Revenue’s U-turn on taxing foreign workers to help State’s FDI push

Ireland’s reputation as a good place to do business has been bolstered by a Revenue U-turn on taxing foreign workers operating temporarily in the State, a leading tax adviser has said.

Under rules first introduced in 2016, employers were told they needed to withhold taxes to employees who were in Ireland for more than 30 days and under certain other circumstances, such as if they were deemed "integral" to operations or seen to be "gaining experience".

Tax advisers lobbied against the changes at the time, saying it would lead to an increase in administrative tasks for companies and potentially leave individuals having to file a tax return both in the Republic and in their home jurisdiction.

Revised guidance published by Revenue in 2018 sought to address such concerns but, according to advisers, were still largely impractical. They said the revised rules potentially left some individuals in a position where they would be required to pay taxes here after spending just one day in the State.

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‘Unworkable’

Those 2018 rules were branded as “broadly unworkable” and a threat to Ireland’s attractiveness as a location for foreign direct investment (FDI) by people working in that sector.

In a new update, Revenue said it will not now enforce the operation of Pay-As-You-Earn (PAYE) in cases where individuals from a country with which Ireland has a double-taxation agreement spend 60 or fewer workdays in the State in a tax year.

Workers from other countries with which Ireland has no tax agreement will not create payroll obligations for Irish employers if they work in the Republic for fewer than 30 days in a given year.

The amendments were welcomed by the American Chamber of Commerce Ireland.

“At a time when the Irish economy is opening up after Covid-19, this move will provide certainty and reduce the administrative burden on companies with employees moving across different jurisdictions. This is a sign of flexibility and support from Ireland at a difficult time for business,” said the chamber’s chief executive, Mark Redmond.

Daryl Hanberry, a tax partner at Deloitte, said the previous guidance had "undoubtedly had an impact on the State's reputation as one of the best jurisdictions in the world in which to do business".

Practical approach

He said the new amendments provided a practical approach for business travel which “would encourage companies to continue bringing temporary assignees and visitors to Ireland”.

“The re-introduction of a single-year threshold removes the uncertainty and also the time-consuming administration burden of employees with multiple-year travel created by the 2016 and 2018 guidance notes, and provides much-needed clarity for employers,” he said.

“The fact that the new guidance has reverted to applying double tax agreement conditions effectively aligns the PAYE withholding position with the employee’s income tax position, and removes much of the ambiguity in this area,” Mr Hanberry added.