Guidance on PAYE Exclusion Orders and bonus payments

Background

A PAYE Exclusion Order (PEO) issued by Revenue to an employer relieves the employer from the obligation to deduct tax at source under the PAYE system from emoluments paid to an employee.

Two of the main categories to whom a PEO can apply are as follows:

• Non-resident directors of Irish incorporated companies
• Non-resident employees

Note:  A PEO covers PAYE and USC only and does not apply to PRSI.

Non-resident directors of Irish incorporated companies

A PEO for a non-resident director applies in limited circumstances and will only be issued where it is clear that the income from the directorship is relieved from the charge to Irish tax under the terms of a relevant Double Taxation Agreement (DTA). 

In such cases, it is important to determine if the relevant DTA contains an article related to Directors and if so, whether that article relieves the Director from the charge to Irish tax on directorship income.

Non–Resident Employees

Where a non-resident employee is in receipt of Irish employment income and exercises the duties of the employment wholly outside Ireland, a PEO may be issued for the relevant tax year.  In general, an employee will need to leave Ireland for a complete tax year or for a sufficient period over two tax years to qualify for a PEO.  Incidental duties in Ireland can be ignored i.e. less than 30 workdays per complete tax year.

Bonus payments where PAYE Exclusion Order in place

The updated guidance confirms the position in relation to a bonus paid where a PEO is in place.

The basis of assessment for employment income where a PEO is in place is on an “earned basis” i.e. the amount an individual actually earns in a year of assessment.  If a bonus was ‘earned’ before a PEO was in place and relates to Irish duties, the bonus payment is taxable in Ireland at the time of payment.

The updated guidance includes sample scenarios where a bonus is paid when a PEO is in place.

Example 1

An employee of an Irish company assigned to work abroad by the employer in January 2021, and paid a bonus in 2021 in respect of 2020.  Where the employer holds a PEO for this employee for 2021, and the bonus was earned before the PEO was in place, the bonus payment is taxable on a receipts basis i.e. date of payment. Payroll taxes should be deducted by the employer from the bonus.

Example 2

An employer holds a PEO for an employee for 2021 and the employee carries out the duties of their employment abroad during this period.  In 2022, the employee returns to Ireland and carries out their duties of employment in Ireland. A bonus is paid to the employee in 2022 in respect of the duties carried out abroad during 2021. As the bonus was earned during the period that a PEO was in place, payroll taxes are not due in respect of the bonus income. The payment should be included in the payroll submission for that period on the gross pay amount, but excluded from the taxable pay figure.

Example 3

Where a bonus is paid for a portion of the year when a PEO is in place, the employer is relieved from the obligation to operate payroll taxes on the portion of the bonus payment in respect of this period. However, the employer is required to operate payroll taxes on the bonus payment earned in respect of the portion of the year when a PEO was not in place.

PRSI

Where a PEO is in place a liability to PRSI (both employee and employer) may still arise. This will be dependent on the employee’s circumstances and should be reviewed on a case by case basis.

The PAYE system continues to facilitate the deduction and submission of PRSI via payroll even though no PAYE/USC is being deducted.

COVID-19 –Concession

The guidance has been updated regarding the COVID 19 concessions for PAYE Exclusion orders, which ceased in December 2020.

Due to the restrictions on travel as a consequence of COVID-19, Revenue issued a concession. Where a PEO was in place, it was not adversely impacted if the employee worked more than 30 days in Ireland due to COVID-19 in 2020. However, it is important to note that this measure only provided for a temporary relaxation on the employer’s obligation to operate PAYE and did not provide any concession regarding the underlying income tax liability of the employee. This concession ceased on 31 December 2020 and normal rules apply from this date.