EU and Direct Tax
Direct taxes on income and gains are not an EU competence. They are a matter for the member states exclusively. The basic principles in relation to the scope of direct taxes both for companies and individuals in double taxation agreements and cooperation between tax authorities are derived from OECD standards. In contrast to direct taxation, the EU has extensive powers in the area of indirect taxation, in particular, value added tax excise and customs duties.
The OECD is an intergovernmental body that Western European states including the UK and Ireland are members as are other developed economies, such as the United States Canada Japan and many others. It has no law making powers and acts unanimously. It publishes templates for treaties for relief of double taxation and cooperation in taxation matters.
Ireland has double taxation agreements with many countries including, in particular, the United Kingdom. The principles in that agreement reflect the OECD template agreement at the time it was entered.
Transborder workers’ relief from income tax is not affected by Brexit. It is available to persons or tax resident in Ireland and who work in another country with which Ireland has a double taxation agreement such as the UK, are present in Ireland at least one day every week while they work abroad and pay tax in the other state without entitlement to refund.It is separate from the foreign earnings deduction which may not be claimed simultaneously.
A specified amount is relieved. This is based on the portion of the total Irish tax duerepresented by the foreign employment income over total income. No credit is given for foreign tax paid. The tax due is that proportion of the entire Irish tax otherwise due.The relief will commonly give greater relief than double taxation relief which gives relief for the tax paid in respect of the same income in the United Kingdom.
Foreign Earnings Deduction
The foreign earnings deduction may be available to a person who worked abroad for at least 30 qualifying days in a qualifying state. Qualifying states are listed and are outside the EU. Relevant states include Brazil, Russia, India, China and South Africa and:
From 1 January 2013:
- The Democratic Republic of the Congo.
From 1 January 2015:
- Republic of Korea
- Saudi Arabia
- United Arab Emirates
From 1 January 2017:
It may be during a tax year or a continuous 12 months spanning two tax years. It is not available to persons who receive
- transborder workers relief
- relief under the special assignees’ relief program
- taxed using split year residence rules
- key employee research and development relief
The allowance is less than or equal to €35,000 or the specified amount. The specified amount is Dx E/F.The amount of the allowance due is less than or equal to €35,000 or the specified amount.The specified amount is calculated using D x E / F.D is the number of qualifying days worked in a relevant state during the tax year
- E is all the income received from employment in the tax year. This includes any taxable gain realised by share options less any qualifying pension contribution or premium. It excludes allowable expenses payments, Benefits in Kind (BIK), termination and restrictive covenants payments.
- F is the total number of days that the employment is held by you in the tax year (there are 365 days in a full tax year).
The specified amount is reduced by your income earned on qualifying days for which Double Taxation Relief is available under a tax treaty.
Research and Development Relief
The research and development relief apply to key employees involved in research and development. The employer must be entitled to a claim the research and development relief and the employee must have performed 50% of his duties in the creation of new knowledge products processes systems or methods. The employer must be entitled to claim at least 50% of more of the cost of income as R&D expenditure.
Special Assignees Relief
The special assignees’ relief program applies to persons assigned to work in Ireland from abroad. The person must be assigned by a relevant employer to work in Ireland for that employer for an associated company. The employer must be one incorporated in tax resident in a country with which Ireland has a double taxation agreement for tax information exchange agreement.
A portion of employment income is disregarded for income tax purposes. The proportion is 20% of income over €75,000 up to a maximum of €1 million employment duties after 1 January 2019. The relief can be claimed for up to 5 consecutive years at most.
The employee may receive, tax free, certain travel expenses and certain costs associated with children’s education.
The relief does not apply to the universal social charge.