On 21 May, the Irish Taoiseach (Prime Minister) Leo Varadkar
noted that Irish property funds may face further tax changes later
this year. The announcement that the tax treatment of Irish funds
will again be reviewed is likely to be of interest to managers,
investors and the Irish real estate sector as a whole.
Irish property funds can broadly be classified as Real Estate
Investment Trusts ("REITs") or regulated Irish property
funds (known as "IREFs").
REITs are listed public vehicles which are exempt from Irish tax on
property income and gains provided certain strict conditions are
satisfied. Distributions from REITs to shareholders are generally
subject to a 20% withholding tax. Since it's introduction in
2013, the tax regime for Irish REITs has been remarkably stable.
The decision as to how, or if, to change that regime may be linked
to wider tax consultations currently ongoing in Ireland, such as
the application of transfer pricing to non-trading entities. It is
also possible that the review will look at some of the more
prescriptive conditions of the REIT regime. This may include the
requirement that the ultimate holding company of the REIT be Irish
incorporated. This has been viewed as limiting the ability of
international REITs to utilise the Irish REIT regime.
IREFs are commonly formed as ICAVs, although other forms exist.
IREFs were subjected to radical tax changes in 2016. Historically,
such funds were entirely tax exempt. The 2016 changes introduced a
withholding tax of 20% on distributions. IREFs must now also
disclose significant amounts of information on their tax profile
and investor base to the authorities. It is speculated that the
Government is reviewing the tax contribution being made by such
funds in order to determine whether the legislation needs further
amendment.
The details of the review are obviously still unclear but the fact
that it is ongoing is not entirely surprising. REITs and IREFs
represent some of the largest and most sophisticated Irish real
estate investors. It is hoped that the conclusions of the review
will reflect this importance in addition to the need for the Irish
tax system to remain predictable and balanced for those who have
committed long term capital.
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