I AM regularly approached by individuals who have been employed by an Irish company but have to work abroad as part of their job regarding the tax implications.

For the tax years 2012, 2013 and 2014, employees who carry out part of the duties of their employment in Brazil, Russia, India, China or South Africa (each of these countries is known as a “relevant state”) may claim a tax deduction known as the Foreign Earnings Deduction.

Qualifying conditions

The basic condition is that, within a period of 12 months (part of which is in the tax year to which the claim relates), the employee has worked in one or more of the relevant states for a minimum period of 60 “qualifying days”.

A “qualifying day” is a day on or after 1 January 2012 that is one of at least four consecutive days devoted substantially to carrying out the duties of the relevant employment where, throughout the whole of each such day, the individual is present in a “relevant state”.

Saturdays, Sundays and public holidays, throughout the whole of which the individual is present in a “relevant state” and which form an unavoidable part of a business trip to a “relevant state”, may be counted as “qualifying days”.

Days spent travelling to and from a “relevant state” where the individual is not present for the whole of the day in a “relevant state” may not be counted. However, days spent in uninterrupted travel between “relevant states” may be counted as qualifying days.

The deduction: The amount of the deduction (i.e. the amount of income from the employment that may be relieved from tax) is the lesser of –

• the “specified amount” (see below); or

• €35,000.

The specified amount: The “specified amount” is calculated by using the formula
 D x E / F
where:

• D is the number of “qualifying days” worked in a ” relevant state” in the tax year;

• E is all the income from the employment in the tax year (including any taxable share options derived from the employment less any qualifying pension premium but excluding tax deductible expenses payments, benefits in kind, termination payments and payments payable under restrictive covenants);

• F is the total number of days that the relevant employment is held in the tax year (365 days in a full tax year).

Note: The “specified amount” is reduced by the amount of any income earned on qualifying days in respect of which double taxation relief is available in this State under a Tax Treaty.

Example

Lisa is required by her employer to travel to China to seek new markets for her employer’s goods. She arrives in China at 10 p.m. on 10 January 2013 and works there until she departs on 12 April 2013 at 8 a.m. Her salary is €160,000.

Lisa spends 92 qualifying days in China (21 in January, 29 in February, 31 in March and 11 in April). Days of arrival and departure are not counted as qualifying days as she is not present in China for the whole of these days.

The specified amount is, therefore, the lesser of –
• €35,000; or

• the amount calculated by the formula –
92 days / 365 days x €160,000 = €40,328

As €35,000 is the lesser amount, Tara is entitled to reduce, for tax purposes, her salary from €160,000 to €125,000.

Exclusions: The Foreign Earnings Deduction does not apply to public servants nor does it apply to income –

• from an employment to which the remittance basis of taxation applies

• to which the key employee research and development tax relief applies

• to which the “split year” residence rules applies

• to which the cross border worker relief applies; or

• to which relief under the new special assignee relief programme (SARP) applies.

Claims

Since the amount of any deduction will depend on the number of qualifying days absence in either a tax year or in a period of 12 months straddling two tax years, the deduction will be given by way of end of year review.

Claims should be supported by a statement from the employer indicating the dates of departure and return to the State of the employee and the location at which the duties of the office or employment were performed while abroad. (Further details at www.revenue.ie)

• Chris Murray is Practice Manager at Casey & Co Accountants & Auditors. Casey & Co. strive to add real value to your business by providing specialist services in the areas of personal taxation, business start up, restructuring, bank negotiations and succession.

First Consultation Free at Casey & Co. Accountants. Email info@caseyacc.com