Understanding some of the various deductions and credits available to you as an Irish worker can make a significant difference to your financial wellbeing.
The Foreign Earnings Deduction (FED) is a little-known relief from income tax (but not Universal Social Charge (USC) or Pay Related Social Insurance (PRSI)) for workers who temporarily carry out employment in certain countries. It was introduced as part of the Finance Act 2012.
Most workers are unsure where they stand when it comes to tax on foreign income in Ireland.
With that in mind, in this blog we'll dive deep into what the relief entails, who is eligible, and how it can impact your tax refund.
What is the Foreign Earnings Deduction?
This is a tax credit introduced by the Irish government that aims to incentivize Irish citizens and residents to work abroad in certain countries, essentially offering a tax break for working overseas.
It was created in order to encourage skilled professionals to seek employment opportunities overseas while maintaining a connection with Ireland.
This tax credit can substantially reduce the tax burden for those earning foreign income, making it an appealing option for individuals considering or already engaged in work abroad.
Am I eligible to claim the Foreign Earnings Deduction?
To qualify for the FED, individuals must meet certain criteria set by Revenue. Here are the key eligibility requirements:
Irish Tax Residency: You must be a tax resident of Ireland. This means you spend at least 183 days in Ireland during a tax year or, if you spend 280 days or more abroad, you must also spend at least 30 days in Ireland.
Qualifying Countries: The FED is applicable to individuals working in specific countries. Make sure your work location is in one of the qualifying countries listed by the Irish Revenue, seen on the table below.
Skills and Professions: The tax credit is primarily targeted at individuals with certain skills and professions,including but not limited to engineering, IT, financial services, pharmaceuticals, and more.
How much can I claim?
The largest amount of tax relief you can claim is €35,000 which would result in a tax refund of €14,000.
To be able to claim the FED, you’ll need a letter from your employer for Revenue which confirms that the travel was for work.
You can claim the Foreign Earnings Deductions when you file an Irish tax return.
Benefits of the Foreign Earnings Deduction
The most important benefit of the FED is the potential reduction in your tax liability.
This can lead to substantial tax savings, allowing you to retain more of your hard-earned income!
As well as this, for professionals seeking international work experience, the tax credit provides a welcome incentive to explore opportunities abroad while still maintaining ties to Ireland.
Of course, with reduced tax obligations, you can also allocate your earnings more effectively, whether you want to invest, save, or enjoy a higher quality of life in the country you are in.
How to claim the Foreign Earnings Deduction
Of course, you can always claim the FED by filing your Irish tax return.
However, this process can be confusing and time-consuming at the best of times.
That’s because while the FED may provide an excellent opportunity for tax savings, navigating the complexities of the tax world can be a whole different challenge.
This is where Taxback comes in!
Here’s how we’ll help:
Expertise: Taxback boasts a team of experienced tax professionals who are well-versed in Irish tax regulations, including the FED.
Efficiency: Filing taxes, especially across borders, can be time-consuming. Taxback streamlines the process, ensuring accurate and timely submissions to help you receive your tax refund sooner.
Peace of Mind: With Taxback by your side, you can have peace of mind knowing that your tax affairs are in capable hands. Their professionals will ensure that you make the most of the available deductions and credits.
All in all, the Foreign Earnings Deduction is a valuable tax credit designed to support Irish citizens and residents working abroad.
In truth, a surprisingly large number of Irish workers can qualify for the Foreign Earnings Deduction tax credit.
If you think you can apply for the relief, kick off your tax refund application today!