Global Mobility, Immigration and Employment

Article

Global Mobility, Immigration and Employment

Pre-Budget 2020

Share-based remuneration

The introduction of the Key Employee Engagement Programme (“KEEP”) was heralded as a welcome move to incentivise Small & Medium-Sized Enterprises (“SMEs”) to retain and reward staff in a tax efficient manner. KEEP was intended to bring Ireland into line with a number of other jurisdictions in order to assist SMEs in competing with publicly quoted companies who have the ability to use share-based remuneration to attract talent. However, KEEP in its current design has unfortunately failed to provide SMEs with an easy-to-implement and cost effective way to offer shares to employees. We understand the take-up has been very low to date and the Department of Finance launched a consultation process in 2019 to see how KEEP could be improved.

As part of our consultation submission to the Dept. of Finance, we had a number of recommendations that included dealing with safe harbour for share valuations, bringing more companies into the regime and addressing technical blockers around organisational structure and restrictions on eligible employees.

Read our pre-Budget document for more predictions

PAYE modernisation

Real time payroll reporting came into effect on 1 January 2019. This was the most significant change in the PAYE regime since it was first introduced and presents challenges to Irish employers to capture and report payroll data on a real-time basis. Companies now need to ensure their processes are equipped to deal with the new regime or else they face potentially very large penalties for not doing so. There were significant revenue raising targets set as part of Budget 2019, so it is clear that the new regime provides Revenue with greater visibility over payroll on cash payments and benefits.

Mobile employees

In light of the potential opportunities/risks arising out of Brexit it is vital that Ireland is well positioned to attract companies who are considering relocating out of the UK to another EU jurisdiction. Our marginal rate of 52% is one of the highest in the EU and puts us at a competitive disadvantage compared to other countries competing for this inward investment.

The Special Assignee Relief Programme (“SARP”) is a valuable initiative aimed at encouraging skilled personnel to relocate to Ireland by granting an exemption from income tax for 30% of earnings between a €75,000 threshold and a €1m cap.  Given the relief is due to expire in 2020, a separate public consultation was initiated by the Department of Finance as part of its obligations to review the scheme and how it operates. As part of that submission, we made a number of recommendations. For example, there is currently an obligation on employers to certify within 90 days of the assignees arrival that the employee is a ‘relevant employee’ for the purposes of the relief. This is an unnecessary obligation considering a tax return may not need to be filed for over 18 months depending on the date of arrival. This administrative burden has resulted in certain individuals being denied the relief for the duration of their assignment due to administrative delays or oversights.

Attracting foreign workers in a full employment environment is essential in order to drive domestic economic growth. Irish companies can and should leverage the experience and expertise of overseas counterparts to benefit their business locally. Revenue’s most recent guidance (April 2018) on temporary assignees working in Ireland has significant negative implications for overseas personnel who regularly travel to Ireland for business meetings or short-term projects. The current guidance means that there is potentially a payroll obligation for individuals who spend minimal days in Ireland each year or at the very least an increased administrative burden on companies to track the movements of these individuals in order to apply for a dispensation from payroll withholding.

Our view

The marginal rate of tax should be reduced from its current level of 52% and the entry to the higher rate of tax should be increased. At the very least a roadmap should be put in place to demonstrate to workers when this burden will be reduced.

The KEEP legislation needs to be amended to achieve the stated aim of helping Irish SMEs to recruit and retain appropriately skilled workers.  The UK equivalent share scheme, the Enterprise Management Incentive, does not cap the value of the share options granted by reference to the employee’s annual emoluments and it would be a step in the right direction to remove this restriction. We would also welcome the introduction of a mechanism to agree the valuation of a company with Revenue for KEEP purposes in line with the UK regime. A further enhancement would be to allow the option period to be included for the holding period requirements of the CGT Entrepreneur relief. Furthermore the extension of the KEEP scheme to employers who do not meet the SME thresholds would greatly enhance Ireland’s competitiveness in the global war for talent.

Post the introduction of PAYE Modernisation, it would be useful for employers to be provided with certainty around the scale of penalties that may apply for relatively minor errors in the operation of payroll.

A reinstatement of the long-standing practice of treating not more than 30 workdays as being incidental and exempt from payroll withholding would provide much needed certainty to companies and would enhance Ireland’s attractiveness for businesses considering locating here as a result of Brexit and other global economic conditions.

The obligation for employers to certify within 90 days of arrival that an employee is eligible to claim SARP should be instead aligned with existing reporting requirements e.g. the income tax reporting deadline. There should be no adverse implications in terms of Departmental oversight of the impact of the incentive as the certification process merely provides details of the number of individuals seeking to avail of the scheme rather than the associated tax cost.

Our prediction

We predict that there will be significant amendments to the KEEP scheme to encourage uptake by employees of Irish private companies. However, unfortunately we do not expect to see an extension of the regime beyond the SME sector.

We expect that employers will see an increase in Revenue interaction in terms of compliance checks and onsite visits in 2020 as real time payroll reporting is embedded.  The past number of Budgets have set revenue raising targets in the region of €50m and we expect something similar again in Budget 2020. We are hopeful that Revenue will provide greater clarity around the penalty regime for minor payroll errors.

We predict that there will be announcements relating to SARP and its importance to the Irish tax regime in terms of attracting FDI to Ireland. We also expect there will be some clarity around the burdensome business traveller rules for mobile employees in advance of additional restrictions coming into effect in 2020. However, there will be no fundamental changes to the income tax regime, particularly in light of Brexit uncertainty and the associated cost of making any substantial changes.

We remain hopeful that there will be some practical changes introduced to reduce the administrative burdens for employers, but given experience over the past few years, this is more in hope than expectation.

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