How to manage tax issues when expanding overseas
If you're fortunate enough that your business is expanding overseas, you may be faced with tax issues that appear complex but can be quite straightforward to manage.
What if some of your employees who previously worked solely in Ireland are now working part-time on your behalf in a number of other countries? What's the best way to approach the tax issues that arise?
The first point is that all employees should be encouraged to keep a diary of their daily locations, including the purpose of each overseas visit. The tax treatment will only be clear if this recording occurs.
If the employee is abroad most of the time over two years with no work in Ireland, non-Irish tax residence is likely to arise and you need to apply to Irish Revenue for a PAYE exclusion order to give you authority to stop paying PAYE.
Given that an employee's tax residence is determined over two years (183 days in Ireland in any one year or 280 days over two years means they're tax resident here), short-term projects outside of Ireland up to a year will continue to result in you paying Irish PAYE.
While the project length is not driven by tax, the tax cost should be recognised. Interestingly, the PRSI rules are different and need to be considered separately.
A tax exemption applies for time spent in the BRICS countries and some African countries if certain criteria are met, eg, at least 60 days in these countries for the year.
It is important that the employee is aware of this exemption and can claim its cash value.
Employee tax in the overseas country needs to be identified and accounted for. Such tax is only likely to arise where the employee spends significant time in that country.
As a general rule, tax does not apply to short-term working visits to overseas countries but this needs to be checked on a case-by-case basis.
In contrast, greater than 183 days a year in the overseas country is likely to result in a tax charge.
When Irish PAYE ceases to apply and if the overseas tax rates are lower, you will need to decide whether the employees obtain the full benefit of the tax saving or whether this is shared with your business.
The key point is that a consistent, and not ad-hoc, approach is adopted for each employee. Tax is usually the key incentive for employees travelling to certain low-tax countries such as the Middle East.
A significant cash-flow cost could arise for your business where both Irish PAYE and tax in the overseas country applies. Specific advice is required to manage this.
It is likely that you will need to bear this cost so that the employee has a reasonable monthly cash-flow. An Irish tax return is then required to claim a cash refund of the overseas tax with a plan in place to pass this refund to you.
This is particularly relevant for employees who spend time working in the UK but commute back to Ireland for weekends, holidays and part-time work duties.
Clear communication on going abroad, annually and on return, is key, as your employees will be the driving force in your overseas expansion.
Unfortunately, even in the large multinationals, there can be a failure to communicate the effect of overseas work on employees' tax position.
The role of professional advisers needs to sit naturally with your role as owner with fees agreed upfront on the basis that the adviser will work with you as your business continues to grow.
Failure to manage the position can be costly, affecting employee morale and delaying obtaining tax refunds that can have adverse effects on your cash-flow.
However, a plan can be put in place now and adjustments can be made as your business grows even further.
Mary Nyhan is founder of Nyhan Tax Advisers, which specialises in providing tax advice to growing Irish businesses. Marynyhan.ie.