Pearse Doherty (Donegal, Sinn Fein)
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167. To ask the Minister for Finance if costs (details supplied) are deductible for REITs when computing their annual property income in view of the fact that one of the qualifying criteria of a REIT is that it must make a distribution of not less than 85% of its annual property income; and if he will make a statement on the matter. [49379/17]

Paschal Donohoe (Dublin Central, Fine Gael)
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The Finance Act of 2013 introduced the regime for the operation of Real Estate Investment Trusts (REITs) in Ireland, found in Part 25A of the Taxes Consolidation Act 1997.  The regime provides for a collective investment vehicle for persons wishing to invest in property.  REITs must be widely held, as it is a requirement that the REIT not be a “close company”, that is, a REIT cannot be under the control of 5 or fewer participators. 

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. 

In general, the trading profits of companies in Ireland are subject to corporation tax at 12.5% while rental profits of companies are subject to corporation tax at 25%. Rental profits arising in a REIT are exempt from Corporation Tax, provided the REIT distributes at least 85% of its annual rental profits. Profits from any other activities within a REIT are subject to corporation tax in the normal way.

I am advised by Revenue that while a REIT must distribute 85% of its annual rental profits, the Companies Acts set out the amount of profits that a REIT has available for distribution.

In accordance with the Companies Acts, and taking a REIT which only has rental profit for simplicity: the profits available for distribution by the REIT would be the rental income of the REIT less all expenses of the REIT (including but not limited to local property tax (LPT), remuneration including bonuses and asset manager fees). It is important to note that a REIT does not get a tax deduction for LPT. In calculating the amount of a dividend a REIT is able to pay, the LPT gets deducted along with other expenses paid. This in turn reduces the amount of dividends a REIT can pay.  The expenses come out of the profits, therefore, the profits available for distribution are the profits after deducting all expenses incurred.  The investors are then taxed on the profits as distributed.