Income Tax - Exchange Rates & Foreign Service Relief regarding Termination Payments

Budget 2006 Financial Resolution No. 2 provided that so much of the income of a foreign office or employment of an individual as is attributable to the performance in the State of the duties of that office or employment is, with effect from 1 January 2006, chargeable to income tax under Schedule E (instead of Case III of Schedule D). Tax is accordingly deductible under PAYE.

Revenue e-Brief No. 43/2005 notified practitioners that, subject to subsequent recoupment, the operation of PAYE could be postponed until 1 March 2006.

On foot of these changes, Revenue e-Brief No. 9/2006 addressed the position in relation to 2005 Bonuses, Temporary Assignees and Pension contributions.

This e-Brief addresses the position, following Budget Financial Resolution No. 2, in relation to Exchange Rates and Foreign Service Relief regarding termination payments:

1. Exchange rates

Where an employer has to convert a foreign currency into euro as part of the application of Chapter 4 of Part 42 (PAYE) to the payment of emoluments, Revenue will accept the exchange rate at either: (a) the date of calculation, in the Employer’s records, of the tax liability related to the payment, or (b) the actual date of payment of the emolument provided the method chosen is used on a consistent basis, and where the rate at 1. above is used, the date of calculation of the tax liability is not later than the date of payment of the emolument.

2. Foreign Service Relief regarding termination payments

Foreign service relief will continue to be available to the extent that an office or employment is exercised outside Ireland and the United Kingdom and the remittance basis applies to the emoluments concerned. Accordingly, as respects services provided with effect from 1 January 2006: (i) the performance of duties of foreign office or foreign employment in the State is not foreign service, and (ii) the performance of duties of foreign office or a foreign employment (other than a United Kingdom office or a United Kingdom employment) outside the State by a person not domiciled in the State or by a person, being a citizen of Ireland, not ordinarily resident in the State is foreign service.

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