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Domestic Rates

Domestic Rates: Definition and Meaning 

Domestic rates are a form of tax used to fund local governments. Primarily a UK term, used until 1989 in Scotland, and until 1990 in England, domestic rates is still the term used in Ireland. The US equivalent would be local taxes set by the city, but the principle differs.

Domestic rates apply to occupants of houses based on their rateable value set by a District Valuer. Local authorities decided the rateable value, while the central government imposed upper limits. Exceptions apply to individuals living under the poverty line, disabled individuals, and the retired, who have a lower rate or an outright exemption. Lower-income households also receive a discount on domestic rates.

The community charge replaced domestic rates in the UK. This was a flat rate per adult occupant in each local authority. It was a highly unpopular tax and challenging to collect. Opponents nicknamed it the poll tax, as each person eligible to vote in polls was subject to the community charge. The UK replaced the community charge in 1993 with the council tax. The council tax does not tax occupants but property values. The US equivalent is a real estate tax.

Northern Ireland continues to use domestic rates, payable on all residential properties. The current domestic rates use the capital value of homes as of 1 January 2005. Calculating the domestic rate bill involves multiplying the rateable capital valuation by the domestic rate for the council area. The Northern Ireland Executive sets the regional rate, and individual councils set the district rate.

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    Domestic Rates versus Non-Domestic Rates 

    While domestic rates apply to occupied local properties, some governments levy non-domestic rates on non-domestic properties owned by private, public, and third sectors. The funding purposes are identical, but the calculation varies between councils or local governments. Non-domestic rates can change annually, and some label them as business rates, as they apply to foreign property holdings of domestic taxpayers, which are often businesses rather than individuals. Taxpayers may also qualify for tax rebates.


    While few governments apply domestic rates, a similar tax exists in almost every government. Domestic rates are a form of property tax, but rather than valuing the property value, they apply individually to the adult population residing in a property.

    Most governments replaced domestic rates and their counterpart non-domestic rates with other taxes that value the property and do not make an individual assessment. For example, the UK replaced domestic rates with the council tax, the US has a complex real estate law, and most governments apply one form of property-based tax.

    The primary purpose of domestic rates in countries where they apply is funding for education, social care, waste management, and other services in the local government. Therefore, domestic rates will differ based on the requirements and district rates. The central government enforces maximum limits to ensure local governments do not apply excessive domestic rates.


    What is the meaning of domestic rates?

    Domestic rates are a form of tax to fund the local government, primarily used in Ireland after the UK replaced domestic rates with the unpopular community charge in 1990 before being replaced by the current council tax.

    What does domestic mean in finance?

    Domestic in finance refers to goods and services produced and offered by companies incorporated and operational in the same country where the transaction materialized. For example, a UK financial company selling a service to UK residents is a domestic financial transaction, as the entire cash flow occurs inside the country.

    What are non-domestic rates?

    Non-domestic rates refer to taxes on non-domestic properties or properties owned by domestic individuals or entities outside their home country. Council services like education, social care, and waste management receive primary funding from non-domestic rates.

    What does it mean to buy domestic?

    Buying domestic is purchasing products and services from a home country rather than foreign countries. One example of a domestic purchase is a US consumer buying a product or service from a US-based company that produced it in the US.

    Staying with our example, some believe that a US consumer buying a product from a US company where production occurred outside the US classifies as domestic since the US company booked the revenue. Others argue it is a foreign purchase. The former assumption is incorrect, as it required importing the good or service, making it a foreign purchase. Additionally, the production took place outside the US by foreign workers, paid for by the US company. A foreign company that produces its goods inside the US and sells to US consumers is a domestic purchase from a foreign entity.

    The third alternative is a US consumer buying from a foreign company, known as a foreign purchase, where the foreign company exports the product and service. Team
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