With an increasing number of individuals working abroad, it is important to ensure that both employees and employers take advantage of any available tax reliefs.
Reliefs are available to aid individuals who frequently travel abroad as part of their employment. With careful planning, advantage may be taken of these reliefs.
RESIDENCE
An individual will be resident for a tax year (year ended 5 April) if:
- the individual is present in Ireland for 183 days or more (in aggregate) in the tax year,
- or the individual is present in Ireland in the tax year and the preceding tax year for 280 days or more (in aggregate). However, if a person is here for not more than 30 days in the second tax year, he will not be resident for that tax year and his presence in that year is not counted for the 280 day rule.
An individual is deemed to be present in Ireland for a day if the individual is present in Ireland at midnight.
ORDINARILY RESIDENT
A rule was introduced to prevent taxpayers moving abroad temporarily for the purpose of avoiding Irish tax. The main targets are persons becoming non-resident for a tax year in which they realize significant income or capital gains.
Under these provisions an individual will be regarded as continuing to be ordinarily resident unless he has been non-resident for the three preceding tax years under the rules outlined under Residence.
Individuals ceasing to be Irish resident may therefore remain liable to Irish tax on worldwide investment income and capital gains for three tax years after the tax year of departure.
This deeming provision does not apply so as to tax the profits of a trade carried on wholly abroad or remuneration from an employment all the duties of which are exercised abroad (except for duties performed in Ireland which are incidental).
However, it does apply to investment income, for example, deposit interest where the investment income in question exceeds €3,810 per annum.
RELIEF FOR DUTIES PERFORMED ABROAD
Foreign earnings deduction
Relief is available in respect of employments where the duties are exercised wholly or partly abroad (excluding the UK). The relief is given by repayment of tax paid through PAYE at the end of the tax year.
With effect from 29 February 2000, the relief has been capped at €31,744 (see below for an example)
Example Salary 2003: €50,000
Number of qualifying days spent outside Ireland in 2003 : 130 Formula = (Qualifying days / 365) x Income = Foreign Earnings Deduction In this case the taxable salary for the year in question will be reduced to €32,192 (€50,000 - €17,808)
.€1 = ?0.787564 (?1 = €1.269738)
With effect from 29 February 2000, the maximum deduction from employment income is limited to €31,744.
To obtain the relief, the individual must have a minimum of 90 qualifying days in a tax year or in a period of 12 months if straddling two tax years.
A qualifying day is:
- One which is: substantially devoted to the duties of the employment(s)
- One of at least 11 consecutive days of absence abroad for these purposes, and
- One on which the individual is abroad at the end of the day.
The relief does not apply to employments exercised in the UK and does not extend to civil and public servants although employees of subsidiaries of semi- state groups will, in certain circumstances, qualify for the deduction.
Salary only is subject to the deduction, other employment related income such as benefits in kind, severance payments and the income gains from the exercise of a share option are not subject to the deduction.
Seafarers
There is an allowance of €6,350 for seafarers who are resident but spend at least 169 days at sea in a tax year. Alternatively, the seafarer may claim relief under foreign earnings deduction.
Income earned outside the state
Relief is available to Irish resident individuals who:
- commute daily or weekly to their place of work (outside Ireland) for a continuous period of 13 weeks or more
- pay foreign tax on the income from that employment and
- spend at least one night a week in Ireland.
The relief does not apply to proprietary directors, government employees and employees of State bodies.
SPLIT YEAR TREATMENT
For the purposes of determining the tax treatment of foreign employment
earnings, an individual will be treated as resident in the State with
effect from their date of arrival and will cease to be resident in the
State on their date of departure.
Certain conditions must be met in the year of arrival and departure for
split year treatment to apply:
In the year of arrival, an individual:
- must not have been resident in Ireland for the previous tax year, and
- must be resident for the tax year following arrival (the Irish Revenue must be satisfied with the individual's intention to remain here in this
instance).
In the year of departure: the individual
- must be resident in Ireland,
- must satisfy the Irish Revenue that he/she is leaving Ireland other than
for a temporary purpose, and that he/she will not be resident here for the following tax year.
In effect, therefore, foreign earnings applicable to a period prior to
arrival and subsequent to departure are excluded from Irish taxation.
The relief applies only to employment income, all other income earned in
the year of arrival or departure is fully taxable.
INTERNATIONAL EXECUTIVE TAX SERVICES
The global increase in international trade has generated a demand for
executives to travel to different parts of the world. There is no limit
to the variations in tax law and practice in this area; however
information about a destination country's tax system is often difficult
to obtain.
Our executive tax services can assist both employer and employee in
structuring a tax efficient compensation package bearing in mind the
taxation regime in both the home and host countries.
