Written by Cormac Kellerher, International Tax Partner, and Mairéad Divilly, Lead Partner – Outsourcing and Compliance Services, at Mazars.
COVID-19 has reshaped the working environment and stimulated a significant increase in remote working in Ireland and other countries. While the benefits of remote working are well-documented, companies must be aware of the potential Irish tax implications of having employees working remotely in Ireland and the possible tax risks of working remotely abroad.
When initially advised to work from home, employers witnessed employees relocating to a mixture of alternative Irish urban and rural locations, but equally to many European and international jurisdictions. The initial focus may have been ensuring a seamless transition from office to home, but there was little consideration given to potential tax, payroll and other HR implications.
If an Irish employer has employees working in a foreign jurisdiction, that jurisdiction may impose foreign payroll tax withholding on that employment income. The foreign jurisdiction may seek to impose this tax collection directly on the employee if the Irish employer is not tax registered in the country. As a result, there could be double taxation, employee dissatisfaction, and HR implications. The tax risk can apply to employees working remotely from Ireland for a foreign employer or employee working remotely abroad for an Irish employer. Employers should have a clear policy covering remote working to help keep the company compliant for tax purposes.
If a company has employees working in a foreign jurisdiction, this could trigger foreign corporate tax implications. The Irish entity could inadvertently create a branch for tax purposes, and profits would need to be attributed to that branch. This could lead to higher tax compliance costs and increased complexity for the Irish company. Consequently, some US multinationals have requested employees to return to their original employment jurisdictions.
Companies should track where their employees work remotely to stay tax compliant. Tax authorities across Europe are issuing guidance and essentially placing responsibility on employers and employees to return to their original country for tax purposes.
Employers also need to consider the potential immigration requirements triggered by an employee working remotely in another country. Managers should consider whether the employee requires permission to work remotely in Ireland or overseas, which may not have been an issue previously. There could also be differences in employment law rights and protections, and employees may have entitlements in these jurisdictions.
With more employers contemplating a hybrid model of remote working, businesses will face challenges implementing these changes lawfully. Some of the critical considerations for HR personnel include contractual arrangements, compensation, remote management, monitoring performance and conduct and staff well-being, and the tax consequences and costs.