Investment Limited Partnership
The 2013 Finance Act removes investment limited partnerships from the definition of collective investment undertaking. An investment limited partnership is not subject to tax in respect of its profits for investment as defined for investment to undertake.
Its income and gains are treated as going to the individual unit holders in proportionate to the value of the benefits received. An investment limited partnership is a see-through vehicle.
Every investment limited partnership must make a statement to the revenue in electronic specifying total relevant profits accrued to the partnership and details for each unit holder. It is exempted from deposit interest retention tax.
Finance Act 2016 significantly amends the taxation of funds which hold Irish real estate. It provides for an Irish real estate fund fund which is an investment undertaking (other than an UCITS), where 25 percent of the value is made up of Irish real estate].
The legislation provides a 20 percent withholding tax on distributions to non-resident investors. This differs from the general position in respect of other funds holding other classes of assets for non-residents who are not subject to tax. In the case of investors who are subject to Irish tax, no further tax arises under the 2016 provisions.
Certain investment vehicles are exempt as intermediaries. They include pension funds, certain collective investment undertakings, life insurance companies, credit unions and other section 110 companies. The exemption is subject to conditions.
The objective is to ensure that profits from Irish land and real estate are taxed in Ireland in accordance with the general scheme of the Irish Taxes Acts. The exemption does not apply to personal portfolio arrangements for which there are special provisions.
IREF are exempt on income and gains. The measure is a withholding tax where distributions are made to non-residents. It applies at the rate of 20 percent.
The fund administrators are obliged to calculate the withholding tax due which is a subject of complex provisions. The new provisions applied to distributions after 1st January 2017. The rules apply notwithstanding that the profits were earned prior to 1st January 2017.
Key IREF Features
IREF assets are Irish land and buildings, securities which derive the greater part of the value from them, shares in an REIT, certain units in other IREF.
Where the gains arise investment, properties held for at least five years, they are excluded. Unrealised gains are excluded.
Where the IREF holds securities in a company which drives a greater part of their value from Irish real estate holds shares in an REIT, dividends received are excluded other than property income dividends from a REIT.
The obligation to withhold tax arises
- upon the redemption of units in the IREF,
- sale of units,
- exchange of units,
- transfer of rights to receive accrued IREF profits,
- cessation of IREF status (real estate assets fall below for 25 percent of full value).
The tax applies in broad terms to the part of the distribution relating to IREF profits accrued during the time the investor had the investment. A return must be made once the liability event arises. It must include particulars of the IREF and the recipient of the distribution.
The issue of new shares or units to a unit holder may be taxable. In this case the administrator is to reduce the number of units issued so that the value of issued units is equal to what would have been received by way of cash. Where there is a taxable non-cash event the equivalent withholding tax must be paid. The IREF may recover it from the holder as a debt due by legal action.
In most cases, the withholding tax satisfies the obligation of the unit holder to tax.
Reclaiming Withholding Tax
There may be scope for reclaiming the withholding tax under double treaty provisions. This is however restricted. In the case of investors holding more than 10 percent of the units in the IREF, the tax is deemed to be tax on immovable property which delimits the extent of the double taxation treaty relief.
In other cases, it is deemed a dividend so that relief may be available. In the case of other intermediaries such as EU pension funds, the withholding tax may be refunded.
If unit holders dispose of their units, the buyer must deduct 20% of the proceeds and remit it the Revenue. The seller may seek reclaim any tax refund due from the Revenue, if available.
A personal portfolio is one for the composition of the assets influence are determined by the unit holder. The person concerned is deemed a specified person and is then brought with the scope of the withholding tax, even if not already subject to it.
2017 Withholding Amendments
The Finance Act 2017 made amendments to the Irish Real Estate Fund regime. It confirms that they are not required to operate withholding tax on payments to certain intermediary exempt vehicles, in particular approved retirement funds, and retirement funds, PRSAs. The fund-holders may make a declaration.
Sub-funds may make a declaration in relation to unit holding in another sub-funds in the same scheme. Provision is made for advanced clearance for cases where there would be a full repayment of any tax withheld.
Provision is made for an MIFID-regulated intermediary to make the declaration
IREF to Company
The Finance Act 2016 makes provisions for transfers from IREFs into a company. The transfer may take place on a tax neutral basis. Assets may be transferred at the deemed written down rate applicable if they had been acquired initially by the company.
The legislation prescribes declarations which must be made by various classes of investors.
2019 IREF Amendments
Finance Act 2019 makes a number of amendments to the taxation of Irish Real Estate Funds (IREFs), introduced by Finance Act 2016.
- Amends the calculation of the amount on which IREF tax is levied to ensure that any gains which are reflected in the market value of the unit, but which are not reflected in the accounts of the IREF, are subject to IREF tax;
- Introduces two restrictions on deductions that can be made by an IREF in arriving at the surplus available for distribution: an interest restriction and a general restriction;
- The interest restriction has two aspects. The first places a debt cap on the IREF, with any interest on debt in excess of that cap giving rise to an adjustment. The second places a financing cost ratio on the IREF, with any interest costs in excess of that amount giving rise to an adjustment. In both cases, the adjustment is that the excess amount is charged to tax in the hands of the IREF;
- The general restriction requires that any other amount expensed in the accounts of the IREF is incurred wholly and exclusively for the purposes of the IREF business and any excessive amounts are charged to tax in the hands of the IREF;
- Introduces a charge to tax at the fund level in certain holder of excessive right situations; and
- Places the IREF return filing requirement on an annual footing.
- There are also a small number of technical amendments to ensure the section operates as intended.
The amendments in relation to restrictions on interest and market value took effect from Budget night via financial resolution.
The section also makes an amendment to Schedule 29 to provide for a penalty for non-compliance with the IREF return requirements.