The taxation of globally mobile employees and temporary assignees of foreign employers is an area of tax that can often be overlooked. Some employers inadvertently assume that if an employee is not an Irish national, is not directly employed by an Irish employer or is on a foreign payroll, that Irish taxes do not need to be considered. Another matter we commonly come across is that employers go straight to the double taxation treaty, simply applying a rule of no more than 183 days and away you go. Unfortunately, these assumptions are not correct and, as can be seen from the below, the devil is always in the detail.
How Are Temporary Assignees to Ireland Taxed?
Under Irish domestic tax legislation, where an employee of a foreign employer travels to the Republic of Ireland to work under the terms of a foreign employment contract, the foreign employer has a prima facie obligation to register for Irish payroll tax and to operate Irish payroll taxes (PAYE/USC and sometimes social security) on the portion of the employment income attributable to duties carried out in the Republic of Ireland.
Whilst the employment articles in most of Ireland’s double taxation agreements may provide some relief from the charge to Irish income tax, provided certain conditions are satisfied, double taxation agreements do not automatically remove the obligation on the foreign employer to register for Irish payroll tax and remit same to the Irish tax authorities. Instead, Irish tax legislation provides that in the absence of the Revenue practice referred to below, the individual in such a case is required to suffer the Irish payroll deductions and then make a claim for a refund of the Irish tax by filing an Irish income tax return. As can be appreciated, this has a cash flow cost as double payroll deductions may have been applied and there can be time delays in seeking refunds of income tax.
When Can Non-Irish Employers Be Released from Irish PAYE Obligations?
Notwithstanding the provisions of domestic tax legislation, in accordance with published Revenue practice, the foreign employer can be released from the obligation to operate the PAYE system on the foreign employment income in certain circumstances. The following factors are to be considered when determining the availability of the release from the obligation to operate PAYE:
- The number of days and workdays the temporary assignee spends in Ireland.
- Whether or not the temporary assignee has come to Ireland from a country with which Ireland has a Double Taxation Agreement (DTA).
- If a DTA is in place, the taxing rights allocated to Ireland on the employment income of the temporary assignee under the terms of the DTA.
Please note a workday is a day during any part of which an individual performs work in the State. Irish Revenue does not require a foreign employer to operate PAYE in the following circumstances:
1. Short term business visits of up to 30 workdays in a tax year, whether from a DTA or non-DTA country
Where an individual employed under the terms of a foreign employment contract performs duties in the State for no more than 30 workdays in aggregate in a tax year, those days may be disregarded and there is no requirement for the foreign employer to operate PAYE on the income attributable to duties carried out in the State.
2. Short term visits greater than 30 workdays and not more than 60 workdays in a tax year from a DTA country, subject to satisfying certain conditions.
Where an individual, who is a resident of a country with which Ireland has a DTA, is employed under the terms of a foreign employment contract and performs duties in the State for more than 30 workdays but for no more than 60 workdays in aggregate in a tax year, those days may be disregarded for PAYE purposes, subject to the conditions in the employment income article of the applicable DTA being satisfied. In such circumstances, there is no requirement for the foreign employer to operate PAYE on the income attributable to duties carried on in the State and there is no requirement for the foreign employer to seek advance Revenue approval.
Where the employment income of the temporary assignee is not relieved from the charge to Irish tax under the terms of an applicable DTA, or where the workdays in the State exceed 60 and there is no PAYE dispensation (see below) in place, PAYE must be operated from the first workday in the State.
3. Short term visits greater than 60 workdays and not more than 183 days in a tax year from a DTA country.
Where an individual, who is a resident of a country with which Ireland has a DTA, is employed under the terms of a foreign employment contract and performs duties in the State for more than 60 workdays but for no more than 183 days in aggregate in a tax year, those days may be disregarded for PAYE purposes if:
- the conditions of the employment income article of the applicable DTA are satisfied, and
- an advance dispensation from the requirement to operate the PAYE system has issued from the Irish Revenue Commissioners (upon application)
If the above conditions are satisfied, there is no requirement for the foreign employer to operate PAYE/USC on the income attributable to duties carried on in the State. It is important to note however that the foreign employer in such instances is required to obtain advance approval from the Irish Revenue i.e. the dispensation is not automatic.
Each year is considered on a standalone basis. Every case should be considered on a case- by-case basis, having regard to the provisions of the applicable double taxation agreement as there can be nuances in the treaties and the employment income/dependent personal services article.
4. 183 days or more
Irish payroll PAYE/USC should be operated on duties exercised in Ireland in respect of all temporary assignees posted to Ireland for a period of 183 days or more in a tax year.
What Are the Social Security Requirements for Temporary Assignees?
The provisions referred to above relate solely to Irish PAYE/USC and do not apply for social security purposes. Care is also needed for temporary assignees to ensure that social security is operated in the correct jurisdiction. In relation to assignees to Ireland from other EU jurisdictions, EU regulations provide clarity on where social security should be operated. Ireland also has bi-lateral social security agreements in place with a number of territories, including the UK and the USA. Careful consideration is required in advance of an overseas assignment to ensure all formalities are complied with, including obtaining certificates of coverage.
Considerations Before Assigning Employees to Ireland
In addition to the Irish taxation considerations as referred to above, it is necessary to consider the payroll obligations in the home territory. This is an area of tax that can be overlooked by employers, potentially leading to dual payroll withholding. We recommend that before any foreign assignment of staff that full consideration should be given to the tax implications of the proposed assignment, both from the home territory perspective and the Irish perspective. A plan should be put in place to ensure compliance with home country payroll obligations and Irish payroll obligations. It is also important to note that whilst we consider payroll matters here there are other Irish tax considerations that also need to be considered and managed, such as potential for creating an Irish permanent establishment and implications where an employee triggers Irish residence. As always advice is required.
Failure to comply with obligations can lead to additional costs for employers and can even lead to friction between employees and the employer. The flip side is that with proper planning a lot of these tax risks can be identified and mitigated allowing employers to focus on attracting and retaining talent and growing the business.
While every effort has been made to ensure the accuracy of information within this publication is correct at the time of going to print, RBK do not accept any responsibility for any errors, omissions or misinformation whatsoever in this publication and shall have no liability whatsoever. The information contained in this publication is not intended to be advice on any particular matter. No reader should act on the basis of any matter contained in this publication without appropriate professional advice.
