Consultants propose lower income tax rate for foreign workers

A tax regime allowing expatriate workers moving to Ireland to pay a lower rate of income tax than resident workers should be extended to foreign workers who are hired on a local basis to work in Irish-based companies.

Ahead of Budget 2020, Michael Rooney, a partner in people advisory services at EY, says that the high burden of personal income tax in Ireland can act as a barrier to foreign direct investment (FDI) into Ireland.

A way of enhancing the offering then for workers relocating to Ireland is to extend the Sarp regime (special assignee relief programme) to non-residents who are hired on a local basis here. This would mean that foreign workers moving to Ireland and subsequently finding employment here would pay a lower effective tax rate than Irish workers on income over a certain amount, currently €75,000. And, with the scheme due to run out at the end of 2020, he is also calling on Minister for Finance Paschal Donohoe to offer some certainty on the duration of the scheme in the upcoming budget.

Compared with many other countries, Ireland has a high burden of personal taxation, with workers starting to pay the top rate of tax, of 40 per cent, or 52 per cent when PRSI and USC are included, at a relatively low rate of income, just €35,300. This compares with the UK, for example, where someone doesn’t start paying the higher rate of tax until they hit income of £50,001.

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One way of reducing an individual’s tax burden is to avail of the Sarp scheme, which gives income tax relief on 30 per cent of all income above €75,000. It also offers other benefits, including allowing workers to get school fees for their children of up to €5,000 a year, without incurring any tax charge, via benefit-in-kind, as well as expenses incurred on one trip home per year, where they are paid for by the employer.

Conditions

However, to avail of the scheme, applicants have to satisfy certain conditions, including moving within a company from another country to Ireland, and working for a multinational.

While a review considered extending Sarp to local hires back in 2014, it was found that doing so would result in displacement in the Irish market.

Now, however, Mr Rooney says that at a time of full employment such a move could be warranted, while he also notes that the traditional expat model has changed.

“It would stimulate more growth in the economy and protect the FDI market,” he says of such a move.

In 2016, the most recent year available, Sarp cost the exchequer some €18.1 million in taxes foregone, up from €9.5 million in 2015.

Revenue figures show that almost 800 workers availed of the regime in 2016 – almost half of whom earned between €75,000 and €150,000 – but Mr Rooney says that to ensure broader use of the regime, the salary for eligibility for the scheme should be cut from the current €75,000 to €60,000. Reducing the limit to €60,000 would cost the exchequer about €1.4 million a year, according to Revenue estimates.