DUBLIN: Non-residents will need to pay a 20% withholding tax on their investment in Irish property funds from next year, according to the Irish finance ministry. The government has introduced the change in the tax law to dissuade foreign investors from using ‘structures’ to minimize tax bills.
Foreign investors who have been buying up swathes of Irish property in recent years through two types of property funds – Irish Collective Asset-management Vehicles (ICAVs) and Qualifying Investor Alternative Investment Funds (QIAIFs) – will be most affected by the new withholding tax, experts said.
Nearly €12 billion (US$13.06 billion) of Irish property assets are held in both types of property funds. The government is planning to introduce stringent anti-avoidance laws to take action against investors who try to circumvent the tax.
Certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings have been exempted from the new tax, the finance ministry said in a statement.
Experts added that since non-residents accounted for 71% of property sales in 2016, uncertainty around the legislation that governs QIAIFs and ICAVs had already delayed well in excess of 100 million euros ($109 million) worth of deals. It is predicted that the new tax will lead foreign investors to move billions of euro of Irish property assets out of funds.
“The proposed changes will materially alter the tax treatment of Irish property funds,” William Fogarty and Andrew Quinn, tax lawyers with Maples and Calder in Dublin, said in a note to clients recently.
