If you are an Irish individual and are considering moving abroad or are being sent on an overseas assignment by your employer, it is important that you consider not only the Irish tax implications of such a move but also the tax implications in the overseas location.
Your charge to Irish tax depends on your residence, ordinary residence and domicile position in Ireland.
You will be regarded as tax resident in Ireland for a tax year if (1) you are present in Ireland for periods totalling 183 days or more in the tax year (183 day “current year” test), or (2) you are present in Ireland in that tax year and the previous tax year for 280 days or more, in aggregate (280 day “look back” test). However, the 280 day test will not apply in any year if you are present in Ireland for 30 days or less in that tax year.
Ordinary tax residence
“Ordinary residence” is distinct from “residence” in Irish tax law. If you have lived in Ireland for the last three to four years or longer, you will be ordinarily tax resident in Ireland. You do not cease being ordinarily tax resident in Ireland until you have been non-resident in Ireland for three consecutive tax years.
Domicile is a complex legal concept but it has important implications for Irish tax purposes. In brief, everyone is born with a domicile of origin; normally the domicile of your father but you can also acquire a domicile of choice by making a permanent move away from your domicile of origin and by severing ties with that country.
Types of overseas assignments
There are various ways in which employers design their overseas assignment policies. I am going to look now at three typical types of assignment / transfer.
Short term assignment overseas
Typically, the length of a short term assignment is up to one year and you continue to be employed and paid by the Irish company.
In general, where you go on a short term assignment overseas, it is likely that you will remain resident, ordinarily resident and domiciled in Ireland for tax purposes. This means that you are liable to Irish tax on your worldwide income. Therefore, your Irish employment will continue to be subject to Irish PAYE and USC withholding. Typically, PRSI withholding will also apply if you meet certain conditions.
From a foreign tax perspective, if you go overseas, for less than 183 days, to a country which has a double tax agreement (DTA) with Ireland, and provided certain other conditions are satisfied, your Irish employment income may be exempt from foreign tax. However, if you spend more than 183 days in the overseas location or if it is a non-DTA country, then a foreign tax charge is likely to apply.
One relief to be aware of is the Foreign Earnings Deduction (FED). FED is a tax relief which applies to employees of Irish companies, who remain tax resident in Ireland and spend a certain number of days in a qualifying country (other conditions also apply). Where all the conditions are satisfied, the maximum amount of employment income that may be relieved from Irish income tax is €35,000 resulting in a maximum tax saving of €14,000 i.e. €35,000 @ 40%, for 2016. However, FED does not relieve USC or PRSI.
Long term assignment overseas
The length of a long term assignment can vary but typically it ranges anywhere from one to three years and involves “breaking residence” for Irish tax purposes. You would also generally remain employed and paid by the Irish company. In this situation, you will become non-resident but probably remain ordinarily resident and domiciled in Ireland for the duration of the assignment. As such, you will be liable to Irish tax on your worldwide income with the exception of income from a trade, profession, office or employment, all the duties of which are exercised outside Ireland, and other foreign income, provided that it does not exceed €3,810.
As regards your Irish employment income, you may be able to claim “split year treatment”, which means that the employment income you earn after you leave Ireland will not be taxable in Ireland, which may result in a refund of Irish tax in the year of departure but you must claim the refund from Revenue. If you remain employed and paid by the Irish company, your employer should apply for a PAYE Exclusion Order from the Irish Revenue. Typically, PRSI withholding will also apply if you meet certain conditions.
Permanent transfer overseas
Typically, a permanent transfer involves transferring to a new foreign contract of employment and foreign pay-point and you would also “break residence” for Irish tax purposes. The charge to Irish tax for a permanent transfer would be broadly similar to a long term assignment, with some exceptions. For example, you will be obliged to pay social security in the overseas location rather than Ireland. Once you are non-resident in Ireland for three consecutive years, you will become non-ordinarily tax resident in Ireland. A non-resident, non-ordinarily resident but Irish domiciled individual is only liable to Irish tax on his Irish source income.
Foreign tax issues
No matter what type of overseas assignment or transfer applies, it is likely that there will also be foreign tax issues to be addressed. Therefore, it is important that you seek professional advice on the foreign tax implications of working in the overseas location.
If you suffer double taxation as a result of working overseas, Ireland has approximately 70 Double Taxation Agreements with other countries. These agreements provide relief from double taxation by providing either that the income or capital gains should be taxed in one country only or providing that one country should offer a credit against the tax payable in that country for the tax suffered in the other country.
Capital Gains Tax (CGT)
Irish domiciled individuals who are tax resident or ordinarily tax resident in Ireland are subject to Irish CGT on their worldwide gains. However, if you are non-tax resident, non-ordinarily tax resident but domiciled in Ireland, you are only liable to Irish CGT on the sale or transfer of certain specified assets. Please note that foreign capital gains tax may also apply.
Capital Acquisitions Tax (CAT)
You should also be mindful of Capital Acquisitions Tax (CAT), which is a tax on gifts and inheritances. If you receive a gift or inheritance and you are Irish tax resident or ordinarily tax resident or if the person making the gift or inheritance to you is Irish tax resident or ordinarily tax resident then there may be a charge to CAT for you. Please note that a foreign equivalent of CAT may also apply.
In conclusion, the Irish tax implications of living and working overseas can be complex. Various Irish taxes can still apply to you even if you are non-resident in Ireland. It is recommended that employers and employees seek professional tax advice not just in relation to the Irish tax implications but also the tax implications in the overseas location. Finally, as regards Brexit, while the full impact is uncertain at present, it is likely that the movement of employees and executives to and from the UK in the future will be restricted and the tax, pension and social security position for such individuals may also be affected.
Written by Ken Killoran, Tax Director - Employment Tax and Global Mobility Services, Mazars Dublin.
First published in Sunday Business Post (Money Plus section) on Sunday, 10 July 2016
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