Dáil Éireann Debate, Tuesday - 22 February 2022
75. Deputy Neasa Hourigan asked the Minister for Finance his plans to review the current tax arrangements for real estate investment trusts and Irish real estate funds; and if he will make a statement on the matter. [9533/22]
View answerIt should be noted that, as with investment vehicles generally, taxation in Real Estate Investment Trusts (REITs) and Irish Real Estate Funds (IREFs) occurs primarily at the level of the investor rather than within the investment vehicle. Additionally, both REITs and IREFs apply withholding taxes on distributions to investors to ensure collection of tax revenues.
Finance Act 2013 introduced the regime for the operation of REIT companies in Ireland. The purpose of the REIT regime is to allow for a collective investment vehicle which provides a comparable after-tax return to investors to direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply. REITs are required to distribute 85% of all property income profits annually to investors. Dividend Withholding Tax (DWT) at a rate of 25% must be applied to these distributions, other than those distributed to certain limited classes of investors such as pensions and charities as they are more generally exempt from tax.
An IREF is an investment undertaking where 25% or more of the value of that undertaking is made up of Irish real estate assets. The legislation was introduced to address concerns raised regarding the use of collective investment vehicles by non-residents to invest in Irish property. Generally IREFs must deduct a 20% withholding tax on distributions to non-resident investors. Certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings are generally exempt from having IREF withholding tax applied provided the appropriate declarations are in place. Irish resident investors may be subject to the investment undertakings exit tax, at a rate of 41%.
Officials in my Department produced a report on REITs and IREFs as respects their investment in the Irish property market in 2019. The report was presented to the Tax Strategy Group and provided a basis for policy discussions and for amendments which were introduced in Finance Act 2019 to strengthen the regimes.
In relation to REITs, Finance Act 2019 extended the obligation to deduct DWT to include distributions of the proceeds of capital disposals. In addition, the deemed disposal provisions upon cessation of REIT status were restricted to REITs that have been in operation for at least 15 years, in line with the regime's stated objective of encouraging long-term, stable investment in rental property. In relation to IREFs, amendments were made in Finance Act 2019 to prevent the use of excessive debt and other payments to reduce distributable profits, and to prevent the avoidance of tax on gains on the redemption of IREF units. These amendments were made to ensure appropriate levels of tax are paid by investors in Irish property.
There are currently no plans to conduct a further review the tax treatment of REITs or IREFs. However officials in my Department and the Revenue Commissioners monitor the taxation of IREFs and REITs on an ongoing basis and, should additional issues be identified, I will take further action as necessary.
