Tax Consequences of Working in Ireland

July 26, 2023

AGN EMEA Tax Committee News

Over the last few years, there has been a significant influx of people coming to live and work in Ireland either on a secondment from a foreign employer on a temporary basis to work on a specific project in Ireland. Many individuals are Irish ex-pats returning to live in Ireland while they continue to work for their non-Irish employers.

In this article, we will outline the tax consequences for:

The individuals.
The employer companies of individuals coming to work and live in Ireland.
The various reliefs available from employment income for employees or for their employers removing the obligation to operate Irish payroll taxes.

Before examining the specific rules governing employment duties and the associated employment income from duties of employment carried out by an individual out in Ireland, it is useful to review the rules of residency and domicile which govern the charge to Irish taxation.

The Irish system of taxation is levied based on whether a person is resident/ordinary resident and domiciled in Ireland. We will briefly discuss the implications that this has on an individual’s taxation in Ireland.

Please note: Employment income can be subject to Irish tax even where an individual is a non-Irish resident, and while tax treaty relief may be available – it is important that employers and individuals are aware of the local Irish payroll requirements.

Irish Tax system

Residence/Ordinary residence

An individual is deemed a resident in Ireland if they are present in the State for more than:

183 days in a tax year or
280 days in total between the current and previous tax year

An individual becomes an ordinary resident in Ireland when they have been in the State for the previous three years. Ordinary residency takes three years to lose once obtained.

Domicile

Domicile is a legal term and constitutes a person’s permanent home. It is not defined specifically in tax law. An individual has a Domicile of Origin, and once you establish what an individual’s domicile of Origin is, you can determine whether, over a period of time, a person acquires a domicile of choice. Unlike some other jurisdictions, acquiring a domicile of choice in Ireland is determined by fact rather than years or time resident in Ireland.

An individual who is an Irish resident and domiciled:
An individual who is an Irish resident and domiciled is liable to Irish income tax on their worldwide income and Irish Capital Gains Tax (‘CGT’) on their worldwide gains. This would apply to an Irish citizen returning to work in Ireland. The implications for this are that the individual should plan to create a separate capital account for income and gains realized before becoming an Irish resident.

An individual who is an Irish resident and non-Irish domiciled:
An individual who is resident in Ireland but non-Irish domiciled, which would apply to non-Irish citizens coming to live and work in Ireland. Such individuals are subject to Irish tax on Irish source income and gains and on foreign income and gains under the remittance basis of taxation. In other words, the individual will pay Irish tax on:

Irish source income and gains
Foreign income and gains to the extent they are remitted.

An individual who is an ordinary resident but not a resident is liable to Irish Income tax on their worldwide income, with the exception of:

Income from a trade or profession, no part of which is exercised in the State: or
An office or employment, all the duties of which are exercised outside the State: or
Other foreign investment income is less than EUR 3,810.

An individual who is an ordinary resident and non-Irish domiciled:
An individual who is an ordinary resident but not domiciled or resident in Ireland is liable to Irish tax only on their Irish source income and gains and separately on their foreign income and gains to the extent remitted into Ireland.

An individual who is non-resident and non-ordinary resident:
If an individual is not a resident and not an ordinary resident in Ireland, then he or she is only subject to Irish income tax on Irish source income and income from a trade, profession or employment to the extent it is exercised in Ireland.

Application to employment income of temporary or permanent employees in the State

Irrespective of the tax residence of the employee or employer, income from non-Irish employment, which is carried out in Ireland, is liable to Irish tax and is within the scope of the Irish payroll deduction system (PAYE).

This has implications for individuals coming to work remotely for their employees, either part-time or full-time.

The employer has an obligation under Irish domestic legislation to operate PAYE income on the portion of the employment income attributable duties in the State. This means that the non-Irish-based employer will have to register and operate Irish payroll taxes unless the assignment qualifies for relief.

Reliefs are available for the requirement to operate Irish payroll taxes for certain assignees.

Revenue does not require a foreign employer to operate PAYE in the following circumstances which are as follows:

Short-term business visits of up to 30 workdays in a tax year, whether from a Double Taxation Agreement (‘DTA’) or non-DTA country.
Term visits greater than 30 workdays and not more than 60 workdays in a tax year from a DTA country.
Short-term visits greater than 60 workdays and not more than 183 days in a tax year from a DTA country, where dispensation from the requirement to operate the PAYE system has been issued. There are various procedures that need to be adopted before such relief is obtained, including evidence that taxes are being operated in the source state.

Summary: The tax consequences of foreign employers either assigning temporary employees to Ireland or hiring Irish citizens who perform their duties in Ireland need to be carefully considered as there may be obligations on the foreign employer to operate Irish payroll taxes. This can have significant cashflow implications, particularly where there may also be a requirement to operate local payroll taxes.

Irish individuals hired to work exclusively for their employer outside Ireland

Normally where no duties of employment are carried out in Ireland, the local payroll will cover the employer’s obligation.

Such individuals, however – as residents and possibly Irish domiciled, will still technically be within the charge to Irish tax on the foreign employment income and will have to file a tax return and pay Irish tax on this income. Credit will be available for any local taxes paid where there is an existing tax treaty in place.

Transborder relief
There is a relief called transborder relief which applies to individuals who, while resident in Ireland, carry out all of their duties of employment in a tax treaty country and commute daily or weekly to their employment. The relief effectively exempts most of the foreign earnings from the charge to Irish tax.

Other relief – SARP relief

The Special Assignee Relief Programme is specifically aimed at employees who have been assigned by his or her employer to relocate to Ireland to work for that same employer.

If the employee earns in excess of €75,000 per year, they may be eligible to claim tax back under the Special Assignee Relief Programme.

The conditions to qualify are as follows:

The employee must not have been a resident of Ireland in the five years before commencing employment in Ireland.
The employee must have worked for a minimum of six months for the relevant employer outside Ireland immediately before commencing work in Ireland.
The employment must last at least 12 months in Ireland.
The employee must earn in excess of €75,000 per annum.
SARP is allowable up to a maximum of €1,000,000 Income.
The employer must send a Form SARP 1A to Revenue within 90 days (formerly 30 days) of the employee arriving in Ireland to take up duties.

Summary: There are many tax implications of coming to work in Ireland, even on a temporary basis, and individuals and employees need to familiarise themselves with the rules to ensure that they are meeting their obligations.