Finance Act 2022 introduced significant changes to the regime for collecting tax on the rental income of non-resident landlords in Ireland. The new Non-resident Landlord Withholding Tax (NLWT) system came into effect on 1 July 2023.
Position prior to Finance Act 2022
Prior to Finance Act 2022, where a tenant was paying rent directly to a landlord who was not tax resident in Ireland, the tenant was obliged to withhold 20% of the gross rents as tax and remit same to Revenue via the tenant’s own tax return or payroll. A Form R185 was provided by the tenant to the landlord to enable the landlord to claim a credit for the tax withheld in their tax return.
Where an Irish resident “collection agent” (usually a letting agent or a friend / relative) was appointed by the landlord to collect rent from the tenant, the landlord could receive the gross rents from the collection agent without suffering withholding tax. However, the collection agent was chargeable and assessable to tax for the rental income on behalf of the landlord and must have obtained a specific tax registration in order to file tax returns in respect of that rental income and remit any tax liabilities arising. Where a non-resident landlord had no other Irish sources of income, they had no requirement to file an Irish tax return as the collection agent was the assessable party in respect of the rental income arising.
In practice, many tenants were unaware of their withholding tax obligations and in many cases may have been unaware that their landlord was non-resident. It was not uncommon for landlords to receive the gross rent from a tenant or collection agent and file their own tax return (remitting any tax liability arising).
New NLWT System
A tenant paying rent directly to a non-resident landlord remains obliged to withhold 20% of the rental payments. However, from 1 July 2023 the new NLWT system will also require the person withholding the tax to input “Rental Notifications” via the Revenue Online System (“ROS”) every time a rental payment is made. A Rental Notification contains information relating to the non-resident landlord and the rent paid to them. The withholding tax must also be paid via ROS rather than as part of the tenant’s own tax return.
The most significant change introduced by the NLWT system is that a collection agent can be relieved of their previous obligations (i.e., being chargeable and assessable to tax on the rental income) where they withhold 20% tax from the rental income collected and input Rental Notifications as outlined above. Where a collection agent complies with the new system, the non-resident landlord must register for Irish tax and file their own tax returns (Form 11 for individuals or Form CT1 for companies). Withholding tax remitted under the NLWT system will automatically pre-populate into the landlord’s tax return so that a tax credit can be claimed.
Where a collection agent does not withhold 20% tax and input Rental Notifications, they will remain chargeable and assessable to tax in respect of the rental income.
What does this mean for tenants?
Tenants should satisfy themselves that they are paying rent to either an Irish resident landlord or an Irish resident collection agent. If not, tenants must withhold and remit 20% tax from the rental payments and input Rental Notifications via ROS.
What does this mean for collection agents?
Collection agents have two options from 1 July 2023:
1. Withhold 20% of the rental payments received from tenants of non-resident landlords and remit same to Revenue along with Rental Notifications. This will remove the obligation to be chargeable and assessable on the tax arising from the rental income.
2. Pay the rental payments collected to the landlord without withholding tax and remain chargeable and assessable to Irish tax on the rental income. Continue to file tax returns under the collection agent tax registration. It is important to note that the tax liability can be remitted from the landlord’s bank account if that is the preferred commercial arrangement.
What does this mean for non-resident landlords?
There could be significant cashflow implications for non-resident landlords as a result of these changes.
Where a non-resident landlord has not appointed a collection agent, tenants must withhold 20% of the rental payments and remit same to Revenue. The NLWT system will pre-populate the amount of tax withheld as a credit in the landlord’s tax return.
Where a collection agent has been appointed and does not withhold tax on rental payments made to the landlord and input Rental Notifications, they are chargeable and assessable to the tax and the non-resident landlord should have no further filing obligations in Ireland in respect of the rental income received.
Where an appointed collection agent withholds 20% tax and inputs Rental Notifications in respect of the rental payment, the non-resident landlord must register for tax in Ireland (if they have not already) and file tax returns and remit any tax liabilities arising in respect of the Irish rental income receivable.
How can we help?
It is imperative that tenants, collection agents and non-resident landlords are aware of their obligations as Revenue have indicated that they will be commencing a targeted non-compliance programme beginning in 2024.
Our team of property specialists can help you ensure that you are meeting your tax filing and payment obligations. For more information on the new NLWT system, or how BDO can assist you, please do not hesitate to contact a member of our Real Estate & Construction Team.
Derek Henry, Partner, dhenry@bdo.ie
Charlotte Cumiskey, Senior Manager, ccumiskey@bdo.ie