Foreign Employment Issues
At BDO we recognise that in the current economic climate successful businesses require a flexible, mobile, highly skilled workforce.
In these challenging times, successful businesses may need to explore new markets in order to grow. Exploring new markets may involve the need to second employees to foreign jurisdictions to carry out employment duties for a period of time.
There are various issues associated with temporarily assigning employees abroad including those noted below:
PAYE Exclusion Orders
When an employee is posted outside of Ireland for a period of time they may no longer be tax resident in Ireland for a certain tax year. This could mean that the employee is no longer liable to PAYE on his salary even though the salary payment is still made in Ireland i.e. lodged to an Irish bank account. BDO can assist in obtaining a PAYE exclusion order from Revenue in cases where there is no longer an obligation to operate PAYE on employee’s salary payments. PAYE exclusion orders reduce unnecessary administrative burden and costs associated with incorrect operation of PAYE.
For employees who have earnings which are subject to PRSI, but which are not subject to the PAYE system of taxation, PRSI is paid directly to the Department of Social Welfare through the PRSI Special Collection System. When an employee is seconded abroad it is important that they continue to remit PRSI during the period of absence from Ireland so that there contributions remain at the levels required to claim certain State benefits in the future/on retirement. BDO can assist in correctly remitting PRSI contributions during a period where a PAYE exclusion order is in place.
Return to Ireland
Once an employee returns to Ireland many questions may arise, such as:
Does a PAYE exclusion order need to be cancelled?
When does the employee become tax resident in Ireland again?
How are remittances of income and savings to Ireland taxed?
BDO can assist in understanding what obligations arise on the employees return while also assisting the employee with any their personal tax affairs.
Foreign Taxation Issues
Once the employee is seconded the employer may encounter foreign tax issues in the country of assignment. For example, the destination country may require that payroll taxes are deducted on payments made to the employee even though the salary payment is still made in Ireland i.e. lodged to an Irish bank account. With BDO’s extensive network of partner offices we can provide timely advice on any foreign tax issues that may arise.
Permanent Establishment/Taxable Presence
When employees are seconded it is important that care is taken to avoid the creation of a permanent establishment in the jurisdiction they are assigned to. The creation of a permanent establishment can lead to a company/employer becoming liable to foreign tax on business profits deemed to be earned by employers/foreign assigned employees. At BDO, we have experience in advising on what roles secondees can and cannot undertake in order to limit the threat of permanent establishment creation.
Employees do not need to suffer either a financial hardship or experience a financial windfall, all being the result of the tax consequences of an international assignment - principles behind a "tax equalisation policy". The employee should pay no more or no less tax than he would have paid had he never left his former home. Such policy will put the assignee in a tax neutral position during the assignment. At BDO, we have extensive experience in advising on tax equalisation policies to fit your needs.