Ireland introduced a new tax regime for Irish real estate
funds in the Finance Act 2016.
Under the new regime, Irish investment funds that invest in
Irish real estate or assets deriving their value from Irish
real estate (described as IREFs) will continue not to be
subject to corporation tax or income tax on their profits.
However, a 20% withholding tax will apply to certain payments
made by IREFs and withholding tax requirements will apply to
certain purchasers of IREF units in the secondary market.
The regime does not affect the existing tax treatment of
Irish investment funds that do not hold Irish real estate
It enters into effect for each existing IREF for accounting
periods beginning on or after January 1 2017.
Withholding tax on distributions and redemptions
Irish withholding tax must be charged at 20% on
distributions and other payments (including payments on
redemption) made by IREFs to their investors. Certain
categories of investors are exempt from the withholding tax
charge including other regulated investment funds, pension
funds and insurance companies resident in either Ireland or
another EU member state. It is also possible for foreign
investors not falling within the exempted categories to claim a
reduction or exemption from the withholding tax under Ireland's
double tax treaties.
IREFs will be required to complete returns and pay the
amounts withheld to the Irish Revenue Commissioners on or
before January 30 and July 30 of each year.
The 20% withholding tax on distributions, redemptions and
other payments is imposed on the amount of the payment that is
derived from the profits of the IREF arising from Irish real
estate assets (e.g., rental income, gains on disposal and
development profits). However, any gains made on the sale of
real estate that is held for five years or more will be
excluded from the amount that is subject to 20% withholding
provided (broadly) that the IREF is a widely-held fund and the
investors did not have influence over the real estate assets
acquired by the IREF. This exclusion is designed to encourage
IREFs to hold Irish real estate over a longer term.
Withholding tax on the sale of IREF units
Where a unitholder in an IREF disposes of units for
consideration in excess of €500,000 ($530,000), the
purchaser of the units is required to withhold 20% of the
purchase price and pay the amount withheld to the Irish Revenue
Commissioners within 30 days as, in effect, a payment on
account for the 20% tax due by the vendor on its profit
realised on the sale. The vendor may reclaim the excess tax
deducted by making a return to the Irish tax authorities of its
profit and the tax actually due. The withholding tax may also
be reduced or eliminated under Ireland's double tax treaties
(depending on the place of residence of the vendor).
Reorganisation of existing arrangements
The new tax regime also includes provisions to defer the
crystallisation of the tax liability on the transfer of the
Irish real estate related assets of an IREF to a company
(anywhere in the EU) in return for an issue of shares in the
company. In order to avail of this treatment, the
reorganisation must occur on or before July 1 2017. Similar
treatment is available if the Irish real estate related assets
of an IREF are transferred to an Irish REIT on or before
December 31 2017.
Gerry Thornton (email@example.com)
and Kevin Smith (firstname.lastname@example.org)
Tel: +353 1 232 2664 & +353 1 232 2045