Tax Treatment of ARF Distributions for Non Residents

ARF Distributions

The Irish Revenue issued an eBrief 098/20 on 2 June 2020 which provides an update on the current position for non-resident ARF holders. In practice there is no material change to the position which has applied since the 22nd December 2017 although further clarity has been provided. The main points are:

  1. All distributions from an ARF, AMRF or a vested PRSA are subject to Irish tax which is deducted prior to payment.
  2. Revenue will not issue a PAYE Exclusion Order for distributions paid to a non-resident. Therefore, the ARF provider will have to deduct Irish taxes for non-residents.
  3. With effect from 22 December 2017, Revenue will only consider repayment of Irish tax paid if the individual can demonstrate that relief is due under the terms of a Double Taxation Treaty (DTT).
  4. There is a distinction made between distributions that are clearly from “income & gains”’ and those which are part of a return of the original capital. A distribution is treated as made firstly from “income & gains” and any balance is treated as a return of capital.
  5. There are some DTTs that contain a specific ARF article: Germany, Pakistan and the Netherlands (this is a new Treaty and is not fully operational now).

There are several different scenarios that arise:

There is an ARF Article in DTT.

Ireland retains the taxing rights. No repayment of Irish tax.

There is a Capital Article in DTT.

The State of residence has taxing rights on the full distribution. Repayment of Irish tax deducted can be claimed. Very few DTTs contain a capital article.

There is no Capital Article in DTT.

Repayment of Irish tax can be claimed but only to the extent that the distribution is from “income & gains”.

Key considerations for ARF holders:

  1. If you are thinking of emigrating, consider the tax implications of ARF distributions.
  2. Each distribution may need to be broken into “income & gains” or capital.
  3. Check the DTT between Ireland and your new State of residence.
  4. It does seem likely that future revisions of DTTs will see the inclusion of an ARF Article that will give taxing rights on distributions to Ireland.

If you or your clients are non resident and in receipt of ARF income contact us on 01 237 5500 or at justask@harvestfinancial.ie to discuss how these changes will impact you. A self administered ARF may offer you more control over the type of investment return you receive from your investments, and may offer an opportunity to plan your distribution more tax efficiently. 

For more information about our approach to advising clients on their retirement income please see Harvest’s Guide to Retirement Income and our Investment Advisory Service.

If you set up an Approved Retirement Fund or an Approved Minimum Retirement Fund you may lose some or all of the money you set aside for retirement. The value of your investment may go down as well as up. The income you receive may go down as well as up. Unless the remaining capital grows at a rate at least equal to the rate of regular withdrawals, the investor’s capital will be reduced and could eventually be exhausted.

This marketing material is not intended to provide advice and is provided for general information purposes only.

The legislative information contained herein is based on Harvest’s understanding of current practice as at June 2020 and may be subject to change in the future.