See also: Mortgages in Malaysia / Legal in Malaysia
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General Overview & Tax Treaties
Irish investors have been looking for property investment opportunities overseas ever since the Irish market became overvalued.
Whilst there is a wealth of overseas property investment opportunities available, it is important that you invest wisely. One important step, to ensure that you will not be caught out by any nasty surprises, is to arm yourself with knowledge of the various taxes applicable to owning property in your chosen destination.
10 tax points to consider prior to purchase
Before undertaking to purchase an overseas property investment, investors should consider the following steps:
1. Read our general overview of the tax regime in the foreign jurisdiction and consider the various types of deductions available against your rental income, if any.
2. At a minimum, find out whether or not a tax deduction will be available in the overseas jurisdiction for interest on borrowings used to finance the acquisition of the property. Obviously, it would be important to do this prior to obtaining finance.
3. Obtain professional advice on the optimal ownership structure in order to mitigate any potential unnecessary taxes i.e. Individual V’s Company. Furthermore, certain countries do not permit non-resident individuals to purchase land directly and in such cases you are obliged to incorporate a special purpose company to purchase the property.
4. Familiarise yourself with the Double Tax Agreement (“DTA”) between Ireland and the target country to ensure that your profits are not subject double taxation. i.e. taxed in the country where your property is located and in Ireland (presuming you are tax resident here). Click here to view our complete Ireland DTA overview page.
5. Ensure you are aware of any acquisition taxes such as transfer tax (stamp duty), VAT, and the rates at which they are chargeable.
6. Investigate whether any ‘Deemed Rental Income’ taxes apply. i.e. In Spain, in cases where you own a property that you do not rent, you are still liable to tax on the amount of deemed rental income. Click here for more details.
7. Investigate whether any Wealth Taxes exist. This is a tax on the value of your total assets owned by you in the foreign country. E.g. this tax is imposed in France where you own assets worth over €750,000. Click here for more details.
8. Check out the Capital Gains Tax (“CGT”) rate, if any, that is applicable in the foreign jurisdiction and obtain professional advice prior to the sale of your property. i.e. the Spanish CGT rate reduced from 35% to 18% from 1 January 2007. Any person who sold their Spanish property prior to 1 January 2007 would have paid 35% CGT on their gain which could have potentially been avoided with a bit of forward planning.
9. Consider Irish tax implications and ensure that you include the property details (incl. income and expenses) in your Irish CASE III calculation and Irish income tax return.
10. Lastly, but most importantly, ensure that you are tax compliant and submit a tax return each year in both Ireland and the relevant foreign jurisdiction where your property is situated. Also, keep a copy of your tax returns and receipts on file.
Ireland and double taxation treaties
Ireland has comprehensive double taxation agreements in force with 44 countries. The agreements generally cover income tax, corporation tax and capital gains tax (direct taxes).
- The Irish double taxation agreement network continues to be expanded and updated and now numbers 44.
- A protocol amending the existing treaty with Portugal came into force on 19 December 2006. The protocol applies from 1 January 2007.
- Parliamentary procedures to bring into force a new treaty with Chile were completed by Ireland in December 2005. Subject to the necessary parliamentary procedures being completed by Chile in 2007, it is expected that this treaty will become effective for tax periods in 2008.
- New treaties with Argentina, Egypt, Kuwait, Malta, Morocco, Tunisia, Turkey, Ukraine and Vietnam are being negotiated. Negotiations have also taken place with Singapore but some matters remains to be agreed.. Existing treaties with Cyprus, France, Italy and Korea are in the process of re-negotiation
- Where a double taxation agreement does not exist with a particular country, there are provisions within the Irish Taxes Acts which allow unilateral credit relief against Irish tax for tax paid in the other country in respect of certain types of income (e.g. dividends and interest).
- There is also legislation implementing the EC "Parent-Subsidiaries Directive" (90/435/EEC) (TCA 1997 section 831), the "EU Mergers Directive" (90/434/EEC) (TCA 1997 sections 630-638) and the EU Arbitration Convention (European Communities Mutual Assistance in the Field of Direct Taxation Regulations 1978) (S.I. 334 of 1978).