payment to corporation tax.

Rate of Corporation Tax for Relevant Landlords

A 25% rate of Corporation Tax applies to non-trading income (including Irish rental income).

This includes:

(a) Schedule D Case V income i.e., rental income from land and buildings in the Irish State.

(b) The dealing in Irish situate development land other than the profit from construction operations or are attributable to qualifying fully developed land.

A 33% effective rate of corporation tax is chargeable on any gain incurred on the disposal of assets which are subject to Schedule D Case V on income relating to such property. Gains on disposal of development land will remain chargeable to capital gains tax at 33%.

Summary

For accounting periods commencing on or after 1 January 2022 Relevant Landlords will be subject to an increased tax rate of 25% under corporation tax, where previously they paid income tax at 20%.

The income that will be affected by this change is any Irish rental income from Relevant Properties situated in the State.

Relevant Landlords affected by these changes will be required to register for Corporation Tax with Irish Revenue effective as of 1 January 2022. Any preliminary income tax paid must be transferred to preliminary corporation tax by contacting the Collector General’s Office. Once registered, companies must comply with the normal corporation tax pay and file requirements.

While the financial impact of the changes results in an increased Irish tax liability, consideration of whether this increase may be neutralised through the Double Tax Credit available in the place of Corporate Residency of the Relevant Landlords.

At this stage, compliance with this new legislation is key and can be straightforward provided the correct steps are taken in a timely manner. If you believe that your company may be subject to the new legislation, contact our team here at Azets Ireland who would be delighted to assist you in responding to these changes.