This article was first published in the Independent.ie on 6 October 2016; Minister must deliver certainty and fairness.
The Irish real estate market has undergone significant restructuring in recent years and today, the investor profile is dominated by large Irish institutional investors and international real estate funds. In 2016, long-term institutional funds replaced many of the early, more opportunistic buyers. This evolution is necessary and provides stability for the medium-term, however, one thing that has not changed is the market's dislike of uncertainty. The Minister for Finance recently announced a review of the taxation of funds in the Irish property market, which has certainly yielded a good dose of pre-Budget nerves.
Many investors will have used Irish regulated funds to make their investment. These are typically established as qualifying investor alternative investment funds or "QIAIFs" and are the main focus of the review.
Regulated Irish funds have been used for property investment in Ireland for at least 20 years. QIAIFs, which are regulated by the Irish Central Bank and report to the Irish Revenue Commissioners, are used by some of the largest participants in the Irish property market, undertaking activities such as home building, rental, retail, hotel and office development. Many Irish and international institutional investors are formed as QIAIFs, for instance, NAMA, which has utilised QIAIFs for projects on the South Docks in Dublin.
QIAIFs are generally exempt from Irish tax, which has been Government policy for many years. Instead of taxing the fund, investors are taxed in whichever country they happen to reside, therefore, Irish investors, for example, are typically taxed at 41%.
The Government clearly has the right to change the Irish tax rules, however, changes have to be introduced reasonably and in a manner which supports the domestic economy and gives investors certainty and fairness.
Sudden changes could have a damaging impact on the property market and ultimately the economy. International investors do not have to invest in Ireland - they choose to do so. In many cases they have raised funds, entered into contracts, financed themselves and based their investment on expectations that Irish law will continue to be stable and certain. We recognise the need for stability each year when the Minister restates our commitment to the 12.5% trading tax rate for companies. The need for...