During the COVID 19 pandemic, Irish employers may have facilitated some of their employees work remotely in a foreign jurisdiction. Remote working from a foreign tax jurisdiction may create Irish tax issues for both the Irish employer and the employee.
If an Irish entity has employees performing duties of employment outside of Ireland this may give rise to a corporate tax presence in the foreign jurisdiction and consequently a Permanent Establishment (PE). If a taxable presence is created in another jurisdiction the Irish entity may have to comply with the tax reporting obligations of that jurisdiction.
The Irish tax authorities “Revenue” have published guidance on their website which tells us that “if an individual is present in another jurisdiction as a result of COVID-related travel restrictions, and would otherwise have been present in the State, Revenue will be prepared to disregard such presence outside the State for corporation tax purposes for a company in relation to which the individual is an employee, director, service provider or agent.” Revenue further note that “a record of the facts and circumstances of the bona fide relevant presence outside the State should be maintained and also available to Revenue if evidence that such presence resulted from COVID-related travel restrictions is requested.” While this guidance from Revenue may be helpful from an Irish tax perspective, the position along with any guidance from the foreign tax authorities will also have to be considered.
Foreign payroll reporting obligations
A foreign and local payroll reporting obligation can arise for the Irish employer as the duties of employment are being conducted in the foreign jurisdiction. Employers may need to comply with the payroll tax reporting requirements of the country where the employee is located as well as in Ireland.
A dispensation for the Irish employer from operating foreign PAYE may be available generally or specifically with respect to COVID-19 related concessions in that foreign jurisdiction. While payroll reporting requirements differ from jurisdiction to jurisdiction, general tracking of working time spent in the foreign jurisdiction will be critical to determining the reporting requirement. The rules and procedures of the foreign jurisdiction will apply and need to be considered.
In certain cases, an Irish PAYE Exclusion Order may be in place which will allow the Irish employer pay the employee without withholding Irish PAYE and universal social charge (USC).
Social security considerations
Tax resident status of the employee
Where an employee spends time present in another state they may trigger tax residency in that foreign jurisdiction which may result in personal tax filing and reporting considerations. Income which was otherwise outside the scope of that foreign jurisdiction may now be within the remit of taxes e.g. income tax and Capital Gains Tax.
The tax residency rules are specific to each jurisdisctions, some applying force majeure concessions due to the pandemic. Consideration of the particular foreign rules, where the employee is performing their remote working duties, will be required.
Where the scope of personal tax for the employee brings them into a double taxation situation (i.e. taxes arise in Ireland and the foreign jurisdiction on the same income), consideration of the Double Tax Agreement, if there is one in force, will be required to determine what relief may be available.
The impact of Irish residency on the claim for Irish tax reliefs (e.g. SARP) may also need to be considered.
Local employment law requirements may arise for the Irish employer such as local health and safety obligations, minimum wage requirements and paid leave/public holidays. Working visa requirements should also be considered.
How we can help
Grant Thornton’s Global Mobility team can assist employers with the tax implications of employees working in another jurisdiction and help to mitigate any risks and costs.