I note the Deputy's query in relation to the taxation of investments and specifically about non-Irish residents investing in funds that are domiciled here.
The normal tax treatment afforded to Irish collective investment fund is that funds invested are allowed to grow on a tax-free basis within the fund. The income is taxed at the level of the investor rather than the fund, as is standard international practice. Funds are obliged to operate an exit tax regime and remit the tax deducted in this manner to Revenue. This ensures that appropriate tax is collected from Irish investors. This charge to tax does not apply in the case of unit holders who are non-resident. In the case of non-resident investors’ liability to tax on gains from the fund will be determined in their home jurisdiction.
The broad rationale for exempting such funds from direct taxation is to facilitate individuals to invest collectively, without suffering double taxation (that is, taxation both within the fund and in the hands of the investor on distribution). There is a charge to tax on Irish residents on the happening of a “chargeable event”. In order to prevent the indefinite deferral of a chargeable event (and therefore an exit charge), a deemed disposal occurs 8 years following inception of a policy of life assurance or acquisition of a fund and then every 8 years thereafter. The deemed disposal rules also apply to equivalent offshore funds. Any gain on the investment which arises from the date of inception or the date of acquisition to the date of the deemed disposal is subject to tax. This ensures that income isn’t rolled up indefinitely in life assurance policies or funds without being subject to tax. On the ultimate disposal of the investment, any tax paid which arose as a result of a deemed disposal is allowed as a credit against any final tax liability on disposal.
In general, non-Irish resident investors are not subject to Irish tax on their investment and do not incur any withholding taxes on payments from the fund, however different rules apply in respect of certain funds which hold interests in Irish real estate or particular types of Irish real estate related assets. In relation to investing in property, there are two legislative vehicles that facilitate such investment, Irish Real Estate Funds (IREFs) and Real Estate Investment Trusts (REITs).
The IREF tax regime was introduced in Finance Act 2016. An IREF is an investment undertaking, or a sub-fund, which derives 25% or more of its market value (either directly or indirectly) from real estate assets in the State. IREFs are subject to an IREF Withholding Tax (WHT) of 20% on distributions to non-resident investors. The legislative provisions exempt certain categories of non-resident investors such as pension funds, life assurance companies and other collective investment undertakings from having IREF withholding tax applied in circumstances where the appropriate declarations are in place. Irish resident investors are generally subject to a separate investment undertaking tax, at a rate of 41% for individuals and 25% for companies, on distributions received from the fund.
A 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.
Last year, on 6 April 2023, I published the Terms of Reference for a review of Ireland’s funds sector - ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’. The review is wide ranging and looking at a range of issues relevant to the funds sector, taking into account the recommendations in this area of the Commission on Taxation and Welfare 2022 report, Foundations for the Future.
In that context, one area being considered by the review is the taxation regime for funds, life assurance policies and other related investment products; with the goal of simplification and harmonisation where possible. A public consultation was held from 21 June 2023 to 15 September 2023 and the review is now well advanced. Based on the data available, Irish savers and investors do not invest in as broad a range of products as in many other Member States. However, there are many reasons for this including taxation. As per the terms of reference, the Review team will report to me this Summer and I look forward to considering its findings at that point. On that basis it would not be appropriate to presuppose any outcomes of the review at this time.
In addition, as with all areas of tax policy, the taxation of investments will be kept under review throughout the annual budgetary and Finance Bill process.
