Foreign Earnings Reliefs

Split Year Relief

Where an employee leaves for more than a year, he  may be resident in the year of departure and the year of return under normal rules. See the separate sections on split year relief.

Where an employee is leaving Ireland for a temporary purpose and does not intend to be resident in Ireland for the following tax year, Revenue permits the employee not to be taxed on the non-Irish employment income after departure notwithstanding that the employee may continue to be resident in that year due to the number of days spent.

The employee is allowed full tax credits in the year of arrival and departure.

The employee must not perform duties in Ireland other than incidental duties (30 days maximum). The relief does not apply to non-employment income and capital gains.

Split year relief is not available where the employee will not be non-resident for the following year.

The employee may be subject to foreign tax and Irish tax. Double taxation relief or the foreign earnings deduction may be available.

PAYE

The default position is that an employer must adopt PAYE on the income of Irish employments. A PAYE exclusion order may be issued by Revenue to relieve the employer from the obligation where the employee is outside the scope of Irish tax due to temporary presence only in Ireland or due to working abroad.

PAYE exclusion order must be applied for. Generally the employee the remains within the Irish social insurance system and must pay P RSI. The relief must be claimed by the employee.

Foreign earnings deduction

Foreign earnings deduction allows for a deduction of up to €35,000 where  an employee has worked abroad in one of a number of qualifying states. At least 30 such qualifying days are required. Qualifying days are one of three successive days when  the employee is spending his or her time carrying out duties of the employment. The employee must be present in the state or travelling to and from it.

The deduction is the lower of €35,000 or (the number of qualifying days)/ 365 x employment income in the year. The employer will usually operate PAYE on the normal basis without assuming the relief. The employee may reclaim  the reduced tax arising from the fact that he or she is taxed on the lower sum.

The relief applies only to time spent in certain named countries comprising largely developing markets and not European Union.

Finance Act 2022 amended the Foreign Earnings Deduction to  provide for an extension of the scheme to 31 December 2025.

Cross-border relief

Where an Irish resident employee is

• employed outside Ireland in a double taxation agreement state for more than 13 weeks
• paid in that country
• subject to tax in that country
• is in Ireland at least one day a week
• conducts incidental duties in Ireland only,

relief from tax is available.

Double Taxation relief

Under double taxation agreements, where a person is resident in one country and performs duties in another country they are exempt from tax in that other country provided they meet certain conditions. These are set out below.

Revenue have provided for real-time tax relief for an employee  who would be entitled to claim credits under double taxation agreements after completing their tax returns for the years concerned. The relief is allowed by way of credit under the PAYE system.

Where a taxpayer is employed by an Irish-based employer under an Irish contract of employment with some duties exercise abroad, but subject to taxation in Ireland and the other jurisdiction (the foreign tax not being refundable) Revenue may give immediate relief for the foreign tax. The credit is given by way of estimation and an end of year review is required when the end of year tax return is made. The relief given by way of credit for the foreign tax should not exceed the Irish tax payable on the same income.

Unilateral relief is available where there is no double taxation agreement This extends a tax credit for the foreign tax which cannot be recovered. Application may be made to have it applied through the PAYE by adjustment of tax credits.

DTA Employee Relief

The standard article in double taxation agreement on employments sets out the conditions for double taxation relief. The general principle is that the employee’s country of residence is entitled to tax the employee on employment income unless the employment is exercised in the other country. However the country of residence maintains the exclusive right to tax (with the consequence that the whole state does not tax the following conditions are complied with

The employee is not present in

•  in the host state (Ireland for inward assignees) for more than 183 days in the tax year
• the income is paid by or on behalf of an employer who is not resident in the host state (Ireland for inward assignees)
• the income is not borne by a permanent establishment or base which the employer has in the host state (Ireland for inward assignees)
• The issue of PAYE may be separate an application may be necessary for PAYE exclusion order.