The recently enacted Finance (No 2) Act 2013 changed the tax rates applicable to Irish resident individual investors in Irish and certain foreign investment funds.
The rate of taxation for Irish resident individuals who invest in Irish domiciled investment funds will increase to 41% with effect from 1 January 2014. This single rate will apply to regular distributions (previously subject to a rate of 33%) and less frequent payments and disposals (previously subject to a rate of 36%). The new rate of 41% for disposals compares to a normal capital gains tax rate of 33%. The rate of tax applicable to Irish resident individuals investing in personal portfolio investment funds (where the investor can influence the choice of the underlying assets) will increase to 60%, with a rise to 80% in certain cases.
The investment fund will be liable to account for these taxes by withholding the relevant tax from the distribution or payment. No Irish taxes will need to be deducted by the investment fund where the shares are held in a recognised clearing system. Therefore, Irish investors in Irish ETFs must account for the taxes to the Irish Revenue Commissioners under the self-assessment system. Where the fund is liable to account for Irish tax on distributions and payments made to Irish resident companies, the rate of tax remains 25% provided a declaration is in place by the Irish company.
Irish investment funds remain attractive for non-resident investors who are exempt from Irish tax provided the required declarations are in place.