Employee Taxation

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Tax and Employees

The tax position of employees depends on their exact circumstances. The most important consideration in relation to the applicaiton of Irish income tax on employment income, is where the employee carries out his duties.

An Irish resident company might employ a person who carries out his duties in the United Kingdom, in which event, he is likely to be subject to PAYE and national insurance in the UK. Where the employee spends more than half the year in the United Kingdom (and in some cases less than that) then he is subject to UK tax in accordance with the new general rules on UK residence.

Where an Irish company has Irish resident employees working in the UK for more than 60 days for a permanent establishment/branch, the Irish employer must register for UK taxation, although this may not necessarily require the application of PAYE and National Insurance contributions. The liability depends on the particular status of the employee.

There is a transborder workers relief in the Republic of Ireland which relieves Irish tax from UK earnings. More complex situations arise when employees are temporarily assigned by an Irish company to the UK. It would need individual consideration and advice.

If an Irish company has a branch or establishment in the UK, that branch may be required to register for tax and pay tax on its branch profits. In the case of an Irish incorporated and resident company without a branch or permanent establishment in the UK, it may avoid liability for tax on its profits and gains.

Irish PAYE

An assignee or new resident in Ireland should consider his tax residence status.  The employee may not be resident in the first tax year by reason of spending less than 183 days in Ireland. However, he will be subject to Irish income tax on income arising from an employment, the duties of which are undertaken in Ireland.

An Irish established employer is obliged to withhold income tax under the pay as you earn (PAYE) system, on all cash payments paid and non-cash benefits, provided to its employees. Subject to certain conditions and in limited circumstances, Revenue may permit payment of salary wages and benefits without deduction of income tax by way of PAYE.

Irish PAYE is applicable to earnings from non-Irish employment in respect of which the duties of employment are performed within Ireland. It may be necessary to agree with the Irish Revenue, the portion of income that applies to foreign duties. In this case, the income that is attributable to non-Irish duties may be outside the scope of Irish income tax. There is no domicile levy payable in Ireland in respect of the remittance basis of taxation.

A director of an Irish incorporated company is subject to PAYE on ll benefits and income deriving from the directorship in all circumstancesm irrespective of residence. It is deemed public office under Irish law.

Potential Exemptions

Where the duties of a non-Irish employment are performed in Ireland for less than 61 days in total in the tax year and the employer is established/resident in a country with which Ireland has a double taxation agreement then subject to compliance with certain other conditions, Revenue does not require PAYE to be applied.

Where a person is in Ireland on a temporary basis (more than 60 but less than 183 days in a tax year, Revenue may agree not to require PAYE to be applied to income attributable to the duties performed in Ireland under a foreign contract of employment, subject to compliance with conditions.

The conditions are

  • the employee is resident in a country with which Ireland has a double taxation agreement
  • the employee is not resident in Ireland for tax purposes in that year
  • the foreign employment is genuine
  • the costs of the employment are not borne by a permanent establishment in Ireland of the non-Irish employer
  • the employee is subject to withholding tax at source in the home country on the income referable to the duties exercised in Ireland under the foreign employment

Other conditions apply. An application must be made to Irish Revenue Commissioners for an agreement not to operate PAYE in the above circumstances. An undertaking must be given in respect of liability that may arise. Evidence must be furnished to revenue that the relevant conditions are satisfied.