Tuesday, 23 July 2019

Questions (161)

Pearse Doherty

Question:

161. Deputy Pearse Doherty asked the Minister for Finance his views on the recent Central Bank analysis, which estimates that approximately 50% of total equity in real estate investment trusts, REITs, domiciled here is held by international investors. [31528/19]

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Written answers (Question to Finance)

The rules on REITs in Ireland are set out in Part 25A of the Taxes Consolidation Act 1997 and were introduced by Finance Act 2013. Irish REITs are collective investment vehicles which invest in Irish property. The income and gains from Irish property are not taxed within the REIT but are instead taxed in the hands of the investor when distributed. REITs must distribute at least 85% of their property profits and gains to shareholders each year. A REIT is subject to corporation tax on any income or gains arising from any other business (i.e. non-property business) that it carries on.

Dividend Withholding Tax at the standard rate of 20% is deducted by the REIT from dividends paid to both Irish and non-resident shareholders. Foreign investors resident in treaty countries may be able to reclaim some of this DWT under the relevant tax treaty. Tax treaty rates on dividends vary from treaty to treaty, but the most common rate applicable to small shareholdings is 15%. This means that Ireland retains taxing rights of 15% on dividends paid from Ireland.

Institutional investors have an important role to play in increasing property supply and I am satisfied that tax regimes which apply taxation at the level of the investor are appropriate to collective investment vehicles of this nature. It is evident that the role of institutional investors, such as REITs, is growing, particularly in the urban apartment market segment. In this context, it is worth noting that institutional investors are engaged in partnerships and forward purchase contracts with developers and building contractors, i.e. they are funding or part-funding the property development. In the absence of such funding from institutional investors it is likely that such projects would be delayed or potentially may not take place.

However I would also note that the role of institutional investors, including REITs, is still minor in proportion to the total rental sector. Data provided to my Department by the Residential Tenancies Board for May 2019 shows that the rented residential accommodation market is still dominated by small landlords. The majority (over 70%) of landlords registered a single rental tenancy, with over 96% of landlords registering 5 tenancies or less. Landlords with 5 tenancies or less account for almost 72% of all registered tenancies. The top 21 landlords account for 3.11% of all registered tenancies. The percentage of landlords with 20 or more tenancies has decreased from 0.52% in 2017 to 0.43% in 2019. Given the important implications which developments in the property market can have for the economy, officials in my Department will continue to monitor developments in this sector.