Over six months ago, remote working was implemented as an emergency response to the COVID-19 pandemic.  What started as a “work anywhere” exception has become central to many employers operating models with talent retention and employee wellbeing now at the forefront of business priorities, writes Thalia O'Toole, Head of Global Mobility.

Previously ranked 11th behind other risks to growth in just January 2020, the COVID-19 Special Edition of the 2020 CEO Outlook now places talent retention and recruitment of specialist talent as a top priority for CEO’s globally.  84% of Irish CEO’s surveyed see remote working as a significant opportunity to access a wider talent pool. Employers who can provide a clear and supportive remote working environment lay the foundation to future business growth. 

Remote working outside of Ireland

Last March, the OECD issued recommendations as to how frontier workers (i.e. those that work in one country but commute from another in which they live) should be taxed as a result of remote working due to COVID-19. While helpful, these guidelines do not fully apply to employees who normally live and work in one country and are now remote working fully in another.

Some countries, most notably Belgium, France, Germany and the Netherlands entered into COVID-19 specific tax agreements with each other to treat remote working days spent by certain employees in the home location to be a workday performed in the normal work location to avoid additional cross border tax complications.

Ireland, like many other countries, has not entered into any COVID-19 specific bilateral agreements. In their absence, employees of Irish companies who are working remotely overseas may create unforeseen and significant tax consequences for both the employee and employer. For example, as an employee, net income may be affected due to different tax regimes and double taxation issues may need to be managed while the employer may be exposed to overseas social security charges as well as payroll and corporate tax risk.

Irish Revenue provided some guidance on Irish tax residency for those whose departure from the State was prevented due to COVID-19 but clarity on any Irish tax reliefs which will be afforded to employees working remotely outside Ireland as a result of COVID-19 would be welcome. This clarity should include employees who otherwise would have been entitled to claim SARP (“Special Assignee Relief Programme”) relief in 2020 once Irish tax resident. SARP relief can provide a 30% pre-tax deduction against employment income falling between €75,000 and €1 million p.a.  Where solely due to COVID-19, the employee is not Irish resident, entitlement to SARP for 2020 and possibly future tax years may be affected. Irish Revenue is aware of the matter and Budget 2021 may be an opportunity to provide welcome updates.

The considerations applicable to different stakeholders as a result of cross border remote working are outlined below: 

Personal income tax

  • Where will taxes be due? If taxes are due in both locations, what relief is available for double taxation?
  • Are there differences between the Irish and the overseas tax regime which means net earnings are affected?
  • Will entitlement to SARP relief be affected by time spent outside of Ireland?
  • Will the employer provide cashflow support for overseas tax due or compensate for the impact to net earnings? 

Payroll reporting

  • Does foreign payroll need to be operated? Should Irish PAYE still be operated? Can tax relief be provided in real time through payroll for double payroll withholding?
  • What about trailing bonus payments and equity? 

International corporate tax

  • Will the overall corporate structure be affected as a result of key executives and/or certain employee groups working outside of Ireland?
  • Will a taxable corporate presence overseas be created?
  • What is the corporate tax differential that may need to be considered?
  • How does remote working impact our Transfer Pricing policy?

Social security

  • Will working in the other location mean employer and employee social security is payable there? What level of overseas social charges arise?
  • Can contributions be counted towards pension and other benefits? Will there be double contributions due?
  • What facility, if any, is there to stay in home social security?
  • Where is the employee covered for health, unemployment or similar social benefits if needed? 

Immigration & employment law

  • Is there a requirement to obtain a working visa overseas?
  • What Health & Safety obligations must be complied with as an employer in the overseas location?  
  • Will employment law rights be created in another location?
  • What redundancy obligations arise for the employer should the employment end while remote working? 

Remote working also creates additional questions for businesses in terms of the size and role of the HR function, the total reward on offers to employees and operational requirements such as investment in technologies. 

Remote working policies

For employers looking to offer ongoing cross-border remote working, it is timely to develop an international remote working policy.  Determining the policy may require the following:

  1. Tax, Social Security and Employer Risk Analysis by Location– assess which countries may already have triggered issues, which countries will (and will not) continue to be supported for remote working.
  2. Assessment of Employee Eligibility & Support: who is eligible to work overseas, who is prohibited (perhaps due to regulatory or corporate tax reasons), how employee net income may be affected, what supports will be provided to employees, what are the processes to be undertaken before approval for remote working is granted.
  3. Monitoring of corporate and employer compliance obligations – these will be primarily linked to corporate tax, payroll and social security;  

Communication with employees on the potential personal impact of remote working will be important. Given the potential impact on corporate tax structures, especially for EMEA groups headquartered in Ireland, input from corporate tax and other relevant stakeholders across the business will be required to ensure all relevant factors are considered. 

While cross border remote working creates complex scenarios, ensuring there is a documented policy in place for domestic remote working arrangements is equally important. This would cover items including what office equipment will be supplied by the employer, how expenses will be reimbursed, whether the employer will pay a per diem to cover additional home utility costs, impacts to the calculation of car benefit in kind and similar.   

Remote working within Ireland

Budget 2021 offers an opportunity to enhance some of the tax reliefs available to employees with respect to working from home.  

Currently, an employer can pay a tax free per diem of up to €3.20 daily to a homeworker or the employee can claim a pre-tax deduction of 10% of the utility costs incurred during the homeworking period. Employees whose employers are not able to pay the daily per diem are therefore at a disadvantage given the differential in tax relief available so it would good to see a large increase in the level of utilities that may qualify for personal tax relief. Further, confirmation that the relief is not limited to domestic remote working arrangements and can include cross border arrangements would be welcome. The requirement to have a formal remote working arrangement in place should also be removed where remote working arises solely as a result of following government work-from-home guidelines.

The small benefit exemption has already been enhanced in 2020 to provide a further voucher tax free to certain essential and frontline workers once the combined vouchers are €500 or less.  However, this extension should be afforded to all employees and would provide a morale boost in these difficult times. In addition, as employees are unable to meet in person at company and team building events, many employers are looking at alternative ways to engage remote teams in collaborative way to support mental wellbeing. This may include providing meals/drinks directly to an employee to enable a virtual group event, wellbeing hampers or similar. Ensuring this new manner of rewarding and engaging employees can be done in a tax-free manner is essential – expanding the small benefit exemption to provide both greater frequency of tax-free vouchers (currently limited to one annually for most employees) as well as a higher tax-free small benefit value would be very welcome. 

Get in touch

For more on how the tax implications of remote working could affect you or your employees, get in touch with Thalia O'Toole, Head of Global Mobility Services, or one of the People Services team.

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