Foreign Income Tax Paid/Liability to Irish Tax

I pay tax in the country where my foreign property is located. How does this affect my Irish tax position?

You must first establish what kind of tax you are paying. It is not possible to cover every type of tax levied in foreign countries, but the following are the main categories:

  • A property or ownership tax – for example, an annual charge levied according to the value of the property - cannot be claimed as a credit or deduction against your Irish tax liability.
  • A tax charged for the provision of local services (rates) can be deducted as an expense in calculating the rental income liable to tax.
  • If the tax is based on your rental income, you should be able to reduce your Irish tax liability on the same income depending on the country in which the property is situated (see following question for more detail).

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I pay tax on my rental income in the country where my foreign property is located. Do I still have to pay Irish tax?

Depending on your residence/domicile status your foreign rental income may still be chargeable to Irish tax (see foreign rental income - Irish tax obligations for details). However, you may be able to reduce your Irish tax liability to take account of some, or all, of the foreign tax paid on the same income. The amount by which you can reduce your Irish tax liability depends on whether Ireland has a Double Tax Agreement with the country in which your property is situated. This is illustrated below. Refer to this list of 'Tax Agreement' countries.

Some countries charge a tax on 'deemed' rental income – this means you are assumed to have rented the property even if you have not done so. This tax cannot be taken into account in calculating your final Irish tax liability as there is no equivalent charge in Ireland.

1. "Tax Agreement" country

Where Ireland has a Double Tax Agreement with the country in which your property is situated you are entitled to a credit for the foreign tax paid on your foreign rental income against the amount of Irish tax you have to pay on the same income and up to the amount of the Irish tax payable on that income. How this works is illustrated below –

Step 1 – calculate Irish tax attributable to foreign rental income

Irish income (all sources) € 90,000
Foreign rental income      € 10,000
Total income               €100,000

In this example, the foreign rental income is one-tenth of the person’s total income so that one-tenth of the Irish tax liability is attributable to the foreign rental income. For simplicity, assume a tax rate of 40% so that the Irish tax liability on the total income of €100,000 is €40,000. Therefore, €4,000 (one-tenth) of this is attributable to the foreign rental income.

Step 2 – calculate Irish tax payable on foreign rental income

Irish tax attributable to foreign rental income     €4,000
less foreign tax paid on foreign rental income     (€3,500)
Irish tax payable on foreign rental income after 
 deducting foreign credit                           €  500

Step 3 – calculate final Irish tax liability on total income

Irish tax on total income                             €40,000
less Irish tax attributable to foreign rental income (€ 4,000)
Irish tax on Irish source income                      €36,000
plus Irish tax payable on foreign rental
 income after deducting foreign credit                €   500 
Final Irish tax payable                               €36,500

2. "Non-Tax Agreement" country

Where Ireland does not have a Double Tax Agreement with the country in which your property is situated you are entitled to a deduction for the foreign tax paid on your foreign rental income against the amount of foreign rental income that is taken into account for the purposes of calculating the Irish tax you have to pay. How this works is illustrated below –

Step 1 – calculate foreign rental income taxable in Ireland

Foreign rental income (after deducting allowable expenses)  €10,000
less foreign tax paid on foreign rental income             (€ 2,000)
Foreign rental income taxable in Ireland                    € 8,000

Step 2 – calculate Irish tax payable on foreign rental income

Irish income (all sources)                €90,000
Foreign rental income taxable in Ireland  € 8,000
Total income                              €98,000

As with the 'credit' system example above, assume a tax rate of 40% so that the Irish tax payable on total income of €98,000 is €39,200. This is higher than the Irish tax liability of €36,500 that was due in the 'credit' system example.

If the foreign income tax I have paid is greater than my Irish income tax liability on the same rental income, can I claim a refund?

No, you can only get double tax relief up to the amount of Irish income tax payable. If the foreign income tax liability on your foreign rental income is higher than your Irish tax liability, you are not entitled to a refund from Revenue in Ireland.

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