Richard Boyd Barrett
Question:147. Deputy Richard Boyd Barrett asked the Minister for Finance to provide full details of the tax regime for REITs; and if he will make a statement on the matter. [39527/23]
View answerWednesday, 20 September 2023
Questions (147)
Written answers
A Real Estate Investment Trust (REIT) is a quoted company, used as a collective investment vehicle to hold rental property. The REIT regime was introduced in Finance Act 2013 and its function is to facilitate collective investment in rental property by removing a double layer of taxation which would otherwise apply on property investment via a corporate vehicle.
A REIT (or a group REIT) is generally exempt from corporation tax on income from its rental property business and chargeable gains accruing on disposal of assets of their property rental business. There are extensive conditions that must be met in order to qualify as a REIT, including:
• A REIT must be incorporated under the Companies Acts and must have its shares listed on the main market of a recognised stock exchange in an EU Member State;
• REITs are obliged to distribute at least 85% of property profits annually, for taxation at the level of the shareholder;
• a REIT must derive at least 75% of its aggregate income from property rental business;
• it must have at least three properties, no one of which may exceed 40% of the total market value of all its rental business properties;
• it must maintain a property to financing costs ratio of 1.25:1;
• at least 75% of the aggregate market value of the assets of the REIT must relate to assets of the property rental business;
• it must ensure that the aggregate of the specified debt does not exceed 50% of the aggregate market value of the business assets of the REIT; and
• There is a diverse ownership requirement to ensure that no one person or group of connected persons can control the REIT.
REITs are obliged to operate Dividend Withholding Tax (DWT), at the standard rate of 25%, on distributions to shareholders. The DWT is available as a credit against the shareholder’s tax liability. Shareholders resident in treaty-partner countries may be able to reclaim some of this DWT under the relevant tax treaty. Excluded investors, such as pension schemes or charities investing in the REIT, may receive distributions gross, subject to completion of appropriate declarations. Such entities are more generally exempt from tax or subject to gross roll-up regimes in view of their own purposes or objectives.
Further information on the REIT regime is available in Revenue’s Tax and Duty Manual on REITs, available at www.revenue.ie/en/tax-professionals/tdm/income-tax-capital-gains-tax-corporation-tax/part-25a/25a-00-01.pdf
In its 2022 Report, the Commission on Taxation and Welfare recommended that a review of both the REIT and IREF (Irish Real Estate Funds) tax regimes with regard to institutional investment in the Irish property market should be undertaken. This recommendation has been incorporated into the Terms of Reference for the “Funds Sector 2030” Review which were published on 6 April this year.
In line with the Terms of Reference, the Funds Review will consider:
“an examination of the regimes for Real Estate Investment Trusts (REITs) the Irish Real Estate Funds (IREFs) and their role in the property sector, including how they support housing policy objectives”.
A multi-disciplinary team Review Team, made up of Department of Finance and Central Bank of Ireland officials, has been established. The Review Team, led by the Department of Finance, will also work closely with the Revenue Commissioners. A public consultation was launched in late June with a deadline of 15 September. In addition to this consultation exercise, there will be extensive direct engagement with relevant public sector and private sector stakeholders throughout the period of the Review.