Ireland is a very open economy and continues to rank as one of the most globalised countries. Increased globalisation amongst multi-nationals goes hand in hand with internationally mobile employees and executives. With the increasing rate of integration in global markets and the great number of employees being assigned to Ireland, it is important that both the individuals and their employers are aware of the intricacies of the Irish tax system and potential reliefs that may be applicable.
Outlined here-under are some reliefs and practical knowledge to be aware of ahead of an assignment.
1.1 Remittance Basis of Taxation
Irish resident but non-domiciled individuals are subject to Irish tax on:
The above is referred to as the “remittance” basis of taxation. The remittance basis provides opportunities for non-domiciled individuals who are moving to Ireland for a temporary period to structure their affairs in order to reduce their exposure to Irish income tax (top tax rate in excess of 50%) in respect of non-Irish source income and gains. This means that income and gains from sources outside of Ireland will not be taxable in Ireland as long as the funds are not remitted to Ireland. This can be highly beneficial to temporary residents who only wish to remain in Ireland for a few years and where income earned in Ireland from their employment is sufficient to meet day to day living expenses.
Remittances of income and gains from a foreign bank account earned in tax years prior to the tax year in which the individual takes up residence in Ireland can generally be made with no Irish tax, although there are complex provisions where remittances are brought into Ireland from a “mixed bank account” (i.e. foreign bank account with income and gains earned pre and post taking up Irish residence).
Note there are quite complex anti-avoidance rules designed to catch “deemed remittances”.
1.2 Special Assignee Relief Programme (SARP)
SARP was introduced in Finance Act 2012. At a high level, SARP provides relief from income tax (it does not apply to USC or social security) where an individual with a minimum basic salary of €75,000 per annum (excluding all bonuses, commissions or other similar payments, benefits, or share based remuneration) is assigned to Ireland from a foreign employment to take up employment in Ireland. This can either be with the foreign employer (e.g. assigned to an Irish branch of the foreign company) or an assignment to an Irish group entity.
There are a number of conditions in order to claim the relief including the following:
The relief operates by effectively excluding from the charge to income tax 30% of the individual’s Irish employment income, inclusive of bonus and commissions (capped at €1m) in excess of €75,000. The relief can be claimed for a maximum of 5 consecutive years commencing with the tax year in which the employee arrives in Ireland. The relief is generally applied at source through payroll. An individual claiming SARP is regarded as a chargeable person for income tax purposes and is required to file an Irish income tax return.
Where the relief is available it is vitally important that the employer submit to Revenue a SARP 1A Form certifying the requisite details within 90 days of the employees arrival in Ireland (this was previously 30 days). If this submission is not made on time Revenue can refuse the relief.
1.3 Social Insurance (PRSI)
As a general rule of thumb, Irish social security is payable where an individual carries out their employment duties in Ireland. Where an individual is assigned to work in Ireland for a temporary period it is possible to obtain relief from Irish social security and for the employee to be retained within their “home country’s” social security scheme.
Where an individual is assigned from another EU country an application can be made in that foreign country for what is known as an E101 Certificate/A1 Portable Document. If granted this can be shown to the authorities in Ireland as confirmation that the individual is exempt from paying PRSI. The employer will instead withhold and pay social insurance on the employee’s behalf in the country from which the E101 Certificate/A1 Portable Document was obtained.
Where the individual is assigned from outside the EU the availability of the exemption from paying PRSI is dependent upon whether a bilateral social security agreement has been signed between Ireland and the other country. Ireland has signed these agreements with a number of countries including the UK, USA, Canada and Australia.
The area of social insurance can be quite complicated. Depending on circumstances the country in which social insurance should be paid is not immediately obvious and can require a detailed review of the individual’s background. RBK can assist individuals/companies in this process.
1.4 Payroll Operation for Short Term Business Visitors (STBV)
Where a foreign entity assigns an employee to work in Ireland temporarily, depending on the period of the assignment, there can be a requirement for that foreign entity to register for payroll taxes in Ireland and operate Irish payroll taxes on the employee’s wages that are attributable to the duties carried out in Ireland. This can lead to a double taxation of the individual’s salary both in their country of residence and in Ireland.
Whilst double tax relief may be available to the individual, in the absence of any concession from Revenue, there is a requirement for the individual to claim double tax relief by filing an income tax return after the end of the tax year. This can have a significant detrimental cash flow impact for the employee.
Irish Revenue will in certain circumstances allow the relaxation of the obligation to operate payroll taxes. Unfortunately Revenue have significantly muddied the waters over the last number of years, changing their practice in December 2016 which had the impact of significantly restricting the circumstances in which they would allow relaxation of payroll taxes. In March 2019, Revenue issued updated guidance in which they added further unhelpful commentary distinguishing between STBVs coming to Ireland for one tax year and STBVs working in Ireland for short term periods over consecutive tax years. This created significant confusion for multi-nationals and was effectively unworkable. In light of intense lobbying, in December 2019 Revenue issued revised guidance effectively removing the requirement to consider consecutive tax years and reinstating the previous position whereby one considered this on a tax year by tax year basis for STBVs. Revenue’s commentary is outlined below:
“With effect from 1 January 2020, for the purposes of determining whether a dispensation from the operation of PAYE is required, employers are required only to consider the number of work days spent in the State in a single year of assessment, that is, in the year of assessment concerned. There is no requirement to consider work days spent in the State in two consecutive years or to be so spent in future years. Further guidance on the operation of this Tax and Duty manual will issue in early 2020.”
The current position set out below:
Number of Irish workdays|
In a tax year
|Up to 60 workdays||No PAYE obligation|
|60 -182 workdays||PAYE Dispensation requiredto remove PAYE obligation|
|183 or more days||
PAYE must be operated
We look forward to yet further guidance from Revenue later this year. Hopefully, this time Revenue will ensure that their application of the Irish tax system does not provide a hindrance to attracting STBVs to Ireland.
1.5 Capital Acquisitions Tax (CAT) – Temporary residentThere are a number of conditions that are required to be satisfied in order to avail of the PAYE Dispensation. RBK can assist you in determining your entitlement to relief from PAYE and making the submission to Revenue.
CAT is a tax on the receipt of gifts and inheritances. A charge to CAT can arise where either the donor/testator or the person receiving the gift/inheritance are resident in Ireland. There is a special relief for individuals who are temporarily resident in Ireland but are not domiciled in Ireland. For CAT purposes such individuals are only regarded as “resident” in Ireland when they have been resident or ordinary resident in Ireland for 5 consecutive tax years.
This provides opportunities for individuals who are temporarily resident in Ireland to structure their affairs in order to mitigate their exposure to Irish CAT. Note that where the asset subject to the gift/inheritance is Irish situs property (such as Irish real estate), the gift/inheritance of same is within the charge to Irish CAT regardless of the residence status of the donor/testator or beneficiary.
Return to "The Tax Issue - Spring 2020"
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