This instruction gives details of the relief contained in Section 825A TCA 1997 for individuals who are resident in the State but who commute to their place of work outside the State.
Reduction in income tax for certain income earned outside the State Section 825A TCA 1997 is designed to give income tax relief to individuals who are resident in the State but who work outside the State. It applies to individuals who commute daily or weekly to their place of work outside the State and who pay tax in the other country on the income from their employment. Individuals who travel to the UK and Northern Ireland typically benefit from this relief. The relief applies not only to cross-border workers but also to trans-border workers.
The relief effectively removes the earnings from a qualifying foreign employment from liability to Irish tax where foreign tax has been paid on those earnings. In simple terms, the effect of the measure is that Irish tax will only arise where the individual has income other than income from a foreign employment.
3. The relief – Section 825A (3)
Subject to meeting certain conditions, an individual may have his or her income tax liability for a particular tax year reduced to the specified amount where liability would otherwise exceed that amount.
The specified amount is the income tax which would be payable for a tax year, before credit for any foreign tax paid, reduced in the proportion that the total income excluding income from a qualifying employment bears to the total income. This can be expressed by way of the following formula:
Total tax liability under Irish Rules X (Income other than foreign employment income / Total Income)
Note – Where relief is granted under section 825A, no credit is given for the foreign tax paid on the income of the qualifying employment.
The conditions are:
The individual must have earnings from a qualifying employment;
The duties of the qualifying employment must be exercised wholly outside the State in a country with which Ireland has a Double Taxation Agreement (In determining whether the duties of a qualifying employment are performed wholly outside the State, any duties performed in the State which are merely incidental to the performance of the duties outside the State, are regarded as performed outside the State.);
The income from that employment must be subject to tax in the other country and must not be exempt or relieved from tax in that country;
The foreign tax due on the income must have actually been paid to the relevant authorities and must not be repaid or be eligible to be repaid;
For every week during which the individual works outside the State in a qualifying employment, he or she must be present in the State for at least one day in that week;
For 2010 and subsequent tax years, an individual is regarded as being present in the State for a day if he or she is present in the State at any time during the day.
For tax years up to and including 2009 an individual is regarded as being present in the State for a day if he or she is present in the State at the end of the day i.e. midnight
A qualifying employment is defined as an office or employment held outside the State in a country with which Ireland has a Double Taxation Agreement and which is held for a continuous period of at least 13 weeks in a tax year. The definition includes an office of director of a company which would be within the charge to corporation tax if it were resident in the State, and which carries on a trade or profession [see section 5 below regarding exclusions for proprietary directors]. Excluded from the definition are all State employments as are employments with any statutory bodies established in the State.
– Section 825A (2) and 825A (5) TCA 1997
The relief does not apply where the income from the qualifying employment:
is subject to the ‘remittance basis’ of taxation [Section 71 (3) TCA 1997];
is subject to the ‘split year’ treatment (Section 822 TCA 1997) (Split year treatment applies where a taxpayer in the year of arrival, or departure from the State, is deemed resident for part of the year only, and is thus already entitled to favourable tax treatment.);
is income paid by a company to one of its proprietary directors or to the spouse/civil partner of one of its proprietary directors;
is subject to a claim for relief under the foreign earnings deduction provisions (Section 823A TCA 1997);
is subject to a claim for relief in respect of the seafarer’s allowance (Section 472B TCA 1997).
Foreign Income is still assessable
The effect of the section is to reduce the amount of tax payable in respect of the individual’s total income to the specified amount. It is important to note that the income from the foreign employment remains assessable and that the legal obligation to return such income on the annual return of income remains. Income from a foreign employment is assessable under Case III Schedule D and, therefore, the provisions of self-assessment, including the payment of sufficient Preliminary Tax to avoid interest charges apply.
Tax bills may still arise
Married couples/civil partners, one of whom has income from a qualifying employment and the other has income assessable in the State under PAYE, may decide to allocate the full married personal tax credit/civil partner tax credit and increased rate bands against the income of the spouse/civil partner with Irish income. In that case, the amount of tax deducted under the
PAYE system on the Irish income may fall substantially short of the couple’s ultimate liability (the specified amount) even taking account of the relief. In such cases, a substantial tax liability may arise.
Universal Social Charge
The Universal Social Charge (USC) does not apply to the part of the income to which Section 825A applies i.e. the earnings from a qualifying foreign employment.