Tax Relief on Pension Contributions to EU based Pension Plans

Introduction

Section 21 FA 2005, provides for tax relief for contributions to EU based pension plans in certain circumstances.

Claims may be made for:

• Migrant Member Relief, or
• For contributions made by an Irish employee to an Overseas Pension Scheme.

Migrant Member Relief

Relief is available for contributions paid on or after 1 January 2005 by a relevant migrant member who comes to the State and who wishes to continue to contribute to a pre-existing "qualifying overseas pension plan" concluded with a pension provider in another EU Member State.

The expression "overseas pension plan" includes both occupational pension schemes and personal pension plans (products similar to PRSAs and RACs), but excludes any State social security scheme (i.e. a system of mandatory protection put in place to provide a minimum level of retirement income or other benefits).

To qualify for the relief, certain conditions and information requirements must be met.

Migrant Member - Conditions

The migrant member must meet certain conditions to be a "relevant migrant member" and to qualify for relief for contributions made to a qualifying overseas pension plan. The individual must:

• Be a resident of the State
• Have been a member of the plan on taking up residence of the State
• Have been a resident of another EU Member State at the time he or she first became a member of the plan and must have been entitled to tax relief on contributions to the plan under the law of that Member State
• Have been resident outside of the State for a continuous period of 3 years immediately before becoming a resident of the State
• Be a national of a EU Member State or, not being such a national, must have been resident in a EU Member State (other than the State) immediately before becoming a resident of the State

The normal rules (183 day rule and the 280 day look back rule) for determining if an individual is resident in the State should be applied when considering if an individual is resident in the State for the purposes of migrant member relief.

The term "resident" in the context of another EU Member State means:

• In the case of a EU Member State with whom Ireland has a Double Taxation Treaty, that the individual is regarded as being resident of that State under the relevant treaty
• In any other case, that the individual is by virtue of the law of that State a resident of that State for the purposes of tax.

Overseas Pension Plan - Conditions

The overseas pension plan must be a "qualifying overseas pension plan":

• The plan must be established in, or entered into under the law of, a EU Member State
• The contributions to the plan must qualify for tax relief under the law of the relevant EU Member State, and
• The plan must be established in good faith for the sole purpose of providing retirement benefits similar to those tax relieved in the State. [Retirement benefits are pensions payable to the plan member on retirement or payments made to the member's dependents following the death of the member].

Overseas Pension Plan - Information

The relevant migrant member must irrevocably instruct the administrator of the overseas pension plan to provide the Revenue Commissioners with any information, in relation to payments under the plan that they may reasonably require.

In addition, on an annual basis, he or she must obtain from the administrator a "certificate of contributions" setting out contributions made by the migrant member to the plan, and where relevant, contributions to the plan, made by the migrant member's employer in the State.

Relief for Contributions

Where the conditions set out above in relation to the overseas plan and the migrant member are met, relief may be granted in respect of contributions paid under the overseas plan on foot of a completed form Overseas Pension 1 - available from the Revenue website or from any Revenue Office.

The claim form must be completed and signed by both the individual claiming the relief and the administrator of the overseas pension plan.

Relief is subject to the same age based relief limits as apply to relief for individual contributions to Irish approved pension plans (occupational, PRSA, RAC). The combined remuneration/earnings threshold of €254,000 also applies.

An employer is authorised to operate the "net pay arrangement" in respect of allowable contributions to a qualifying overseas pension plan where such contributions are deducted from the employee's emoluments.

Contributions by Irish Employees to an Overseas Pension Scheme.

Section 21 FA 2005 allows for the approval, on or after 1 January 2005, by the Revenue Commissioners of occupational pension schemes provided to Irish employers/employees by pension providers based in other EU Member States (i.e. "overseas pension scheme") which are structured other than on an irrevocable trust basis, so long as the standard approval conditions are met.

All queries relating to the approval of these schemes should be addressed to:

Financial Services (Pensions) Business Unit, Large Cases Division,
4th Floor, Grattan House,
Lower Mount Street,
Dublin 2

Claims for relief for contributions paid to an Overseas Pension Scheme will be dealt with on the same basis as claims for relief for contributions to an Irish approved occupational pension scheme.

An employer is authorised to operate the "net pay arrangement" in respect of allowable contributions to a qualifying overseas pension plan where such contributions are deducted from the employee's emoluments.

Enquiries on this article should be addressed to taxbrief@revenue.ie.