International taxation: Northern Ireland perspective

Jun 30, 2020

Continuing with this series of articles at FAE level, the FAE tax educators recently caught up with the FAE tax elective Northern Ireland (NI) and Republic of Ireland (ROI) examiners to discuss topic areas that candidates have recurring difficulties with in the final examination.

The tax examiners have noted that in past exam sittings, FAE candidates have found it challenging to apply the international taxation knowledge required in the Competency Statement to the facts contained within a particular simulation. However, it should be noted that the area of permanent establishments and the double taxation relief available on business profits has been answered well by candidates.

Leontia Doran, FAE Tax Educator for the Northern Ireland programme, spoke with the FAE NI examiner, who highlighted the importance of this area in the Competency Statement, as Chartered Accountants offering tax advice to clients are often faced with international tax issues. Therefore, an awareness of the OECD model treaty is vital due to the global nature of business and investment. More specifically, as the Island of Ireland has two separate tax systems (the UK and Irish tax systems), it is essential that Chartered Accountants have the ability to describe and apply the main provisions of the Ireland UK Double Tax Treaty (Irl/UK DTT).

Full details of the Irl/UK DTT are beyond the scope of this article; see textbook Taxation 3 (NI) 2019–2020 for a complete guide. Instead, this article will give a summary of the process, which can be used when advising on the tax exposure of a UK tax resident and domiciled/deemed domiciled individual who has income from and/or investments in Ireland (ROI).  

These steps are outlined below, as follows:

Step 1 – Confirm tax residence position

If an individual is UK tax resident and domiciled/deemed domiciled, then they are assessed to UK income tax on their worldwide income and gains.

The statutory residence test (SRT) is designed to provide certainty regarding whether an individual is UK resident. When applying the SRT, you should:

  1. Consider if the first automatic UK test is met because the individual has spent 183 days or more in the UK in the tax year, the individual is UK tax resident for the tax year and will not meet any of the automatic overseas tests.
  2. If an individual fails to trigger the 183-day test, the three automatic overseas tests need to be considered. If an individual meets any of the automatic overseas tests, they are automatically non-resident for that year.
  3. If an individual does not meet any of the three automatic overseas tests, then consideration should be given to the second and third automatic UK tests. If any one of these automatic UK tests apply, the individual will be UK resident for tax purposes for that tax year.
  4. If an individual has not met any of the automatic overseas tests or any of the automatic UK tests, the “sufficient ties” test should be used to determine their UK residence status for a tax year. If the individual meets the sufficient ties test, then they will be UK tax resident for that tax year. If the sufficient ties test is not met, the individual is not UK resident.

Where an individual satisfies the SRT but is not UK domiciled/deemed domiciled, then the remittance basis of assessment may be relevant in respect of any foreign income/gain.

If an individual is not UK tax resident as they do not trigger the UK SRT, then the individual is only charged to UK income tax on their UK-sourced income. However, please note that even if someone is not UK resident, they may be subject to UK CGT under a number of exceptions – students are reminded that the non-residents capital gains tax regime was expanded from 6 April 2019, hence this is a topical area.

Step 2 – If an individual is dual resident, consult the tie-breaker clause

If an individual is UK tax resident but spends days in another tax jurisdiction, say in the ROI, you may find that the individual will trigger tax residency in ROI also.

The Irl/UK DTT deals with the concept of dual residence. Article 4 (Fiscal Domicile) in the DTT outlines what is commonly known as the ‘tie-breaker’ test which sets out a number of tests to be applied to determine in which country the individual is resident for the purposes of the DTT.

The tie-breaker test states that:

  • An individual shall be deemed to be a resident only of the state in which they have a permanent home available to them. A permanent home can be rented or owned but must be available to the individual at all times continuously.
  • If the individual has a permanent home in both states, they shall be deemed to be a resident only of the state with which their centre of vital interests which can be identified by looking at factors such as family and social relations; occupations; political, cultural or other activities; and place of business.
  • If the state in which the individual has their centre of vital interests cannot be determined, the individual shall be deemed to be a resident only of the state in which they have a habitual abode. Determining an individual’s habitual abode requires examining the time spent in both states to conclude where they stay most frequently.
  • If the individual has a habitual abode in both or neither states, they shall be deemed to be a resident only of the state of which they are a national.
  • If the individual is a national of both or neither states, the tax authorities shall settle the question by mutual agreement.

Step 3 – Consider what type of ROI income received

ROI employment income

If a UK tax resident and domiciled/deemed domiciled individual has ROI employment income, Article 15 of the Ireland UK DTT is relevant.

Article 15 (Employments and Similar) – key points for consideration
  •  Salaries, wages, and other remuneration derived by a UK resident shall be taxable only in the UK, unless the employment is exercised in the ROI.
  • If the employment is exercised in the ROI, only the remuneration derived from that employment may be taxed in the ROI.
  • However, Article 15 provides that remuneration derived by a UK resident in respect of an employment exercised in the ROI shall be taxable only in the UK if: the recipient is present in the ROI for periods not exceeding 183 days in the fiscal year; the remuneration is paid by an employer who is not a resident of the ROI; and the remuneration is not borne by a PE or a fixed base that the employer has in the ROI.
  • A double tax credit will operate to give a credit against UK income tax for the ROI tax paid on the same income, restricted to the lower of the ROI tax on the same income and the UK tax payable.

ROI rental income

If a UK tax resident and domiciled/deemed domiciled individual has ROI rental income, Article 7 of the Irl/UK DTT is relevant.

Article 7 (Income from Immovable Property) – key points for consideration 
  •  Rents from property situated in ROI are taxable in ROI.
  • UK tax authorities will also tax UK rents received.
  • A double tax credit for tax paid in the ROI is allowed against the tax liability of the landlord in the UK. The credit for foreign tax in respect of the rental income cannot exceed the amount of UK tax attributable to that same income. 

ROI interest income

If a UK tax resident and domiciled/deemed domiciled individual earns ROI interest income, Article 12 of the Irld/UK DTT is relevant.

Article 12 (Interest) – key points for consideration
  •  All interest is to be taxed in the State of residence only.
  • Interest received from an ROI financial institution by a UK tax resident individual will be taxed in the UK only. 

ROI dividend income

If a UK tax resident and domiciled/deemed domiciled individual receives dividends from an ROI company, Article 11 of the Irld/UK DTT is relevant.

Article 11 (Dividends) – key points for consideration 
  •  Dividends paid by an ROI company to a UK resident and domiciled/deemed domiciled individual will be taxed in the UK.
  • The DTT provides that the dividends may also be taxed in the ROI through the imposition of withholding tax (WHT).
  • However, exemption from WHT is available to recipients who are resident in the EU or jurisdictions with which the ROI has a DTT.
  • Therefore, UK tax resident recipient is subject to UK income tax only on the ROI dividend.


It is hoped that FAE candidates will approach an indicator involving the provision of international tax advice by undertaking the above three steps. Steps 1 and 2 are necessary to confirm the UK tax residency position of the individual, while Step 3 provides guidance on how to deal with different types of ROI income.

The information in this article is relevant as at the date of publication 1 July 2020.