Revenue Tax Briefing

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Revenue Tax Briefing Issue 43, April 2001

Finance Act 2001- Foreign earnings Deduction


Section 31 Finance Act 2001 amends section 823 TCA 1997. That section provides tax relief by way of a deduction against earnings in the case of certain Irish resident employees who work overseas, other than in the UK, during a tax year. The relief does not apply to civil and public servants, military personnel or employees of any State boards or bodies. The relief is aimed at those committed to working abroad for significant periods. Thus, to qualify, a person must work abroad for at least 90 days in a tax year or in a “relevant period”.

A “relevant period” is a continuous period of 12 months straddling two tax years. However, no one day can form part of two relevant periods. Each period of absence must include a continuous period of at least 11 consecutive days, referred to in the legislation as “qualifying days”. The amount of the deduction is related to the time spent on a foreign employment, but there is an overall cap of £25,000 on the amount of the deduction which may be availed of by an individual in any one tax year.

Changes made by Section 31

The changes made by section 31 are threefold:

Firstly, the definition of a “qualifying day” is amended to put beyond doubt that such a day is a day on which an individual is absent from the State for the whole of the day and not just at midnight. This means that no day will be counted more than once as a qualifying day. The new definition of “qualifying day” will apply as on and from 26 January 2001.

The definition provides that a qualifying day is a day on or before 31 December 2003 (this effectively terminates the relief on 31 December 2003) which satisfies certain conditions. The conditions are that the day in question be one of at least 11 consecutive days throughout the whole of which the individual is absent from the State for the purposes of performing the duties of his or her office or employment, or of those duties and the duties of other offices or employments of the individual outside the State, and which (taken as a whole) are substantially devoted to the performance of such duties.

Secondly, a termination date of 31 December 2003 is provided for the relief.

Thirdly, a number of changes are made to the relief consequent on the introduction of the calendar tax year and the necessary operation of a short preceding tax “year” to cover the period from 6 April 2001 to 31 December 2001. The amount of the relief is calculated by way of a formula which includes a denominator of 365 representing the number of days in a normal tax year.

For the short tax “year” this denominator is reduced to 270, being the number of days in the period from 6 April 2001 to 31 December 2001. In addition, for the short tax “year” the minimum number of days on which it is necessary to work abroad in order to qualify for relief is reduced from 90 days to 67 days. Finally, for the short tax “year” the overall cap on the relief is reduced from £25,000 to £18,500.