Investing in Ireland
Property
With Ireland being was one of the fastest growing economies in the European Union, the demand for residential and commercial property has led to an increased interest from overseas investors. Areas of the key growth include social housing and nursing homes, which benefit from Government backed real estate subsidies. Similarly, investment in the private rented sector (PRS) continues to increase with more than EUR2 billion spent on existing and build-to-rent residential schemes during 2019.
In recent years, the market has seen an increased professionalisation and internationalisation of the Irish real estate market. Private equity funds continue to reduce their presence and are being replaced by more long-term holders of real estate assets such as real estate investment trusts (REITs) and pension funds, both national and international. Commercial transactions continue to be buoyant as global companies view Ireland as the ideal base for establishing their European Headquarters. Examples include Google, Facebook, Twitter, Tik Tok, LinkedIn and Microsoft. Additionally, the Irish office market has also benefited from relocations due to Brexit, and the serviced office sector, in particular, is growing rapidly.
Overview
There are no restrictions on foreign nationals buying property in Ireland. This means that both EU/ EEA and non-EU/ non-EEA nationals can purchase property in Ireland without limitation. Irish property can be held under freehold title which confers absolute ownership, or a leasehold title which confers ownership for the period of years granted by the relevant lease and held from the owner of the freehold or the owner of the superior leasehold title in the relevant property. A leasehold interest is based on a contractual relationship between the lessor/landlord and the lessee/tenant
Investment Structures
A number of structures can be used to invest in Irish real estate and the type of structure used depends on the investor base, objective of the investment and exit strategy of the investor (eg, whether the asset is held to generate rental income or to appreciate in value).
An Irish company engaged in property development can benefit from a low rate of tax (12.5%) on the profits derived from the sale of fully developed land. Otherwise, the applicable rate of corporation tax is 25%.
Non-Irish resident companies are often used to invest and hold Irish real estate and are liable to income tax at a rate of 20% on rental profits, compared with a 25% for Irish resident companies.
Regulated funds established in Ireland are a popular vehicle for international investment in property, equity and loan portfolios. Where such a fund or sub-fund, derives (directly or indirectly) less than 25% of its market value from Irish real estate and related assets (e.g. Irish shares/loans), no Irish tax is payable in respect of income and gains earned at the fund level and distributions to non-resident shareholders are generally free from Irish withholding tax. In contrast, Irish Real Estate Funds (IREFs) (i.e. funds which derive 25% or more of their market value from Irish real estate and related assets) are subject to a different tax regime. Following the Finance Act 2019, such funds may or may not be subject to tax at the fund level depending on their leverage levels and the amount of interest and other expenses. Distributions to unit holders (and a number of other events) generally give rise to a 20% withholding tax.
Ireland also operates a special regime for publicly quoted “Real Estate Investment Companies” (REITs). REITs are generally exempt from tax at the company level. However, the REIT must distribute 85% of its income and gains annually to its shareholders which are generally subject to Irish withholding tax at a rate of 25% for 2020. Also, new rules have been introduced eliminating the exemption from CGT for REITs on a cessation, unless it has been in existence for 15 years.