International Assignees II

Foreign Employment

A wholly foreign employment is taxed under Schedule D, Case III, as a possession outside the State. This is the case if the employer is foreign, the contract of employment is governed by foreign law, and the employment is paid abroad.

Income from an office or employment attributable to the performance of duties in Ireland is subject to income tax under Schedule E. PAYE applies to Schedule E for all emoluments. PAYE automatically applies to the remuneration in this case.

If there is no Irish resident employer, then under certain circumstances the local employer for whom the employee works may be subject to PAYE obligations even if the salaries and wages are not paid directly through them.

A person may be assigned outside Ireland while continuing to be paid by the Irish employer. This is the case regardless of whether they are working for an Irish or a foreign associated company. They will continue to be subject to Irish employment and income tax and PAYE obligations while they have an Irish contract of employment. In order for there to be a foreign employment, there must be a contract of employment governed by foreign law, and income under the contract must be paid abroad.

They are subject to Irish PAYE on salaries, wages, benefits, and perquisites of an Irish employment or foreign employment duties which are carried out in Ireland regardless of which company provides them.

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.

Under split-year residence, an assignee who leaves with the intent to be resident the following year can be exempted from Irish income tax on foreign employment income after the date of leaving. A PAYE exclusion order may be granted. They may retain the balance of their standard rate band and tax credits.

Similarly, where a person arrives in Ireland with the intention and circumstances of being resident the following year, employment income prior to arrival may be excluded notwithstanding that the person may be resident in the year of arrival. Post-arrival income is only subject to Irish income tax employment.

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.

Foreign earnings deduction (FED) and supplemental foreign earnings deduction (SFED) apply until 2025. Countries covered include Brazil, Russia, India, China, South Africa, Egypt, Algeria, Senegal, Tanzania, Kenya, Nigeria, Ghana, Congo, Bahrain, Chile, Indonesia, Japan, Kuwait, Malaysia, Mexico, Oman, Qatar, Saudi Arabia, Singapore, South Korea, Thailand, United Arab Emirates, Vietnam, Colombia, and Pakistan.

FED Conditions

The employee must have worked at least 30 qualifying days in any continuous period of 12 months. A qualifying day is one spent in one of the countries concerned, part of three consecutive days in that country for the purpose of employment duties from which duties of the employment or office, taken as a whole, are substantially devoted to those duties. They can also include days of travel between Ireland and the qualifying country. The time does not have to be spent in the same country.

The relief allows the deduction from the employee’s income based on the number of qualifying days. The maximum deduction is €35,000. It does not apply to USC, PRSI. The deduction is the number of qualifying days multiplied by employment income from the relevant office or employment (including share options realised) excluding certain benefits in kind, divided by the number of days in the tax year that the person held an office or employment.

It does not apply to employees paid by the state or any public party. It is not available where any of the following apply:

• Specialist assignee relief
• Cross-border relief
• Split-year residence
• R&D credit for certain key employees

If a person is entitled to double taxation relief or foreign taxes, the amount is reduced by the amount equal to the amount of such income on which tax was paid. The time does not have to be spent in the same countries.

Cross-border relief

Relief from tax on foreign source income is available.

• when an Irish resident individual is employed outside Ireland in a Double Taxation Agreement jurisdiction for a period of more than 13 weeks.
• the individual’s emoluments are paid in the foreign jurisdiction.
• the full amount of the income is subject to tax in that jurisdiction.
• the foreign tax due has been paid.
• the individual commutes daily or weekly so that they are present in Ireland at least one day a week.

The Relief applies to Irish residents so that they only pay  Irish income tax on  Irish source income. DTA relief is not required. Relief also applies to USC.

The earnings from the foreign employment are effectively removed from the Irish income tax calculation. The amount of income tax payable is reduced by an amount equal to the amount of tax that would be payable before double taxation relief for the foreign tax concerned on income, profits, and gains for that year, multiplied by the total income for that year (excluding income, profits, and gains from cross-border employment), divided by the total income for that year, (including income, profits, and gains from cross-border employment),

This does not apply to individuals who qualify for remittance based taxation on the basis of domicile. It does not apply to income subject to split-year treatment. It does not apply to income for which there is relief under the foreign employment earnings deduction, nor does it apply to a person claiming specialist assignee relief. It does not apply to persons who also claim double taxation relief.

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.

Taxation of Foreign-Domiciled Persons

A foreign-domiciled person is liable to income tax on foreign non-employment income to the extent it is remitted into Ireland. They are responsible for income tax on foreign employment income to the extent that they perform the duties of employment in Ireland.

A person can be abroad but remain ordinarily resident. An ordinarily resident person is taxable on worldwide income with the exception of:

• A trade or profession, no part of which is carried out in Ireland
• Office or employment, all duties of which are carried out outside Ireland (except incidental duties of less than 30 days)
• Other foreign income not exceeding €3,810. If the individual whose non-resident but ordinarily resident has other income exceeding €3,810, the full amount of the other income will be taxed and not just the excess element.

Social Insurance

In the case of PRSI, a person is subject to PRSI where they carry out employment. Where a person normally insurable in Ireland is assigned outside the state, PRSI continues for the first 52 weeks. EEA rules provide for relief from double social security.

There may be a social security convention with the state concerned to prevent double social security charges.

A special collection system applies in respect of contributions payable for employees who are not subject to the PAYE system.

In principle, an inbound assignee is subject to PRSI from day one. A certificate of coverage may be available under an EEA arrangement or double social security convention. An A1 certificate is applied for from the Department of Social Protection in relation to the EEA social security regulation. This determines the application of social security.

The EEA regulation provides for an exclusion for 1 to 2 years. It can continue for an employee assigned to another EEA state who may contribute to the Irish system and be exempted from the host system for up to 5 years with the agreement of the parties. A form A1 must be applied for in advance.

Employment Tax Credits

A person may qualify for the employee tax credit for an office or employment held or exercised outside of Ireland provided:

• The income is chargeable to tax in the country of source
• Subject to a similar tax deduction system to PAYE
• Is chargeable to tax in Ireland under Schedule D
• If the office or employment was held or exercised in Ireland, the person making the payment was Irish resident would qualify for the tax credit.

PAYE may still apply in circumstances where a person qualifies for double taxation relief on employment remuneration for more than 183 days, where the remuneration is not borne by a permanent establishment or fixed employment in the state, and the remuneration is paid by a non-resident employer. PAYE may still apply to the earnings relating to Irish duties, and the employee may then have to reclaim the tax at year-end.