When working in Ireland as a contractor there are several routes that can be considered – each with its own advantages and disadvantages. In this article, Kevin Austin of Access Financial International S.A. takes you through the options.

AGENCY EMPLOYEE

In this case 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:

Personal income tax rates

Single person €33,800 at 20%, balance at 40%
Married couple/civil partnership (one income) €42,800 at 20%, balance at 40%
Married couple/civil partnership (two incomes) €67,600 at 20%, balance at 40%
One parent/widowed parent/surviving civil partner €37,800 at 20%, balance at 40%

PRSI contribution, Universal Social Charge

Employer 10.75% No limit
Employee 8.50% if income is €376 p/w or less
Employee (class A1)
PRSI 4% No limit

Universal Social Charge

0.5% €0 to €12,012
2.5% €12,013 to €18,772
5.0% €18,773 to €70,044
8% > €70,044

In terms of the ability to claim employment expenses or mitigate taxes and social security costs this is the least attractive option. Most agencies are unwilling to employ contractors directly as the is nothing in it for them to take on this burden.
SELF-EMPLOYMENT
The contractor must register his business with the Revenue Commissioners, either as a sole proprietor or in partnership with another person (spouse, another contractor, etc.).

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

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

We cannot stress enough that contractors 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 difficult and would likely be achieved only by having several clients and working on several projects at the same time.

The retentions under self-employment will be in the region of 60-66%, a few percent 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 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 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.

The retentions are in the range of 55-65%.

CONTRACTING IN IRELAND NON-IRISH UMBRELLA COMPANY

If a non-Irish Umbrella company is registered as a foreign employer in Ireland the this can be an alternative to being employed by an Irish Umbrella company and there is one main benefit in this 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.

You will find that Irish income tax will be due from Day 1 in this arrangement as the Double Tax Treaty may not apply.

The retentions will be in the range of 53-62%.

OPERATING THROUGH AN IRISH LIMITED COMPANY

In this case the contractor either already has or forms an Irish limited company. 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.

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.

What is interesting in the light of the new Criminal Finances Act 2017 is that the use of a PSC in Ireland is the solution par excellence that meets the demands of the Act both in the UK and he work country.

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.