Ireland (August 2023) – Irish employment carried on outside the State

What is the change?

Revenue recently updated their online guidance relating to a non-resident employee who carries out some duties in Ireland and some duties abroad under an Irish employment contract. This change was made on 21 July.

Previous guidance gave employers authority to operate payroll withholding for such employees based on the portion of income relating to Irish duties only. The previous guidance did not require the employer to obtain formal approval from Revenue in cases where a reasonable estimate of the portion of duties to be performed in Ireland could be made.

The recent update, however, requires employers to obtain prior authorisation in writing from Revenue. In the absence of such prior approval, Irish payroll withholding is required on the entire remuneration.

This is a significant change in Revenue practice and is particularly relevant for those employers who either (a) allow employees to live abroad and commute to Ireland for a number of days per week, or (b) allow individuals to work remotely from outside Ireland on an ongoing basis with a set number of visits to Ireland per month or per annum.

Analysis & Comments:

While it is welcome that employers can still process payroll on a workdays basis for such non-resident employees, this change in Revenue’s guidance will be a frustration to employers. The rationale for the change is unclear as the correct taxes are ultimately paid via payroll and reduces the administration involved for both employers and Revenue. Under the new rules, if advance approval was not sought, Irish withholding would be required on the entire remuneration, but the employee would ultimately claim a refund on his/her tax return on the non-Irish sourced income. This adds additional administration and cashflow issues.

For any new employees falling within this arrangement, we would encourage employers to obtain advanced approval from Revenue before operating payroll on the portion of income relating to Irish duties only. While the application is being processed, Irish withholding should be operated on the entire remuneration. This can be corrected in a future payroll run when the approval is obtained.

The updated guidance has not provided commentary on how to manage ongoing cases where payroll is being operated on a workday basis. In the absence of further guidance to the contrary, we assume that retrospective approval is not required, and that Revenue will be pragmatic in allowing time for employers to obtain the necessary prospective approvals. However, we would encourage employers to review their records as soon as possible to determine impacted cases.

We are engaging with Revenue to determine whether the change can be reversed entirely or deferred to give employers time to change internal procedures to comply with the new requirement to obtain advance approval. We are also seeking guidance on the type of approval that will be provided by Revenue, e.g., will Revenue issue approval for one tax year only or will a more open-ended approval be provided?