In an effort to encourage export-led business, particularly to emerging market economies, the government have introduced a “Foreign Earnings Deduction” tax credit.
Overview of the Foreign Earnings Deduction tax credit
In short, this tax credit is allowable to an employee or director who spends more than 30 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 threshold reduced to 30 days and the number of countries expanded to include several other emerging economies including South Africa, Bahrain, Chile, Algeria, UAE, Vietnam and Singapore, to name but a few. Including Columbia and Pakistan since 2017
This list of countries is constantly being updated so if you are spending 30 days or more on company business abroad, it is wise to investigate your eligibility for the Foreign Earnings Deduction tax credit.
The 30 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 30 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 2019 + 10 days in early 2020 = 30 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
As €23,973 is lower than €35,000 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 * 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 30 days threshold the credit can be applied for on a continual basis. It can be claimed for the tax years 2017 to 2022 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.