Matheson REITs Update: Finance Bill 2013

Author:Mr Patrick Sweetman, Cara O'Hagan, Ronan McLoughlin, Brian Doran, Turlough Galvin, Aidan Fahy and Gerry Thornton

The introduction of Real Estate Investment Trusts ("REITs") in Ireland, first announced in Budget 2013, is expected to attract increased foreign investment into the Irish property market. Details of the tax regime that will apply to Irish REITs were announced last week in the Finance Bill 2013.

Provided that certain criteria are met, a REIT will be exempt from tax in respect of the income and chargeable gains of its property rental business. To qualify a REIT must:

Be resident in Ireland and only in Ireland; Be incorporated under the Irish Companies Acts; Have its shares listed on the main market of a recognised stock exchange in an EU Member State; Not be a close company (unless the REIT is controlled by certain investment undertakings or persons who meet the criteria to be "qualifying investors"); Conduct property rental business consisting of at least three properties, of which no one property has a market value of more than 40% of the total market value of the properties; Derive at least 75% of the aggregate income from carrying on a property rental business. It may carry on other "residual" business, but the tax exemption applies only to the income and chargeable gains of the property rental business; Ensure that the sum of property income and property financing costs to property financing costs ratio is at least 1.25:1; and Subject to having sufficient distributable reserves, distribute to the shareholders of the REIT at least 85% of the property income by dividend on or before the return date for each accounting period. Dividends paid by the REIT will be subject to dividend withholding tax (but may be relieved under one of Ireland's 68 tax treaties), and will be taxable in the hands of the shareholders. To become a REIT a company must give notice to the Revenue Commissioners specifying the date from which it is to be a REIT and comply with the conditions above. A "grace period" of three years from establishment of the REIT is allowed for compliance with a number of the conditions...

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