Overseas investors face 20% tax on property funds income

Minister for Finance Michael Noonan is poised to introduce a 20 per cent levy on money overseas investors receive from Irish property held in funds, as he clamps down on a device used by private equity firms to minimise tax bills on property bought here in recent years.

The Government has decided to proceed with a tax in the Finance Bill on Thursday, despite weeks of lobbying by property investors, accountancy firms and corporate lawyers.

Many of these argued that targeting so-called vulture funds will hit the recovering commercial property market and potentially damage Ireland’s position as a major hub for international funds.

Indeed, with Ireland seeking to position itself as an alternative location for London firms weighing options after the Brexit referendum, the Central Bank and Irish Stock Exchange see most activity happening in the funds area. Almost €2 trillion of global assets are currently domiciled in Ireland. However, Mr Noonan has previously emphasised that only Irish property investments in funds will be targeted.

"UK managers are looking to put in place contingency plans, so that if the UK does leave the EU, they will be ready to take the necessary steps to maintain their presence in Europe," Tara Doyle, head of the asset management group in law firm Matheson, said in article published by the Irish Funds Industry Association this week. "Ireland is well placed to solve any problems Brexit poses for UK managers."

Types of funds

The

Department of Finance

and Revenue Commissioners had considered a number of ways to tax Irish real estate in two types of funds: Qualifying Investor Alternative Investment Funds (QIAIFs) and Irish Collective Asset-management Vehicles. The resulting plan is to levy a withholding tax on distributions to overseas investors, according to sources.

Irish residents in QIAIFs and ICAVs are already subject to such a tax, levied at a rate of up to 41 per cent. Sources said last night that the withholding tax for non-residents will be set at 20 per cent. The Finance Bill is expected to outline where exemptions will apply.

Separately, the Bill will also give details of measures announced in the budget last week on how the Government plans to rein in people evading tax through offshore accounts, which the Department of Finance expects will yield €30 million next year.

The Bill will restrict the opportunity for offshore defaulters to use the voluntary disclosure regime with effect from May 2017. The Government also plans to introduce a new strict liability criminal offence so that serious cases of offshore tax evasion can be prosecuted.

Following the release earlier this year of the so-called Panama Papers, which lifted the lid on how offshore companies are used by wealthy individuals globally to conceal billions of euro of assets held offshore, Mr Noonan has pledged a “comprehensive programme of targeted compliance interventions against those engaged in offshore tax evasion”.

The Minister said last week he was giving the Revenue Commissioners an additional €5 million to recruit a further 50 staff and invest in systems and equipment to detect tax evasion.