Like the Bob Dylan song, in the world of Non-Resident Taxes, the times are a-changin’. Not before time too as there was a lot wrong with the old system. But there’s no point looking into the past. It’s time to drive on and embrace the new. We will look at
- George and Amy Wong
- Non-Resident Landlord Withholding Tax [NLWT]
- Impact of NLWT
- Win for Revenue
- Tips for Non-Resident Landlords
George & Amy Wong
George and Amy Wong lived in Blackrock for years where Amy had a very successful plant and herb business. He is an artist specialising in ceramics. Amy sourced most of her plants in Australia and went there in the Summer of 2019 to meet her main supplier.
They were in Melbourne and fell in love with the place. So much so they moved there in January 2020 where Amy had the opportunity to open a shop there. George stayed at home to ensure their daughter Fumi settled into school there. He looked after the house and the dropping and collecting.
Before leaving Dublin, they contacted Dan O’Carroll Kelly [DOC] to let their home. Not short of clients, he let it at €2000 per month. Doc’s commission was 10% plus Vat per month. The tenants paid the monthly rent to Doc’s client account. The Wongs got €1754 into their bank account each month and used this to meet the monthly mortgage of €1500. Making a small profit each month they could use the excess to sort out the taxes.
Matthew Son, a mate of Docs, had his own non-resident tax return business. He looks after the Tax returns, computations and tax payments for the Wongs.
Non-Resident Landlord Withholding Tax [NLWT]
The non-resident landlord withholding tax system will apply from 1 July 2023. The collection agent, who acts for a non-resident landlord, will deduct withholding tax. That is at the rate of 20% and they will pay that to Revenue. A new NLWT platform will be available through ROS and myAccount from 1 July next.
Likewise, tenants paying directly to a non-resident landlord will pay the 20% NLWT. But how will this impact the parties to the transaction?
Impact of NLWT
Doc, the estate agent, will now
- Submit a monthly payment to Revenue of 20% by making a rental notification on ROS
- No longer be a chargeable person and as a result won’t be responsible for filing a tax return for the rental income
- Be able to issue Rental notifications (RNs) in bulk
The timeline for the rental notification and payment of the NLWT is 21 days from the date of paying the rent. How will this work?
On the 2nd of July 2023, the Wong’s tenant, Juan Dos, pays €2000 to Doc’s client account for his July rent. Doc deducts his fees and pays the rent to the Wong’s bank account on the 10th of July. Doc must now make a rental notification and pay the withholding tax to Revenue by the 31st of July. My understanding of how the numbers will work is as follows
|Rental Payment to Doc from Juan||€2000|
|Deduct 20% Withholding Tax||€400|
|Deduct Doc’s fees 10% plus Vat||€246|
|Net rental payment to the Wongs||€1354|
Doc makes the rental notification and pays the tax through ROS by the 31st of July.
You will remember that before the change the Wongs got €1754 into their bank account. This more than covered their monthly mortgage payment of €1500. Their new lower payment will be €1354 per month which isn’t enough, so they’ll have a shortfall. This issue can be even more difficult in an era of rising mortgage repayments. They were fully tax compliant under the old system. Now they need to reorganise their affairs to meet their obligations.
On the plus side, they shouldn’t need to make a preliminary tax payment for 2023. Over to you Matthew Son.
Their Tax Advisor
Matthew Son, their tax advisor, recommended that George and Amy to file separate tax returns. Although this costs them more in fees, it saves them tax on half the rent. The Wong’s rental income and expenses for 2023 was as follows
|Letting agents’ fees||€2952|
|Tax return fees||€900|
|Amy’s rental profit is||€5099|
|Tax liability 20%||€1020|
|Less credit withholding tax||€2400|
|Tax refund due||€1380|
|George’s rental profit is||€5099|
|Tax liability 20%||€1020|
|Less Personal tax credit||€1650|
The reason George gets a personal tax credit here is because he has no income in Australia. Amy could get a personal credit here too and the value of that will depend on her Australian income. The more income she has there, the lower the tax credit here.
Win for Revenue
This is a major win for Revenue with young Cody doing a great job for the State coffers. Let’s roll forward to 2024. Doc makes 12 rental notifications and pays NLWT for the Wongs of €4800. Revenue has this cash and it’s up to George and Amy to get it back.
If they aren’t tax compliant and don’t file tax returns, then Revenue will make a profit each year from them of €3800. Losing that every year would be silly, and most people are not.
As a result, the new system should ensure that it will bring those non-residents not in it back into the fold. All non-resident landlords will incur costs for
- agents fees
- mortgage interest
As such, all non-resident landlords should be in a tax refund when filing their returns. Your money will be sitting there with Revenue. You’ll be able to see it on ROS and it will be up to you to get back what Revenue owe you.
More info to follow
The new NLWT system is not set up yet. All parties will need more info to see how exactly this will work. For example, in a case where a couple, like the Wongs, own a property in joint names and file two tax returns. Will Doc have to make a rental notification to both George and Amy? If so, will there be two NLWT payments each month, €200 for Amy and €200 for George?
Tips for Non-resident Landlords
If you are not in the tax system, then get into it. You will need to register for taxes here to let Revenue know you have rental income. Best to get some advice on this first. Especially for property in joint names where one spouse has no or low income abroad. Eventually, Revenue will catch up with you anyway and you want to avoid the pain of having to
- Paying a 10% surcharge on late filing of your tax returns and
- Paying interest on overdue tax
Now, if the Local Property Tax is not up to date you can’t sell your property. Who is to say this won’t apply to other taxes in the future!
For those of you who are already tax compliant, it’s a matter of engaging with your estate agent and tax advisor. Now it makes more sense than ever to file your tax returns early and get back what Revenue owe to you asap. While we have outlined some disadvantages there are advantages too. The main advantages of the new system for you will be
- Eliminates the need to make lump sum preliminary tax payments
- No potential for interest on late payment of tax
- Be in a constant refund position
- Confidence in knowing everything is right and up to date
- Will help meet your tax requirements in your country of residence
As for the Wongs, Amy had some beef with a local guy in Melbourne where she got involved in a road rage incident. George was George and didn’t notice.
We will finish with the words of Bob’s song. Any excuse to get them in!
“If your time to you is worth savin’
And you better start swimmin’
Or you’ll sink like a stone
For the times they are a-changin’
Save your time and don’t sink like a stone. Start here