If you own a foreign property and rent it out, even if you make a loss, you are obliged to file a tax return in the foreign country. You must also declare your foreign income in Ireland (resident country). However, Ireland has a double taxation agreement ('DTA') with many countries eg France, Germany, Spain, Portugal, USA, UK, Hungary etc. and where a DTA exists, any foreign tax paid can be offset against Irish tax due on same source income.
- Retain invoices/receipts for all costs. Deductions vary per country - many will have similar deductions to Ireland eg insurance, advertising for tenants, maintenance, annual tax write off of furniture & fittings, local taxes etc. - while others disallow loan interest payments eg Poland - while others allow an annual % deduction of the purchase cost of the building eg France & Germany. Keep a record of all costs incurred and your accountant can advise which are allowable.
Note, in Spain & Bulgaria, if a non-resident individual purchases property in his/her own name as oppose to through a company, tax is levied on gross rents with no deduction for costs. This applies when calculating foreign tax due. In Ireland, foreign costs are deductible from foreign rents when arriving at taxable profits/losses in Ireland.
- Foreign losses cannot be offset against Irish rental profits or other Irish income. However foreign losses can be carried forward and offset against future foreign profits so it is important to file a tax return even if you make a loss.
- Check out the situation regarding personal use or vacant property. For example, in Spain, even if you do not rent out the property you are liable for 'deemed rent' tax & in some cases wealth tax.
- If you are tax resident in Ireland, don't forget to declare your foreign income in Ireland and claim double taxation relief where applicable.
- In addition to income tax (or corporate tax), wealth tax may also be payable eg in France wealth tax is payable if your French assets less French loans/liabilities exceed €790,000. Also local property taxes (rates) are due in most countries - click on the country specific flag at www.dgitax.com to see applicable tax rates.
- File your tax returns on time to avoid interest & penalties on late filing.
Foreign PropertyTax Returns made easy at DG International Tax.
