This eBrief addresses the issue of the liability to USC and income levy of an individual who is resident and working in a country with which Ireland does not have a double tax treaty and who exercises all of the duties of his or her (private sector) employment in that country.

1. USC

Charge to USC

Section 531AM(1) Taxes Consolidation Act (TCA) 1997 describes the income that is chargeable to USC. Paragraph (a), in defining “relevant emoluments”, excludes emoluments of an individual who is resident in a country with which Ireland has a double tax treaty and in respect of whom Revenue has issued a PAYE Exclusion Order[1]. Emoluments of an individual who is resident in a non-tax treaty country are not excluded, regardless of whether or not an Exclusion Order has issued.

Accordingly, such non-resident individuals are chargeable to USC, but not to income tax, on their employment income. Enquiries have been received by Revenue as to the relevance of a double tax treaty in deciding whether a non-resident individual who exercises the duties of his or her employment wholly outside Ireland should be chargeable to USC.

Income tax practice

Where an individual is not resident in Ireland for tax purposes for a relevant tax year (or part of a tax year in ‘split year’ cases) and where he or she exercises the duties of a private sector employment wholly outside Ireland, a charge to income tax on the employment income does not generally arise in Ireland. In such circumstances, Revenue will, on application, issue a PAYE Exclusion Order.

Revenue accepts that USC is also not payable in respect of the employment income of a non-resident individual that is attributable to duties exercised wholly outside Ireland, where there is no charge to income tax in Ireland. The tax treaty status of the country of residence is not relevant for this purpose.

Tax year 2012

Employers holding a PAYE Exclusion Order for the tax year 2012 and subsequent tax years will not be required to deduct USC when paying employment income to non-resident individuals where the duties of their private sector employment are exercised wholly outside Ireland.

Employers not holding a PAYE Exclusion Order in respect of employees who are resident and working wholly in non tax treaty countries are required to deduct USC when paying employment income to such non-resident employees. Such employers should advise those employees to apply to Revenue after the end of the tax year for repayment of any USC deducted and paid over to Revenue.

Tax year 2011

Employers holding PAYE Exclusion Orders in respect of employees who are resident and working in non tax-treaty countries may have deducted USC at source in respect of relevant emoluments paid during 2011. Such employers should advise those employees impacted by this change in treatment to apply to Revenue for repayment of any USC deducted and paid over to Revenue.

Employers not holding PAYE Exclusion Orders in respect of employees who are resident and working wholly in non tax-treaty countries may have deducted USC at source in respect of relevant emoluments paid during 2011. Such employers should advise those employees impacted by this change in treatment to apply to Revenue for repayment of USC deducted and paid over to Revenue.

2. Income levy

In relation to income levy, section 531B(1)(a) TCA1997 (as with section 531AM(1) TCA 1997 in the case of USC) provides for income levy to be charged for the tax years 2009 and 2010 in the case of an individual who is resident in a non-tax treaty country and carries out the duties of his or her employment wholly in that country, regardless of whether or not a PAYE Exclusion Order has issued. As with USC, Revenue accepts that the treatment that applies to income tax extends to income levy.

Accordingly, employers should advise those employees impacted by this change in treatment to apply to Revenue for repayment of any income levy that may have been deducted and paid over to Revenue in these circumstances.

[1] Exclusion Order-A PAYE Exclusion Order, issued under the provisions of section 984 TCA 1997, releases an employer from the obligation to apply the PAYE system of deduction at source to the employment income of a named individual. It is not a notification that the particular individual is not chargeable to Irish income tax on such income

Source: Revenue Commissioners. www.revenue.ie. Copyright Acknowledged.