Dáil Éireann Debate, Tuesday - 16 June 2020
113. Deputy Ged Nash asked the Minister for Finance the estimated revenue that would be raised from an increase in the dividend withholding tax on real estate investment funds, REITs, and Irish real estate funds, IREFs, to 40%; and if he will make a statement on the matter. [11433/20]
View answerThe regime for the operation of Real Estate Investment Trusts (REITs) in Ireland was introduced in Finance Act 2013. The framework for REITs is designed to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment through a corporate vehicle. The property rental income and gains are exempt from tax within the REIT, they are taxed instead at the investor level when distributed.
Dividend Withholding Tax (DWT) must be applied to all distributions from REITs, other than those distributed to certain limited classes of investors such as pensions and charities as they are more generally exempt from tax. The distributions are subject to a DWT at 25% from 1 January 2020, prior to this date the rate applicable was 20%. Information in respect of dividends from shares in REITs is not separately identified from other shares. Part 25A of the Taxes Consolidation Act 1997 (“TCA 1997”) requires that 85% of all property income profits are distributed annually to investors. Any income or gains arising to the REIT which is not in respect of the REITs property rental business is subject to corporation tax.
Finance Act 2016 introduced the Irish Real Estate Funds (IREFs) regime. The regime provides that the profits arising to an Irish fund from Irish property remain within the charge to Irish tax. An IREF is an investment undertaking where 25% or more of the value of the assets is derived from real estate assets in the State. Generally, where a unit holder receives value from the IREF an IREF withholding tax of 20% will apply.
Foreign investors from tax treaty resident countries may be able to reclaim some part of any DWT on REIT distributions (currently 25%) or IREF withholding tax (currently 20%) if the relevant tax treaty allows for this. The taxation of distributions varies from treaty to treaty, but Ireland commonly retains the right to approximately 15% tax on gross dividends paid from that state.
Irish resident REIT investors are required to pay tax at their marginal rate of taxation on any distributions they receive on a self-assessment basis, with a credit available for any DWT deducted. Irish resident IREF investors may be subject to exit tax at a rate of 41% which is deducted at source by the IREF.
Given the interaction with tax treaties, and because information is not available in relation to potential future REIT and IREF distributions to investors, an accurate estimate of any potential revenue from an increase in the withholding tax rates cannot be made.
