Contractor’s guide to contracting in Ireland

It’s far from just one-off jobs in Ireland that we’re being asked to assist with, but one ContractorUK reader’s query last month is reflective of the growing need for clarity where there is confusion about freelance working in Eire, writes Kevin Austin of Access Financial.

There’s a decent number of routes that contractors wishing to work in Ireland can consider -- six in total. As is often the case when there’s a bunch of options available for contracting overseas, each has its own advantages and disadvantages. And one size rarely fits all.

Agency Employee

In this scenario, the contractor becomes an employee of the agency who then places him or her under the control of a client.

The contract value will be subject to the Employer’s Pay Related Social Insurance (PRSI) and Universal Social Charge (USC) as well as income tax deducted at source.

The 2017 rates applied are:

In terms of the ability to claim employment expenses or mitigate taxes and social security costs, this Agency Employee model is the least attractive option. Most agencies are unwilling to employ contractors directly as there is nothing in it for them to take on this burden.

Self-employment

To be self-employed, you the contractor must register your business with the Revenue Commissioners, either as a sole proprietor or in partnership with another person (spouse, or another contractor for example).

Self-employment offers various advantages over the employed solutions outlined in this piece, in that tax is not paid under the PAYE system and the ability to claim a wider range of business expenses is a significant draw.

However, most recruitment agencies will be very reluctant to offer you a contract on a self-employed basis, due to the risk (to them) of deemed employment.

Moreover, it cannot be emphasised enough that contractors approaching a gig in Ireland for the first time will not normally meet the Revenue Commissioners criteria of a self-employed person. Convincing the Revenue authorities of a contractor’s self-employed status is so difficult that it would likely be achieved only by having several clients and working on several projects at the same time.

Your bottom-line? The retentions under self-employment will be in the region of 60-66%, a few per cent more than in employment.

Contracting in Ireland with an Irish Umbrella Company

An umbrella company is a management company whose business it is to employ contractors so that they can work under the control of a third-party client.

The contractor becomes an employee of the Irish umbrella company and all invoicing, VAT returns, tax, administration, bookkeeping etc. are handled outside the control of the contractor. The contractor is paid a salary related to his or her earnings. The concept is directed primarily at contractors on foreign assignment and some contractors use it as a first step towards having their own company. Individuals who are on quite a low contracting rate and/or those who are going to contract for a short period, may find it cost-effective to use an umbrella company.

Your bottom-line? The retentions are in the range of 55-65%.

Contracting in Ireland with a non-Irish Umbrella Company

If a non-Irish umbrella company is registered as a foreign employer in Ireland, then this can be an alternative to being employed by an Irish umbrella company. It has one main benefit as an arrangement. If we take the case of a UK tax resident coming to work in Ireland using a UK umbrella company that is so registered, then the umbrella company might apply for a UK A1 so that the contractor can remain in the UK social security system and be exempted from Irish PRSI and UGC.

But please note, you the contractor will find that Irish income tax will be due from day 1 in this arrangement, as the Double Tax Treaty may not apply.

Your bottom-line? The retentions will be in the range of 53-62%.

Operating through an Irish Limited Company

In this scenario, the contractor either already has an Irish limited company, or forms one. The contractor is the director and shareholder of the company. The contractor draws a salary up to the full pre-tax profits of the company. Alternatively, the contractor may draw a smaller salary, show a profit that is subject to Irish Corporation Tax (12.5% for a resident company and 25% for a non-resident company).

When dividends are paid, Irish Dividend Withholding Tax of 20% will be applied unless the recipient has applied for and received an exemption from the Irish Revenue. In contrast to the UK, there is no equivalent IR35 nor Managed Services Company legislation in Ireland.

Your bottom-line? The retentions achievable are around 68%, when dividend tax is paid in Ireland or 82%, before dividend tax.

Operating through a non-Irish PSC

It is possible to register a non-Irish company so that it can be used legitimately to work in Ireland. The company needs to be registered as a foreign employer. If the company creates a Permanent Establishment (P/E) in Ireland, then it must register for Irish VAT and become liable to Irish Corporation Tax. If it does not create a P/E, then this will not be the case.

The company should operate an Irish payroll and account to the Irish Revenue for income tax, PRSI and UGC, unless in the latter two cases, the company obtains an A1 from the contractor’s home country.

The foreign limited company must comply with the requirements of a company operating in Ireland and employing staff there. Subject to that, this is financially a very attractive option. The downside is that it is complicated.

Lastly, a word about the new Criminal Finances Act 2017. It might interest contractors to know that usage of a PSC in Ireland is the solution par excellence that meets the demands of the act, both in the UK and the work country.

Your bottom-line? The retentions available using a UK PSC to work in Ireland are in the region of 77%, before dividend tax, and 64%, after dividend tax.

Final thought

In our experience, most contractors tend to opt for the PSC whether it be an Irish or a non-Irish company that is localised in Ireland. This method offers the best retentions.

Contractors often struggle with localising their UK PSC because of the complexities and hassle of registering the company in Ireland and operating an Irish payroll in their company. Equally, getting an A1 may be beyond most people and obtaining an Appendix 5 agreement for early double tax relief is very hard for a non-professional.

Our recommendation is to contract through your own PSC and have it and yourself localised by professionals who know what they are doing. This is the way to ensure compliance and maximise your overall retention.

Editor’s Note: This is the final instalment of a three-part series on Europe’s traditional contracting countries by Access Financial and Deutsche Tax. Read part one, a Contractor’s Guide to France, and part two, a Contractor’s Guide to Germany.