With the Covid pandemic hopefully nearing an end, we have seen an increased interest in expats looking to return home to Ireland. Perhaps it is the long absence from being home during the last 18 months or the new flexibility around home working for many industries which has led to this.
If you are someone returning or relocating to Ireland from abroad, it is important to look at the rules regarding your residency position from a tax perspective and also your employer should consider any employment tax considerations.
We have outlined an overview of the key considerations for anybody in this position below.
Residency and Domicile
There are two basic tests of residence in Ireland:
1)The current year test: If you are present in Ireland for 183 days in a calendar year, you will be regarded as Irish tax resident for the year.
2)The two-year test: If you are present in Ireland for 280 days taking the current and preceding calendar years together, you will be regarded as a tax resident in that year.
However, if you are present in Ireland for 30 days or less in the second of these years, you will not be regarded as a tax resident in Ireland for that particular tax year, even if you breach the 280 days over both years.
Based on different tax rules in different jurisdictions, individuals arriving in Ireland during the year may be regarded under domestic law as resident in two jurisdictions.
If this is the case, the Double Tax Agreement provides a tie breaker test to determine where the individual is regarded as resident. One of the key features of the tie breaker test is where the individual intends to settle and where their permanent home is located.
If you are resident in Ireland for 3 consecutive tax years, you will be considered an ordinarily tax resident on the 4th year.
Domicile is a concept of general law. A person can only have one domicile at any particular time but cannot be without a domicile. Everyone is born with a domicile of origin, normally the domicile of their father. In most scenarios this does not change but you may have acquired a domicile of choice or domicile of dependence in some situations. Your domicile can have an impact on how you are taxed and is important to examine in detail when moving between countries.
As mentioned, domicile can have an effect on the tax treatment of resident individuals. An individual who is Irish tax resident and Irish domiciled will be subject to tax on their worldwide income, however, if an individual is Irish tax resident and non-Irish domiciled, they will only be subject to tax on Irish source income and foreign income to the extent it is remitted to Ireland. This can allow individuals to plan around what income they may wish to remit to Ireland.
If an individual relocates to Ireland and is in receipt of employment income, there may be some reliefs available.
- Split Year
There is a possibility that split year relief may apply in the year of arrival if certain conditions are met. Split year relief applies where an individual who was not resident in Ireland in the preceding year, arrives with the intention and in such circumstances that he or she will be resident for the following year. The relief allows for employment income before arriving in Ireland to be excluded from the charge to Irish tax (despite the fact that the assignee might be resident in Ireland for the year of arrival).
A key advantage of this is that you will still be able to benefit from a full year’s worth of Irish tax credits and tax bands in the year you return, even though you might only be returning halfway through the tax year
- Special Assignee Relief Programme (SARP)
SARP relief is available for individuals arriving in Ireland up to 2022. This also includes returning workers who have been outside Ireland for at least five tax years.
SARP allows for income tax relief on a portion of income earned by certain employees assigned from abroad to work in Ireland by their relevant employer, or an Irish associated company. An employee who claims SARP is deemed to be a chargeable person for income tax purposes and is therefore required to file an income tax return.
SARP provides for relief from income tax on 30% of the employee’s income between €75,000 (lower threshold) and €1,000,000 (upper threshold).
- Payroll Obligations
If a foreign employer sends an employee to work in Ireland, they would be required to register for payroll taxes in Ireland. There are special rules regarding whether a foreign company located in a jurisdiction with which Ireland has a Double Tax Agreement would have an Irish payroll obligation which is dependent on the length of time the employee is present.
A general overview would be that if an employee is present in Ireland for less than 60 days, there would be no payroll obligation. If the employee is present for a minimum of 60 days and does not exceed 183 days in total, a PAYE registration would be required but a PAYE clearance may be granted by Revenue to ensure no Irish payroll tax arises.
If an employee is present in Ireland for more than 183 days, PAYE should be operated.
However, above is a high level overview and the Double Tax Treaty Ireland has with the country from which the employee is being sent should be examined in each case.
Corporation Tax Considerations
If a foreign employer sends an employee to work in Ireland, as well as considering the payroll obligations mentioned above, they would also have to consider whether this employee creates a Permanent Establishment (PE) in Ireland.
A PE is defined as “fixed place of business through which the business of an enterprise is wholly or partly carried on ”. The PE article in the DTA would ensure no PE arises where the duties of the individual in Ireland are auxiliary and preparatory in nature. However, it would be important to investigate whether a PE arises based on the duties of the employee.
If it is determined that a PE arises based on the duties of the employee, the foreign company may have an Irish corporation tax exposure.
As we see more people considering moving home to Ireland or being allowed to work from Ireland for a foreign employer, we remind them to consider the tax impact from an early stage. Your tax position should form part of your planning stage when considering such a move.
We have a team of experienced tax advisors in Roberts Nathan who would be happy to discuss your position with you. Please use the link to contact Brendan Murphy for any questions on any part of the above: https://www.robertsnathan.com/