Fancy working from overseas for the summer, or escaping Ireland as the days grow shorter later in the year to winter somewhere warmer and zoom in to your office meetings?
The pandemic – and the skills shortage – opened up the issue of people working remotely from the office. For some, during Covid, remote meant outside Ireland, with many foreign nationals returning to their home country.
And this demonstration effect, together with the desperate scramble for talent, raised the question of employees in general working from locations outside the State – 60 per cent of firms now have a formal policy on the issues since the end of last year, according to a Chartered Institute of Personnel and Development (CIPD) survey, up from 22 per cent the year before.
While short periods of working from abroad can work – subject to an employer being happy – longer stints or permanent relocation do bring legal and tax complications for both the employer and the employee.
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The normal rules were not fully applied during Covid as tax authorities made allowances for travel bans and lockdowns, but now they are back. And many companies are now restricting overseas work to a period of two or three weeks – perhaps tacked on to a holiday – because beyond that it can get messy.
1. The backdrop
Covid and the lockdowns changed so much in the world of work. Many companies allowed foreign nationals to travel home as the pandemic broke and subsequent travel restrictions meant they often worked from there for a prolonged period.
Companies were advised to formalise this through temporary agreements, according to Jennifer Cashman, partner with RDJ solicitors, and to make clear that employees would eventually be expected to return. Revenue appears to have taken a flexible approach during the pandemic and it was generally seen as a temporary, emergency period.
However many wanted to continue to work overseas after the lockdowns ended and some Irish employees – seeing this happening and hungry for travel – wanted to do the same.
Add in the skills shortage and companies were keen to facilitate employees, or hire new staff who wanted to remain overseas. But while it is possible to employ people who work from overseas, there are complications.
2. The legal position
New legislation – the Work Life Balance and Miscellaneous Provisions Act 2023 – offers employees the right to request remote working and sets a framework for how employers must deal with these requests and grounds for refusal.
This draws no distinction between remote working in Ireland or overseas. However how the new rules are to be interpreted in practice is due to be outlined in a code of practice being drawn up by the Workplace Relations Commission.
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The legislation does refer to “information as may be specified in the code of practice on the suitability of the proposed remote working location”. So it is possible that the code will refer specifically to the different considerations on remote working in the State versus overseas.
As it is awaited, the legislation has been signed into law but is not yet commenced, in other words its terms don’t legally apply yet, even though many companies are following the kinds of processes it outlines.
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3. Legal complications
There can be issues in relation to an employment contract for employees working overseas, as in some cases the laws of the country they are based in would apply, potentially giving the employees different rights in areas such as minimum pay, protections, holidays and so on than would apply in Ireland.
“Generally speaking, where an employer works remotely in a different country for a relatively short period on the understanding that it is a very temporary arrangement, it is unlikely that the mandatory employment laws of the country will be applicable, a client briefing drawn up by RDJ said.
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However, in cases of longer stays, there may be mandatory local employment laws that would apply. In some cases, employers will draw up a new contract recognising this.
Employers also have a general obligation to ensure, in so far as is practicable, the safety, health and welfare at work of its employees. How this applies in remote locations is open to debate and obviously working from overseas, or moving around from location to location, adds another layer of complication.
Data protection issues may also apply, though many employees are already dealing with this in relation to hybrid working.
GDPR issues may also cause concerns for those working outside the EU.
4. Tax issues for the employee
There is no problem extending your holiday for a few weeks and working from abroad – at least not from a tax or legal point of view. But working for a prolonged period – even, say, for four or five months – from abroad can raise complications and basing yourself overseas permanently certainly will.
The difficulty here is it depends to a large extent on what country you plan to work from and how long your are staying for.
But the two basic questions are whether you will be expected to pay income tax in the foreign country and the same for social security – PRSI in Ireland.
In many cases in countries with which Ireland has a double tax treaty it may be possible to remain in the Irish tax net, provided you maintain your main residence in Ireland and spend a reasonable amount of time here.
But work may be needed with tax authorities to apply for the necessary clearance and in some cases the employee may also end up paying tax in the foreign country and applying for a refund.
And outside the EU there can be further complications – for example in the US different rules apply for federal and state taxes. In short, as one tax expert put it, “it can be an administrative nightmare”.
While Ireland has a special arrangement with the UK in terms of social security, separate rules apply here and people generally pay social security in the country where they work.
In the EU there is an exemption, for up to two years, for an employee specifically posted abroad by an employer, who can remain subject to Irish PRSI. But this may not always be possible. Given the different social security rates this can also be an issue for the employer, who would end up paying a much higher contribution in a country like France and Belgium than would be the case in Ireland.
There is no standard cut-off point or time where income tax and social security get complicated. And during Covid, revenue authorities largely turned a blind eye. But not any more and now once weeks abroad start turning into months, both the employer and employee need tax advice on how to deal with this.
5. Tax issues for the employer
As we have seen, the personal tax issues which emerge from working from outside the State can be complicated. A key issue is the administrative burden this places on employers.
For some companies which are multinational by nature – think Ryanair or CRH – this is just a necessary part of doing business and some companies set up specific structures for employing people overseas, either directly or in effect as contractors.
But for many others the potential administration and complications of having people working from a variety of locations, all subject to different tax rules, would be a significant additional cost, generally requiring outside legal or tax advice.
A further complication for companies is that they will want to avoid creating what is called a “permanent establishment (PE) abroad”. This is when an employee or employees working overseas are seen to undertake duties central to the company’s operation – such as dealing with major clients, signing contracts and so on.
In this case the overseas tax authority will argue that the company has a PE in their country, requiring them to allocate a certain amount of profit to that establishment and pay corporate profits tax on it.
As well as the administrative hassle, this can be costly as most other jurisdictions have a corporate tax rate higher than Ireland’s 12.5 per cent. A key risk here is if the employee negotiates and signs contracts on the company’s behalf with customers.
6. The bottom line
The bulk of companies are now putting in place specific policies on working from overseas because of all these complications. Due to the skills shortage, some are still willing to employ people working from outside the State and have specific structures to deal with it.
But most will want employees to at most work for a few weeks from outside the State. And the wider context is a move by many employers to get employees back to the office for a few days a week.
