Irish Revenue recently updated its much awaited guidance on the operation of PAYE for short-term business visitors (STBVs), who are performing the duties of their overseas employment in Ireland.
The updated guidance released on 17 April 2018 clarifies the Irish Revenue’s stance on STBVs, as outlined in GMS Flash Alert 2017-029. As discussed in that Flash Alert, the Revenue position created a lot of uncertainty and affected many foreign employers seeking to claim a clearance from operating Irish PAYE for their employees.
The new guidance will increase compliance responsibilities on employers and add to both the costs and administration related to managing overseas employees coming to Ireland on a short term basis. Employers will still be required to make an application for PAYE clearance from Revenue to relieve the obligation to operate Irish payroll withholding taxes for their STBVs who are working on a one off project for more than 60 workdays in Ireland in a tax year. In addition, from 1 January 2018, Revenue have introduced more onerous requirements for STBVs in Ireland who are present over two consecutive tax years or have a regular work pattern in Ireland. Foreign employees spending a small amounts of days working here year after year may now have a PAYE obligation in Ireland. These new rules are explained further below.
The implication of Irish Revenue’s focus on the role, the purpose, and degree of integration of the employee within the Irish business is that foreign employees even with short stays in Ireland may no longer automatically qualify for exemption from operating Irish PAYE. In particular, employers with employees who have a regular annual pattern of work in Ireland will have to make an application for PAYE clearance from Irish Revenue. Depending on the work they are doing and if the Irish company is benefiting from it, an Irish PAYE obligation may arise where none existed previously. Further, there has been a material reduction in the level of incidental duties that an employee from a non-tax treaty location can perform in Ireland annually.
Foreign employers (and Irish employers receiving these foreign employees) will have to evaluate their current processes and employee demographics to establish that they are appropriately managing their Irish PAYE obligations in light of the tax administration’s new guidelines.
If a foreign employee is tax resident in a DTA country and suffers payroll withholding taxes in their home country, an application to relax the obligation to withhold payroll taxes in Ireland can be made (known as a ‘PAYE Clearance application’), provided that the treaty conditions as set out in the employment income article (usually Article 15(2)) of the relevant DTA are met.
One of the conditions of the DTA is that the employee
is employed and paid by a non Irish resident employer. However, if the role being performed by the foreign employee in Ireland is regarded as ‘integral’ to the Irish company, then Revenue will not grant PAYE Clearance as they deem the foreign employee to be economically employed in Ireland. In the updated guidance, “integral” is not explicitly defined, however, a number of factors (and example scenarios) are provided in considering whether a foreign employee is integral to the Irish company’s operations.
Effective 1 January 2018, when reviewing STBVs who may have up to 60 workdays in Ireland, employers will need to consider whether the STBVs will have a presence in Ireland in one tax year, two consecutive tax years or more than two consecutive tax years.
In the past, if a STBV coming from a non-DTA country had less than 30 Irish workdays in a tax year, then Irish payroll withholding taxes did not need to be operated.
With effect from 1 January 2018, employers will need to consider whether the STBVs will have a presence in Ireland in one tax year, two consecutive tax years and more than two tax years in order to assess the Irish payroll taxes withholding requirements.