The taxation landscape for regulated funds in Ireland

This article provides an overview of the tax treatment of Irish regulated investment funds, encompassing investment undertakings, funds investing in Irish real estate, investment limited partnerships and common contractual funds.

General tax treatment of Irish regulated investment funds

Irish regulated investment funds are subject to a unique tax regime designed to encourage fund activity while maintaining a level playing field for domestic and international investors. These funds are typically exempt from Irish taxation on their income and gains, ensuring that investors are not subject to double taxation.

The taxation focus shifts to the investors themselves, who are subject to tax based on their specific circumstances and local tax laws. This pass-through taxation ensures that the fund structure remains transparent and tax-efficient. 

Investment undertakings

Collective investment vehicles, commonly structured as unit trusts, investment companies or Irish Collective Asset-management Vehicles (ICAVs), can benefit from the ‘Investment Undertaking’ regime.

Under the Investment Undertakings regime, income and gains are generally exempt from Irish corporation tax, provided they meet certain conditions. The income generated by the fund is taxed in the hands of the investor, aligning with the pass-through taxation principle.

Funds investing in Irish real estate

Investment undertakings investing in Irish real estate

Specific provisions apply to investment undertakings that focus on Irish real estate. The Irish Real Estate Fund (IREF) regime, introduced in 2016, governs the tax treatment of funds with 25% or more of their assets in Irish real estate.

IREFs are subject to a 20% withholding tax on certain distributions, providing an incentive for investors to remain in the fund for a more extended period. The tax treatment also extends to gains on disposals of Irish real estate, ensuring a fair and transparent taxation framework. 

Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) have become a significant player in Ireland's investment landscape. These entities primarily invest in real estate and benefit from a special tax regime. REITs are exempt from corporation tax on qualifying property rental income and gains, provided they distribute at least 85% of their income annually. Investors are then taxed on their distributions from the REIT.

Investment limited partnerships

Investment Limited Partnerships (ILPs) have gained popularity for their flexibility and tax-efficient structure. ILPs are not subject to Irish tax on their income or gains, contributing to their attractiveness as investment vehicles.

Similar to other fund structures, tax obligations flow through to the partners, who are subject to tax based on their individual circumstances. The pass-through nature of taxation remains a fundamental aspect of ILP structures.

Common Contractual Funds

Common Contractual Funds (CCFs) are tax-transparent funds that allow investors to pool their assets. CCFs are not subject to Irish tax on their income or gains, providing an optimal structure for collective investment.

Like other regulated funds, the tax liability is attributed to the investors. They are responsible for declaring and paying tax on their share of the fund's income and gains in accordance with their personal tax circumstances.

Conclusion

The tax treatment of Irish-regulated investment funds is characterised by a well-defined framework that promotes transparency, efficiency and fairness. Whether structured as investment undertakings, funds investing in Irish real estate, investment limited partnerships or common contractual funds, the underlying principle of pass-through taxation ensures that investors bear the appropriate tax burden in accordance with their individual circumstances. Ireland's commitment to providing a conducive environment for the investment industry underscores its position as a leading global financial centre.