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What is the general climate of real estate investment in your jurisdiction?
Ireland’s gross domestic product grew by 5.2% in 2016 (compared to an EU average of just under 2%). Ireland remains a highly sought after location for real estate investment.
The Irish government has set a target of 175,000 new housing units to be built by 2021. The government proposes to do so by, among other things:
- opening up land supply and low-cost state land;
- establishing a Local Infrastructure Housing Activation Fund;
- providing financing through the National Treasury Management Agency for large-scale ‘on-site’ infrastructure;
- reforming planning laws and processes; and
- providing a €5.35 billion investment to build social housing.
This will create opportunities for developers, builders, funders and investors.
Who are the most common investors in real estate?
Recent years have seen an increased professionalisation and internationalisation of the Irish real estate market. Private equity funds continue to reduce their presence in 2017 and are being replaced by more long-term holders of real estate assets such as real estate investment trusts and pension funds, both national and international.
Are there any restrictions on foreign investment in real estate?
Subject to satisfactory anti-money laundering documentation being provided and UN and EU sanctions lists, there is no restriction on foreign investment in real estate.
What structures are typically used to invest in real estate and what are the advantages and disadvantages of each (including tax implications)?
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).
Irish companies can be used to develop real estate and a 12.5% tax rate should apply to the sale of fully developed land by an investment company.
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.
Qualifying Irish real estate funds used for international investment in Irish property portfolios are tax exempt at the level of the fund but highly regulated and expensive to set up and run. Therefore, these are suitable only for large scale investment. The Irish Collective Asset Management Vehicle (ICAV), which is a form of fund, is frequently used for large portfolio investment. The ICAV is able to ‘check the box’ to elect to be a disregarded entity for US tax purposes, which is an advantage over other fund vehicles which cannot. Following changes introduced in the Finance Act 2016, these funds are now subject to withholding tax of 20% on distributions and redemptions.
The activity to be conducted, the size of the investment and the location of the shareholder will dictate the most appropriate structures.
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