Ireland has recently improved its investment funds tax regime, to offer investors an attractive tax transparent regulated limited partnership vehicle. This development should be of particular interest to private equity and real estate managers and investors. It reinforces Ireland’s position as a leading jurisdiction for the establishment of investment funds, with over 5,000 regulated funds domiciled in Ireland, holding over €1.3 trillion in total assets.

Investment limited partnerships are a form of Irish regulated investment fund. Legally, these limited partnerships are transparent entities, with the partners jointly owning the assets of the fund. Historically, however, these partnerships have been treated as tax opaque under Ireland’s tax code. The recent development aligns their tax treatment with their legal treatment, so that they are now tax transparent vehicles. Income and gains arising in these funds are now treated for Irish tax purposes as arising to the partners in proportion to the value of their investment.

This change should make investment limited partnerships more attractive, particularly to the private equity and real estate fund sectors where tax transparent partnerships have typically been a preferred form of fund vehicle. With the implementation of AIFMD, this is also a timely improvement to Ireland’s investment funds tax regime, as many fund managers look to establish funds in regulated jurisdictions.

The main tax characteristics of Irish investment limited partnerships are now as follows:

  • Tax transparent, so that their profits are not chargeable to Irish tax.
  • Investors are treated as earning their proportionate share of the income, profits and gains of the fund.
  • VAT exemption on management fees.
  • No stamp duty on transfer of units in the fund.

This development reflects Ireland’s continued commitment to offer the leading tax environment in which to domicile investment funds.