Last updated on 7 de April de 2023
Ireland has made experienced incredible economic growth over the last few decades. We will analyze the most important taxes in Ireland in an easy-to-understand way.
- Taxes on Earned Income
- Capital Income Taxes
- Stamp Duty (Real Estate Transfer Taxes)
- Corporate Tax
- Public Finances in Ireland
Taxes on Earned Income
Earned income in Ireland is taxed in three different ways:
- Income Tax
- Universal Social Charge (USC)
- Pay Related Social Insurance (PRSI)
Ireland’s Income Tax has a very simple progressive structure with only two rates:
- 0 to €40,00€: 20%
- More than €40,00: 40%
These thresholds and rates are applicable to people who are unmarried and have no children. There are slight variations for those who are married and/or have children or other dependents.
The preliminary income tax is calculated on the tax base, which is the result of subtracting certain deductions from our gross salary. Deductions can be in the form of pension fund contributions.
The resulting preliminary income tax will then be reduced by applying some tax credits.
Thus, the first €1,775 to be paid in taxes is exempt for everyone. And, for those who are employees, another €1,775 is also tax-exempt. This means that the first €3,550 of our preliminary income tax bill will be offset by these tax credits.
For example, if we earn €45,000 per year and contribution €5,000 to a pension fund, our tax base will be €40,000. The preliminary income tax will be 20% of that, or €8,000. We would finally subtract both tax credits worth €3,550, making the final amount of income tax payable €4,450.
To conclude this section on income taxes in Ireland, let us see how much money we can contribute to a pension fund, based on our age and salary level. Remember that such contributions reduce the tax base on which income tax will be calculated:
Maximum monetary contributions are calculated on an annual salary of €115,000.
Universal Social Charge (USC)
The USC is a tax that was introduced in 2011 in the wake of the financial crisis that led to Ireland’s bailout.
The official reasoning for introducing the USC is that the revenue it raises is used to fund services. However, it is simply another form to tax income.
Although USC payments have been going down for a while, those who earn more than €13,000 per year still have to make contributions. USC payments are seen as an additional charge on top of income taxes.
USC contributions follow a progressive structure:
- From €0 to €12,012: 0.5%
- From €12,012 to €22,920: 2%
- From €22,920 to €70,044: 4.5%
- More than €70,044€: 8%
The USC is one of Ireland’s most unpopular taxes, as it is still regarded as a decision that was taken at the same that the government’s finances were being bailed out and the country had no option but to accept whatever measures the creditors wanted to impose on Ireland.
In addition, USC must be paid even on the amount that we allocate to our pension plan.
Pay Related Social Insurance (PRSI)
PRSI payments are the equivalent of social security contributions, since they entitle workers to receive a retirement pension in the future.
As in most places, both the employer and the employee must make PRSI contributions. However, PRSI rates tend to be substantially lower than in other Western European countries.
Employees who earn less than €22,934 after taking into account their contributions to a pension plan do not pay any PRSI. For those earning more than that amount, the PRSI is 4% and paid on the gross income less contributions to a pension plan.
Up until 2011, the maximum tax base on which PRSI was calculated was €75,000. However, the cap was removed during the financial crisis in order to increase tax revenue.
Regarding employers, they must pay the equivalent of 8.8% of the employee’s gross salary in PRSI contributions if they earn less than €22,934. The employer’s PRSI rate increases to 11.05% if the employee’s salary is above that figure. Employers’ PRSI contributions are also uncapped.
Total Tax Burden on Earned Income
To really understand the total tax burden on earned income in Ireland it is useful to compare the employee’s net salary with the employer’s total cost. The employer’s total cost includes both the gross salary and the employer’s PRSI contributions.
We will base our calculations on a worker who is single and has no children. We will also ignore any contributions they may make to a pension plan. That would represent the maximum amount of tax that an individual can pay in Ireland as a function of their income level:
As you can see, the total level of taxation on labor income in Ireland is very moderate for low- and middle-income earners. It does go up significantly for those with higher incomes, exhibiting a very steep level of progressiveness.
Capital Income Taxes
Income from savings and investments is also taxed in Ireland. However, they receive a different treatment depending on their source.
Interest income from savings accounts or other fixed income investments is taxed at 33%, regardless of their amount. This percentage is quite high but has been reduced over the last few years from a peak of 41% to the current 33%.
Income from dividends is taxed more lightly, at a flat rate of 20%.
When it comes to realized capital gains, these are taxed at 33%. This tax rate is applicable to most investments, including stocks, bonds, funds and real estate. A lower capital gains tax rate applies to direct investments in companies or venture capital funds that aim to provide financing to unlisted companies.
Finally, net rental income is taxed at the progressive rates that apply to labor income, meaning it can be as high as 40%. It should be noted that all costs associated with the ownership of the property, including mortgage interest payments, are tax deductible.
Value-added taxes apply to the consumption of goods and services in Ireland. There are a total of 5 different VAT rates, though only 4 of them apply to end consumers.
The table below summarizes the four VAT rates that are relevant to consumers and for which products they are used:
The general VAT rate has been 21% since September 2021.
Stamp Duty (Real Estate Transfer Taxes)
Acquiring a home is one of the most important financial goals for many people. And this is particularly important in Ireland due to the high rental prices.
The purchase of a home in Ireland is subject to the payment of a tax called Stamp Duty. The amount of Stamp Duty payable will be 1% of the value of the property, up to one million euros. Anything that exceeds one million euros, will be taxed at 2%.
As you can see, the applicable rates are very moderate.
Corporate tax is paid by companies on the profits they have made. And Ireland is famous for being an attractive place for corporations to domicile their business.
While it is true that Ireland has one of the lowest corporate tax rates in the European Union, at 12.5%, it is not the country with the lowest tax rate. As a matter of fact, the corporate tax rate in Hungary is only 9%.
We should mention that there are plans to eventually raise the corporate tax rate in Ireland to 15% for big corporations.
Public Finances in Ireland
Finally, let us look at the health of Ireland’s public finances. To that end, we will focus on the amount of public debt relative to the size of the economy.
To the surprise of many, Ireland’s level of public debt is lower than Germany’s. In fact, public finances in Ireland are in great shape. This is especially remarkable considering the country had to be bailed out after the 2008 financial crisis.
The graph below shows the level of public debt in Ireland since 1998. As you can see, the Irish government only decided to take on a significant amount of debt when the economy went down during the global financial crisis:
This indicates that the Irish government has mostly been responsible in the way it has managed the public budget. As soon as the economy recovered after the bailout, it started reducing the level of public debt again.
Ireland seems to have everything in its favor to continue to succeed in the future. There is no doubt the country has been doing things right for a long time. And the way public finances are run is an integral part of that success.
Taxes in Ireland are particularly favorable for corporations and low-income workers. This creates an interesting combination.
And while taxes are certainly high for those with high levels of income, at least they are not hit with high Stamp Duty payments if they wish to purchase an expensive home, unlike in the UK.
I hope you liked this analysis of taxes in Ireland and encourage you to subscribe to my newsletter:
And if you are interested in the tax system in the United Kingdom, check out this link:
Taxes in the United Kingdom – A Complete Guide
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