Invest in Irish real-estate free of tax in 2023
- Through the use of a QIAIF regulated fund, foreign investors can legally eliminate all Irish taxes, including capital gains tax, income tax and stamp duty;
- QIAIF income distributions are remitted overseas free of Irish withholding tax. If a foreign investors wishes to sell his shares in a QIAIF, there are no Irish tax implications;
- A QIAIF can be used as an investment vehicle by one or more foreign investors. We recommend a minimum investment of €10million for the tax savings to outweigh QIAIF set up and annual maintenance costs;
How to set up a QIAIF owned and controlled by foreign investors
- The most common legal structure for a QIAIF is an Irish investment company. The ordinary shares owned by an Irish licensed fund manager trustee. Preference shares issued to foreign investors;
- At least two of the Irish investment company directors must be Irish residents. Mr. Aidan Healy (click link) will be the resident director, the second being a licensed investment manager. The remaining directors can be the foreign investors making decisions about the QIAIF’s portfolio;
- The Irish investment company will have a local corporate bank account to receive rental income and proceeds from sale of investment. The foreign investors will be the sole bank signatories;
- Other Irish investment company appointments include i) a fund administrator responsible for portfolio valuation and fund accounting ii) a custodian who will hold the fund’s assets for safekeeping;’
- A QIAIF fund is regulated by the Central Bank of Ireland and covered by the EU’s Alternative Investment Fund Management Directive (AIFMD);
QIAIF licensing process
- The Central Bank of Ireland uses an online system for submitting and reviewing QIAIF licensing applications;
- The fund must submit the following details and documents to complete the licensing process:
- The fund’s legal structure (corporate entity, investment trust, common fund, etc.);
- The fund’s prospectus, which must be compliant with Chapter 2 of the CBI’s Alternative Investment Fund Rulebook;
- The fund vehicle’s memorandum and articles of association (or equivalent, depending on fund structure);
- Directors’ details;
- An agreement between the fund and its alternative investment fund manager (AIFM); and
- An agreement between the fund and its custodian.
- Following application submission, government correspondence will take place through the portal;
- This government guide provides more information on how to apply to set up a QIAIF.
QIAIF investment restrictions
- An investor in a QIAIF must meet certain qualification requirements, which can largely be satisfied by certifying their understanding of the risks involved in their investment. All fund investors must make an initial commitment of at least €100,000 to the fund.
- The funds themselves are not restricted only to real estate investments. Other alternative investment products may be targeted by the fund, meaning that they are also suitable for venture capital, hedge fund and private equity structures. However, because these types of funds invest in companies that remain taxable as underlying assets, the QIAIF structure does not have the same advantages as it does for real estate.
- There is no maximum leverage ratio for a QIAIF, although the amount of permitted leverage must be declared in the fund’s prospectus.
Buying into an existing QIAIF
- Foreign investors can purchase units of an existing licensed QIAIF fund. The investors are passive and the fund manager owns and controls the funds;
- Foreign investors buy and sell units of the fund, without suffering Irish taxes. Foreign investors receive annual fund distributions free of Irish withholding tax;
Irish taxes without a QIAIF
- Capital gains tax of 33% (click link), on the sale of Irish land and buildings, consuming a significant chunk of investor’s profits;
- Withholding tax of 20% (click link) on rental income earned, regardless if remitted overseas or not;
- Stamp duty on transfers within the portfolio, typically at 2%;
Background to QIAIF structure
- Just like Singapore and Dubai, Ireland is an open economy. The success of which is dependent on foreign investment. To increase foreign investment in Irish real estate, the Irish government approved the QIAIF as a legally tax exempt fund vehicle;
- Because QIAIFs are classified as an Irish resident entity, this fund vehicle can collect rental income gross;
- Unfortunately, Irish tax residents do not enjoy the benefits of a QIAIF;