Ireland's New Tax Regime For Real Estate Funds

Author:Mr Gerry Thornton and Kevin Smith

Ireland introduced a new tax regime for Irish real estate funds in 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, 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 new regime does not affect the existing tax treatment of Irish investment funds that do not hold Irish real estate assets.

Withholding tax on distributions and redemptions

Irish withholding tax must be withheld at 20% on distributions and other payments (including payments on redemption) made by IREFs to their investors.  Certain categories of investor are exempt from the withholding tax charge including other regulated investment funds, pension funds and insurance companies, in each case 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 30 January and 30 July 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 (eg, 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) 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...

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