Dáil Éireann Debate, Wednesday - 13 July 2022
174. Deputy Ged Nash asked the Minister for Finance the estimated additional yield that would accrue from a dividend withholding tax rate of 41% on all dividends paid by REITs and IREF respectively in tabular form; and if he will make a statement on the matter. [38685/22]
Amharc ar fhreagraAn Irish Real Estate Fund (IREF) is an investment undertaking where 25% or more of the value of that undertaking is made up of Irish real estate assets. Generally IREFs must deduct a 20% withholding tax on distributions to non-resident investors, and further taxation is a matter for their country of residence. 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. Non-resident investors from treaty resident countries may be able to reclaim some part of IREF withholding tax if the relevant tax treaty allows for this. Irish resident investors are not subject to the IREF withholding tax as they are already subject to 41% exit tax on income/gains from funds.
A Real Estate Investment Trust (REIT) is a quoted company, used as a collective investment vehicle to hold rental property. The function of the REIT framework is not to provide an overall tax exemption but rather 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. REITs are publicly listed companies - therefore distributions are dividends within the scope of Dividend Withholding Tax (DWT), which applies at a rate of 25%. REITs are obliged to distribute at least 85% of profits annually. Irish resident investors are liable to tax at their marginal rates on dividends received, with a credit for the DWT deducted. Non-Irish resident investors are subject to DWT at 25%. Those resident in treaty-partner countries may be able to reclaim some of this DWT under the relevant tax treaty.
The Deputy should note that, as outlined above, IREFs are not required to operate DWT in the same manner as REITs. The IREF withholding tax is charged at 20% and operates separately to DWT.
I am advised by Revenue that the yield from changes in the rates of withholding taxes on REITs and IREFs would be dependent on the level of future distributions by these entities. There is no basis available to provide an accurate estimate of these future distributions. Furthermore, as set out above, investors resident in treaty-partner countries may be able to reclaim some of the REIT DWT or IREF withholding tax deducted, by reference to an agreed distribution rate in the relevant bi-lateral treaty. In such cases, there would be no net Exchequer yield from an increase in the withholding tax rates as treaty relief would reduce the net tax back to the existing agreed rate.
However, the Deputy may be interested to note the information published on IREFs in the Revenue statistical report titled Corporation Tax – 2021 Payments and 2020 Returns which is available at the following link: www.revenue.ie/en/corporate/documents/research/ct-analysis-2022.pdf.
Table 18 in the report provides information in respect of IREFs based on returns filed with Revenue. Due to the low number of REITs operating in Ireland and Revenue’s obligation to observe confidentiality, I am advised by Revenue that equivalent information in respect of REITs cannot be provided.
