Written answers

Tuesday, 25 May 2021

Photo of Seán CanneySeán Canney (Galway East, Independent)
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188. To ask the Minister for Finance the rate of tax on housing rental income paid by investment corporations for the past seven years; and if he will make a statement on the matter. [27696/21]

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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I understand the Deputy is seeking information relating to the rate of tax paid on rental income by companies, Real Estate Investment Trusts (REITs), Irish Real Estate Funds (IREFs) and any other fund model which may earn rental income on Irish property.

I am advised by Revenue that they cannot provide a breakdown of taxable profits relating to Irish property investment between profits which relate to residential property and profits which relate to commercial property. Therefore, the following information relates to investment in Irish property in general.

Companies

The rental profits of an Irish resident company are chargeable to corporation tax at the higher 25% rate. I am advised by Revenue that due to the interaction of reliefs and credits after the calculation of gross tax by companies, it is not possible to separately identify the amount of net corporation tax paid on rental income by these companies. However, information in respect of net rental income for various years is published by Revenue on the “Summary of Corporation Tax returns”.

The Irish rental profits of a non-resident company are chargeable to income tax at the standard rate (currently 20%). As with Irish resident companies, due to the interaction with reliefs and credits, it is not possible to identify the net income tax paid on rental income by non-resident companies. Statistical information with respect to income tax paid by non-resident companies, who file an income tax return (Form 1) rather than a corporation tax return (Form CT1), is not currently available.

Real Estate Investment Trusts (REITs)

Finance Act 2013 introduced the regime for the operation of REITs in Ireland and the rules relating to REITs are set out in Part 25A, Taxes Consolidation Act 1997. The purpose of the REIT regime is to allow for a collective investment vehicle which provides a comparable after-tax return to investors to direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply. This double layer of taxation is removed by providing that REITs are not subject to corporation tax on their rental profits or on any gains that arise from the disposal of rental properties, and requiring that REITs must distribute at least 85% of their profits annually for taxation at the level of the investor. Dividend Withholding Tax (DWT) provisions at a rate of 25% (20% prior to 1 January 2020) apply to distributions by REITs.

DWT does not apply on distributions to certain limited classes of investors such as a pension or a charity as they are more generally exempt from tax at the entity level, and nor will it apply to situations where the Parent / Subsidiary Directive applies. Investors can make a claim for a repayment of dividend withholding tax if they are entitled to a lower rate of withholding tax under a double tax agreement.

As REITs are not subject to corporation tax on their Irish property profits or gains, there is no obligation to report these amounts to Revenue. Revenue has also confirmed that, due to the small number of REITs involved and the obligation to maintain the confidentiality of taxpayer information, they cannot provide specific information in relation to the rental income associated with these entities, including specific detail relating to residential investment.

Irish Real Estate Funds (IREFs)

The rules relating to IREFs are set out in Chapter 1B of Part 27, Taxes Consolidation Act 1997, and were introduced by Finance Act 2016. An IREF is an investment fund, or a sub-fund, which derives 25% or more of its market value from Irish real estate.

As an investment undertaking, the profits or gains of the IREF are not taxed within the fund, but instead are subject to tax in the hands of the investors, its unit holders. IREFs are subject to a 20% IREF withholding tax on distributions to non-resident investors on the occurrence of an IREF taxable event. An IREF taxable event can broadly be defined as any way in which the value of the profits of the IREF are passed to the unit holder, e.g. by way of a relevant payment (which is akin to receiving a dividend). Irish resident individuals/corporates are subject to investment undertakings tax. 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.

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