Tax Tips

Foreign Earnings Deduction

In an effort to encourage export-led business, particularly to emerging market economies, the government have introduced a “Foreign Earnings Deduction” tax credit.

foreign earnings deduction

Overview of the Foreign Earnings Deduction tax credit

In short, this tax credit is allowable to an employee or director who spends more than 40 days of the year on company business in a country that is classified as an emerging market. Initially, the credit required that an employee or director spend 60 days of company business in one of the ‘BRIC’ countries namely Brazil, Russia, India and China.

Recent changes have seen the time period threshold reduced to 40 days and the number of countries expanded to include a number of other emerging economies including South Africa, Bahrain, Chile, Algeria, UAE, Vietnam and Singapore, to name but a few.

This list of countries is constantly being updated so if you are spending 40 days or more on company business abroad, it is wise to look into your eligibility for the Foreign Earnings Deduction tax credit.

The Specifics

The 40 qualifying days includes travel time to and from the country but must be one of a least three consecutive days in the qualifying country.  Owing to the distance from Ireland to most countries on the list, the attainment of the 40 days is quite achievable.

What many people don’t realise is that this tax credit can straddle a 12 month period across two calendar years. i.e. 20 days in late 2015 + 20 days in early 2016 = 40 days.

The benefit of the tax credit is the lower of €35,000 or the below formula.  This figure is allowable against your marginal tax rate, which is generally 40%.  For example, John earns €70,000 per annum and has spent 125 days in total on company business in various qualifying countries.

€70000 * 125 days    = € 23,973.00

 365 days  

As €23,973.00 is lower than €35,000.00 mentioned above, this is the figure allowable against Johns Marginal Tax Rate of 40%.

John is, therefore, eligible to claim a tax refund for the Foreign Earnings Deduction tax credit to the amount of:

€23,973.00 * 40% = €9,589

Claim tax back

A vast number of Irish Tax Rebates clients have been found to qualify for this tax credit. We have assisted those clients in obtaining a substantial tax refund.  This tax credit is not a ‘once off’ and if the client meets the 40 days threshold the credit can be applied for on a continual basis. It can be claimed for the tax years 2012 to 2017 inclusive.

Think you might be eligible? Contact the tax experts at Irish Tax Rebates for assistance and advice in claiming a tax refund for the Foreign Earning Deductions tax credit.