In our recent blog, Reasons To Do Business In Ireland – Skilled Workforce, we looked at the availability of skilled labour in Ireland and how it contributes to our attractiveness for Foreign Direct Investment (FDI). However, while Ireland has many highly skilled individuals, some multinational companies (MNC’s) may wish to bring some of their key individuals to Ireland when establishing their operations. Ireland’s Government understands the importance of such key individuals and incentives such as SARP have helped make the move to Ireland an easier choice for these individuals.
SARP is a tax relief which has been designed to assist in the relocation of key talent to Ireland and is achieved by providing Income Tax relief on a portion of the income earned by the individual assigned to work in Ireland.
1. Qualifying for SARP
In the Finance Act 2014, the Minister for Finance extended SARP to 2017 and introduced a number of improvements to the relief which took effect from 1st January 2015. This new regime will apply to those arriving in Ireland in each of the three years 2015, 2016 and 2017 and will be available for five consecutive tax years from when the individual arrives to Ireland, subject to the following conditions being met:
- The individual must be an employee of:
- A relevant employer, i.e. a company incorporated and tax resident in a country with which Ireland has a Double Tax Agreement or an Exchange of Information agreement.
- An associate company of a relevant employer, i.e. a company under the control of the employing company or where both companies are under the control of another company.
- The individual must have worked for the relevant employer for at least 6 months immediately prior to being assigned to work in Ireland. (This limit had previously been 12 months.)
- The individual must work for the employer in Ireland for 12 consecutive months from when they first commence their position.
- The individual must not have been tax resident in Ireland for the 5 years previous to their arrival and employment within Ireland.
- The individual must be tax resident in Ireland, but may also be resident elsewhere. (Prior to 1st January 2015 individuals were not permitted to be resident elsewhere.)
- If the individual is not resident in the first year of arrival they will not qualify for SARP in that year. However, SARP relief will commence in the following year.
- The individual must earn a minimum of €75,000 per annum. This limit excludes bonuses, commissions or other similar benefits.
- The relevant employer must, within 30 days of the individual arriving in Ireland, certify that the individual complies with certain conditions to qualify for the relief. Such certification is completed through a Form SARP 1A.
2. Calculating and Claiming SARP Relief
As outlined above, an individual must earn in excess of €75,000, excluding bonuses, commissions or other similar benefits, to qualify for SARP. However, once an individual satisfies this condition all income earned, including bonuses, commissions or other similar benefits are included in the individual’s remuneration when calculating SARP relief.
To calculate the relief the following formula is applied:
(A-B) x 30%
A = Total Remuneration of the employee
B = €75,000
It must be noted that relief is only applicable to income tax and does not apply to USC or PRSI.
Prior to 1st January 2015 a cap of €500,000 had been applied to “A” above; however, the Finance Act 2014 removed this upper limit. Also, where an individual arrives or leaves mid year “B” is reduced proportionately.
Looking at a practical example where a qualifying individual earns €200,000 they would secure relief from income tax on €37,500 of their total remuneration. This is calculated as follows:
|Less: Excess applied||(75,000)|
|30% of Net Remuneration (€125,000 x 30%)||37,500|
In the above example, €37,500 of the total remuneration earned would be exempt from Income Tax. This would equate to an Income Tax saving at the higher rate (41%) of €15,375 (€37,500 X 41%)
Relief under SARP can be claimed by either:
- The employee making a claim for the relief through an Income Tax Return each year or;
- The employer making an application to the Revenue Commissioners to grant relief at source through the payroll system.
3. Other benefits of SARP
In addition to the above Income Tax relief, SARP also allows:
- An individual to make a claim for a tax free payment from their employer which covers the cost of one return trip for their family.
- Employers to pay up to €5,000 per annum, to a school established in Ireland, for each child of the relevant employer.
- The employee to perform some of their duties outside Ireland, which is a welcomed change under the Finance Act 2014, as many multinational companies have operations throughout Europe and those looking to avail of SARP would be required to travel to these destinations to perform their duties.
SARP’s role in attracting FDI to Ireland
The recent changes to SARP under The Finance Act 2014 have further enhanced Ireland’s position for attracting FDI. As outlined above, MNC’s may wish to bring some individuals to Ireland when establishing their operations. The recent changes have provided a further competitive Income Tax regime for Ireland in attracting and retaining such key talent and investment.
If you would like further information on SARP or any other tax matter you can contact us here.