Dáil Éireann Debate, Wednesday - 5 July 2017
56. Deputy Pearse Doherty asked the Minister for Finance if he will end the dividend withholding tax exemption for non-resident shareholders in Irish real estate funds related to capital gains distributions from the fund when the fund holds the property for five years prior to sale; and if he will make a statement on the matter. [31448/17]
View answerFinance Act 2016 provided for the introduction of a tax regime for Irish Real Estate Funds or IREFs. The section was introduced to address the use of certain collective investment vehicles to invest in Irish property by non-resident investors. The IREF regime provides for taxation of investment undertakings, where 25% of the value of that undertaking is made up of Irish real estate assets.
The key features of the regime are:
- Any rental income or development profits earned by the IREF will be included in the calculation of the IREF's profits.
- Capital gains will also be included in the calculation of profits unless the asset is held for five years or more. The five year time period was provided for to encourage longer-term investment in the market. Where the asset is held for five years or more but the investor has the ability to control or influence the selection of property in the fund, they will not qualify for the capital gains tax exemption.
- Where an IREF makes an actual distribution or on the redemption of units in the IREF, non-resident investors will be subject to a withholding tax of 20%.
The exemption from capital gains tax for IREFs was legislated for to encourage sustainable investment focussed on the long-term holding and management of income-producing rental property.
This will, in the longer term, lead to a more sustainable, secure, property market for both investors and property tenants whilst generating regular and reliable tax revenues for the Exchequer, from the taxation of the rental profits.
Although a gain may be exempt where the property is held for more than five years, tax will still be payable on the rental income that is being generated.
By way of comparison, there is a full exemption for non-residents from UK capital gains tax on all commercial property gains in the UK no matter what type of structure is used for investment purposes (i.e. a fund, a normal company, partnership etc).
The IREF legislation is not a tax incentive for non-residents investing in Irish property. All rental income and development profits earned by the IREF is included in the calculation of the IREF's profits. Where an IREF makes a distribution of these profits, non-resident investors will be subject to a withholding tax of 20%.
