Everything You Need to Know About Foreign Earnings Deduction (FED)

Introduction

If you’re an Irish tax resident who frequently travels for work to certain countries, you might be eligible for a tax relief known as the Foreign Earnings Deduction (FED). This post will guide you through what Foreign Earnings Deduction (FED) is, who qualifies, how much you can claim, and the application process, all while providing some unique examples to illustrate how it works.

What is Foreign Earnings Deduction (FED)?

Foreign Earnings Deduction (FED) is a tax relief that allows Irish residents to reduce their taxable income for the days spent working in qualifying countries. This relief helps offset the tax burden for those who frequently travel abroad for business. Note that Foreign Earnings Deduction (FED) only applies to income tax and does not affect Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).

Who Qualifies for Foreign Earnings Deduction (FED)?

To qualify for Foreign Earnings Deduction (FED), you must:

• Be a tax resident in Ireland.
• Work in a relevant state for at least:
  • 30 days in a continuous 12-month period from 2017 to 2025.
  • For earlier years, the requirements were 60 days (2012-2014) and 40 days (2015-2016).
• Not be claiming other specific reliefs such as the Key Employee Research and Development Relief, Transborder Workers’ Relief, or the Special Assignee Relief Programme.

Relevant States for Foreign Earnings Deduction (FED)

Eligible countries for Foreign Earnings Deduction (FED) include:

• From 2012: Brazil, Russia, India, China, South Africa, Egypt, Algeria, Senegal, Tanzania, Kenya, Nigeria, Ghana, and the Democratic Republic of the Congo.
• From 2015: Japan, Singapore, South Korea, Saudi Arabia, UAE, Qatar, Bahrain, Malaysia, Indonesia, Vietnam, Thailand, Chile, Oman, Kuwait, and Mexico. • From 2017: Colombia and Pakistan.

Qualifying Day for Foreign Earnings Deduction (FED)

• A “qualifying day” must be one of at least three consecutive days, spent in a relevant state, substantially devoted to the performance of duties.
• Time spent travelling from the State to a relevant state or from a relevant state to the State and or to another relevant state is deemed to be time spent in a relevant state. This means that the day of arrival in the relevant state can be counted, provided the individual left the State the previous day and the day of departure from the relevant state can be counted, provided the individual does not arrive back in the State until the following day.

Example

Sean leaves Dublin at 3pm on Monday and arrives in India at 7am on Tuesday. He leaves India to return to Dublin at 8pm on Thursday, arriving back in Dublin at 3am on Friday. For the purposes of Foreign Earnings Deduction (FED), each of the days Tuesday to Thursday may be counted as days the whole of which are spent in India (qualifying days).

How Much Allowance Can You Claim with Foreign Earnings Deduction (FED)?

Foreign Earnings Deduction (FED) allows you to reduce your taxable income by the lesser of €35,000 or a specified amount calculated as follows: Specified Amount = (D × E) / F

• D = Number of qualifying days worked in a relevant state.
• E = Total income from the employment during the period.
• F = Total number of days in the tax year (365).

Example Calculations

Example 1

Sophia works for a multinational company and spent 40 days in South Korea and 20 days in Thailand during the 2023 tax year. Her total income for the year was €120,000.

Calculation:

• For South Korea: 40 days × €120,000 / 365 days = €13,150
• For Thailand: 20 days × €120,000 / 365 days = €6,575

Sophia can claim the lesser of these amounts or €35,000, which in this case is €19,725. Her taxable income for 2023 is reduced from €120,000 to €100,275.

Example 2

Mark, a business development manager, traveled to Brazil and Chile for a total of 50 qualifying days in 2022. His salary for the year was €80,000.

Calculation:

• For Brazil and Chile: 50 days × €80,000 / 365 days = €10,959

Mark can claim this amount as his Foreign Earnings Deduction (FED) relief, reducing his taxable income from €80,000 to €69,041.

How to Apply for Foreign Earnings Deduction (FED)

To claim this relief you must upload through my enquiries:

• A statement from your employer detailing the dates and locations of your business activities abroad.
• Documentation supporting the number of qualifying days worked.

You should retain all records relating to claims for a period of six years after the end of the tax year to which the claim relates.

You can claim Foreign Earnings Deduction (FED) within four years from the end of the relevant tax year.

For example:

• For the 2022 tax year, claim by 31 December 2026.

Conclusion

The Foreign Earnings Deduction (FED) is a valuable relief for Irish residents working abroad, potentially saving you a significant amount on your tax bill. By understanding the qualifying criteria and correctly applying for Foreign Earnings Deduction (FED), you can maximize your tax benefits.

For personalized advice and assistance with your Foreign Earnings Deduction (FED) claim, contact us or consider contacting a tax professional or consultant.