This poses many challenges for employers as hybrid working has become the accepted norm where employees now place a higher value on achieving the sacred work-life balance. As a result, most employers have developed and implemented a remote working policy which aims to place these arrangements on a more formal footing while seeking to strike the right balance of encouraging staff to return to the office and providing the flexibility to work from home. However, caution is required where employees seek to work outside the jurisdiction of their employment as this can create unexpected consequences for both the employer and the employee.

Where employees are working in a different jurisdiction to the one in which they are employed, several factors must be considered. Could there be unintended corporate tax risks such as the creation of a permanent establishment in the remote working location? Are there immigration and employment law implications?, and what are the potential employer payroll reporting requirements and social security implications?, to name but a few. Often these factors are overlooked until such point as it becomes an issue for the employer or employee which can lead to increased compliance costs and potential penalties. As a result, many organisations have now modified their remote working policies to limit the number of days employees spend working in a foreign location to a number they feel more comfortable with to manage these risks. The focus of this article is the employment tax implications of these arrangements.

First we will look at employees performing duties in Ireland who are employed under a non-Irish contract of employment.

There are strict payroll reporting requirements which can be overlooked where employees regularly come to Ireland on short term business visits or where they work remotely in Ireland. Revenue have issued detailed guidance on this area in Tax and Duty Manual Part 42-04-65, which was updated in March 2023. While most employers are clear on what is required, or at least are aware that they should seek advice from a tax practitioner, where a formal secondment or assignment arrangement is in place, many employers are unaware that business visitors and remote workers can create a reporting requirement in Ireland even where the time spent in Ireland is short term in nature and irregular. While the employee continues to be paid from abroad and may continue to pay tax on their employment income outside Ireland, this does not automatically exempt the foreign employer from reporting their income in Ireland and paying withholding tax (PAYE and USC) on that income through a shadow payroll in Ireland.

At a high level, we can break the reporting requirements into four categories, split between Non-Double Taxation Agreement (DTA) countries and DTA countries:

* Where the conditions in the Employment Article of the DTA are satisfied, employer must apply for a PAYE dispensation to be exempt from the requirement to withhold PAYE. This must be applied for within 30 days of the employee’s arrival in the State.

Broadly speaking, when seeking to understand the Irish payroll reporting requirements, we need to understand which country the employee is coming from and where they are tax resident. We need to examine the conditions per the Employments Article of the relevant DTA and we need to know the duration of time the employee is expected to spend in Ireland in the tax year. Where a shadow payroll requirement is found to exist, this will increase compliance costs and can lead to double taxation. This can generally be relieved by claiming relief via the individual’s annual income tax return (where a DTA exists between Ireland and the other country). However, there can be an obvious timing issue between when the tax is paid and when the refund will issue. In addition, if the employer pays the tax on the employee’s behalf and tax equalises the employee, the tax paid in turn becomes a benefit in kind which must also be taxed, further increasing the cost of the arrangement. The employer then needs to hope the employee remains with the company long enough to submit the tax return and reimburse the refund of tax to the employer when this finally issues.

If we then flip to the scenario of Irish employees remote working outside Ireland, do we have the same issue with the employer being required to operate a foreign payroll to pay payroll taxes outside of Ireland? The answer is, it depends. Each country will have its own domestic legislation and employer reporting requirements, and some are stricter than others. Some countries will allow the taxes arising from the work performed in that country to be paid via the individuals annual income tax return and some will impose an employer payroll reporting requirement, similar to Ireland. It can also come down to whether or not the country in which the employee is remote working is a DTA location and in some countries, a particular visa or work permit type can have implications on the reporting required. Often this can happen very innocently such as where an individual decides to work from a holiday home abroad or where an employee who is not from Ireland originally, decides to return home for a few months and triggers a tax liability. This can come as a shock to the employer and the employee, in particular if it impacts their entitlement to certain reliefs that they may be claiming in Ireland.

Take the Special Assignee Relief Programme (SARP) for example. This is a very valuable relief which provides an inbound employee to Ireland with tax relief on 30% of their income over €100,000 up to €1 million where certain conditions are satisfied and the relief can be claimed for up to five years. One of the conditions of this relief is that the individual must work in Ireland for a minimum of 12 consecutive months immediately following their arrival in Ireland. If, for example, that individual decides to return home to say the US, for the summer and is not here for the 12 consecutive months, their entitlement to the relief is lost in full for all 5 years.

A costly mistake, which can prove fatal to the employer / employee relationship if the conditions have not been communicated in full and travel is not properly monitored.

The same issue then arises as in the case of inbounds where a liability is found to exist – how is this paid and what is the cost of compliance?

If we then turn our attention to social security. Regardless of whether or not you are on a foreign contract of employment or on an Irish contract of employment your social security can be impacted by a remote working arrangement. In general, the rule is that you pay social security in the country of your employment. There are exceptions to this rule, such as for multi-State workers. In the case of posted workers, if posted within the EU and EEA or if posted from Ireland to a country with which Ireland has a bilateral social security agreement, such as the US for example, it is possible to be retained on your home country social security system for a limited duration of time which is generally capped at five years. This is done by applying to the relevant authorities (the Department of Social Protection in the case of Irish posting’s abroad) for a social security Certificate of Coverage. But what about someone who is not a posted worker?

This is more complex and must be reviewed on a case-by-case basis. Where we have an employee working across multiple countries, it cannot be assumed that social security is payable in the country where the employer and consequently the employment is located. Within the EU and EEA, in such multi-State or remote work cases, there is a requirement to determine where the employee is habitually resident and what percentage of their duties are exercised in that country? If it is more than 25% and it is not possible to obtain a Certificate of Coverage to retain the employee on their home country social security, social security becomes payable in the country of habitual residence. As to how this is reported and paid depends on the requirements in that country. In some instances, this can be paid by the employee directly to the authorities. In other countries, the employer will be required to arrange payment which may mean registering for social security in that country to make the social security payments. Again, this all leads to increased compliance costs and administration in adhering to the relevant reporting requirements.

So, while nice in theory, remote working arrangements can be costly. The pros are clear. Such arrangements can lead to better flexibility and can help retain and attract talent which is hugely important to employers in the competitive employment environment in which we find ourselves. However, where this policy allows for duties to be exercised outside of the country of employment indefinitely or indeed where this is not monitored, the costs associated with compliance can quickly escalate. The key takeaway is to get advice in this area and to ensure the policy and processes are communicated clearly to all employees and implemented correctly. This will allow employers to appropriately manage the risk and crucially, to manage employee expectations and relationships.