The Foreign Earnings Deduction “FED” was introduced in 2012 to encourage the expansion of Irish multi-nationals overseas, and particularly into emerging markets. The relief remains in force, and the conditions and application are summarised below:
In its current form, the relief is available to Irish tax residents who satisfy the following conditions:
The above conditions are explained in more detail below.
A “qualifying employment” can be either an Irish or Foreign employment, so long as the income from the employment is not chargeable to Irish tax on a remittance basis (e.g. in the case of non-domiciled employees).
A “qualifying day” is one of at least three consecutive days (including weekends) in which the employee works in a qualifying country. Days of travel between Ireland and the qualifying country (and vice versa) are considered qualifying days.
Since 2017, an individual must have a minimum of 30 qualifying days in a consecutive 12 month period to qualify for the relief.
Prior to 2017, the requirement was a minimum of 40 qualifying days and for years prior to 2015, the requirement was a minimum of 60 qualifying days.
The Qualifying Countries for the purpose of FED are summarised below:
|From 1 January 2012||Brazil, China, India, Russia and South Africa,|
|Additions from 1 January 2013||Algeria, Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal and Tanzania.|
|Additions from 1 January 2015||Bahrain, Chile, Indonesia, Japan, Kuwait, Malaysia, Mexico, Oman, Qatar, Saudi Arabia, Singapore, South Korea, Thailand, United Arab Emirates and Vietnam|
|Additions from 1 January 2017||Colombia and Pakistan|
“Qualifying employment income” includes all earnings derived from employment, but after the deduction of approved pension scheme contributions. Benefits-in-Kind, termination payments and restrictive covenants are non-qualifying for the purposes of the FED.
The deduction is calculated by applying the formula below, with the resulting amount not assessable to Irish tax. The tax saving is therefore dependent on the employee’s marginal tax rate.
The FED is capped at €35,000 per annum, resulting in a maximum tax saving of €14,000 (i.e. €35,000 @ 40%). Note that FED applies to income tax only – there is no relief for USC or PRSI.
Qualifying employment income x (Number of qualifying days in year / Number of days in year that the employment is held)
Relief is claimed via the employee’s Tax Return, and supported by an employer statement that confirms:
An employee has 4 years to make the claim, and suitable documents should be retained in the event of an enquiry.
An Irish resident employee of an Irish company spends 100 qualifying days in China developing contacts with potential Chinese customers. Her total qualifying employment income is €150,000.
The relief under FED is calculated as follows:
In practice, we see the following challenges/limitations in respect of the Foreign Earnings Deduction:
For more details on FED, or on how KPMG’s Business Traveller tool may be able to provide support, please contact Thalia O'Toole, Head of Global Mobility, via this form.