Understanding Foreign Earnings Deduction (FED) for Irish Taxpayers

If you’re a resident in Ireland for tax purposes but sometimes need to work abroad, understanding your tax obligations isn’t always a straightforward process. This is why seeking tax advice from a professional is usually recommended to ensure compliance for your individual case.

However, compliance isn’t the only area of taxation in Ireland that’s important to understand if you work abroad. In certain circumstances, you may be entitled to relief on income tax that can save you money and help clarify your tax situation between the state of Ireland and the country you work in.

One such relief is the Foreign Earnings Deduction, also known as ‘FED’. But what exactly is Foreign Earnings Deduction in Ireland and what does it mean for you?

What is the Foreign Earnings Deduction (FED)?

The Irish government established the Foreign Earnings Deduction (FED) to support the expansion of Irish multinational companies into certain emerging markets overseas. Though a strict eligibility criteria exists, the relief aims to offer a reduced tax rate to employees and company directors who work abroad for a certain number of days during the tax year. 

As part of a recent update (January 2023) to the Tax and Duty Manual on the ‘deduction for income earned in certain foreign states’, Revenue extended the Foreign Earnings Deduction relief to 2025.

Note: For those who qualify, FED offers a deduction from income only. FED does not provide any reduction for the Universal Social Charge (USC) or Pay Related Social Insurance (PRSI).

Who is eligible for FED?

Generally speaking, FED is most relevant to Irish tax residents (also classified as PAYE workers) who spend more than 30 days per year working abroad. However, in order for FED to apply to your taxable income, some important conditions set out by Irish Revenue will apply. 

Before trying to claim FED, you must first consider:

1. The state you work in

If applying for FED, it’s important to know that the relief is only applicable to income earned abroad in certain states. This is because in general, FED aims to support the expansion of Irish companies into emerging markets, hence the exclusion of several states with which Ireland already has a long-standing relationship. 

First announced in 2012, FED continues to apply to income earned in states included in its original announcement. This selection consists of: Brazil, Russia, India, China and South Africa.

In addition to these states, Revenue has since added more. 

This means that at present, FED covers income earned in the relevant states mentioned above, as well as: Egypt, Algeria, Senegal, Tanzania, Kenya, Nigeria, Ghana, Democratic Republic of the Congo, Japan, Singapore, Republic of Korea, Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Malaysia, Indonesia, Vietnam, Thailand, Chile, Oman, Kuwait, Mexico, Colombia, and Pakistan.

It is unknown whether more states will be added or removed from this. However, as the relief has now been extended until 2025 (with possible continuation after that), the potential is there.

2. How many days you work in qualifying countries

If you are an Irish resident who sometimes works abroad in a relevant state, the number of days you work abroad will also be relevant to your eligibility criteria. For example, to qualify for Foreign Earnings Deduction, you are required to work in an eligible state for at least:

• 60 qualifying days in 2012, 2013 and 2014
• 40 qualifying days in 2015 and 2016

or

• 30 qualifying days in 2017 to 2025

To qualify, you are also required to work the required number of days within:

• One single tax year

or

• During a continuous 12-month period over two tax years

3. What counts as a ‘qualifying day’?

This is where the FED application criteria can get a little more complicated. Even if you meet the rest of the criteria for successful application, what counts as “qualifying days” will also need to be taken into account. 

It’s also worth noting that this particular part of the criteria has evolved since FED was initially introduced, causing even greater confusion for those applying.

However, in general, the most important information you need to know regarding what counts as “qualifying days” is as follows:

From 2012 to 2014: Qualifying days must be part of a minimum of four consecutive days worked in a specified state 

Note: The day of arrival/departure from that state cannot be included if the individual is not present for the whole day in a “relevant state”. However, a day spent in uninterrupted travel between “relevant states” may be counted.

From 2015 to 2025: A qualifying day must be part of a minimum of three consecutive days worked in a specified state. In this case, travel time can be included within a qualifying day if you travel:

• From Ireland to an eligible state
• From an eligible state to Ireland

or 

• From one eligible state to another 

Saturdays, Sundays, and public holidays can also be counted as qualifying days in a specified state. 

Tip: If seeking advice from a tax consultant about FED or any other work-related tax reliefs, they should be able to offer assistance in figuring out your exact number of qualifying days.

If I meet the above criteria, do I automatically qualify for FED?

Unfortunately, as with most tax matters in Ireland, a successful application for certain tax relief will depend on your individual circumstances. However in general, if you meet the above criteria, there is a good chance that you will be able to apply for FED.

That said, there are certain circumstances in which an application for FED will be automatically refused. This can be due to:

• Your status as a civil or public servant
• Your receipt of key employee research and development relief
• The fact that you are currently taxed using the split year residence rules
• Your receipt of the Transborder Workers’ Relief

or

• Your receipt of relief under the Special Assignee Relief Programme

Is there a cap on FED tax relief?

Tax reduction granted through FED is either capped at €35,000 or, for a lesser amount calculated using the specific formula of: ‘(D x E) / F.’

D — The number of qualifying days you’ve worked in a relevant state during a single tax year or over a continuous 12-month period that spans two tax years.

E — The income received from your employment in the same time frame outlined above, which includes any taxable gains from stock options (but excludes allowable expenses, Benefits in Kind (BIK), termination payments, and restrictive covenant payments).

F — The total number of days your employment was held in a single tax year.

How to apply for FED

To apply for FED, you must apply in writing to your local Revenue office and include a statement from your employer. This statement must include details of:

• The dates of your departure and return to Ireland
• The location/locations where you worked while abroad

How Expat Taxes can help

As a tax advice and consultancy service, Expat Taxes can help you clarify your tax situation, save money, and ensure compliance across all tax matters relevant to the State of Ireland. Whether you’re moving to Ireland or from Ireland, you can ensure your tax matters are all in order before, during, or even after your move. 

Also offering corporate tax advice and support, we specialise in a range of topics to help private individuals and businesses reduce tax stress in their lives.

To arrange a one-on-one consultation with a member of our expert team, book a consult today. Alternatively request a call back and we will get in touch to determine how we can assist you.

DISCLAIMER The material in this article is for general information purposes only and does not constitute legal or taxation advice. Specific legal and taxation advice should be sought before acting or refraining to act. All information and taxation rules are subject to change without notice. No liability whatsoever is accepted by Expats Taxes for any action taken in reliance on the information in this article or any of the articles in our blog series.