Contributing Firms:
Taxation of investment in Ireland
In its mid term update on its Funds Sector Review, the Department of Finance said of the 140 responses submitted by private individuals, a considerable number were concerned exclusively with taxation. More specifically, many submissions by private individuals referred to the taxation regime for Exchange Traded Funds (ETFs). The Department said the submissions convey a general perception that the taxation of investment products, and of ETFs in particular, is a major barrier to increasing retail investor participation in Ireland. It added these views were also reflected in the submissions received from industry participants and the Central Bank which highlighted the apparent disconnect between Ireland’s role as a global hub for the funds industry and the low levels of domestic household investment into investment funds. Can you discuss the taxation of investments in Ireland and why they are perceived as ‘a major barrier’ in increasing retail investor participation?

Lorna Bent, Director, Private Clients, Deloitte: The taxation of investments in Ireland is complex and can be difficult for private individuals to navigate. Different types of investments are subject to different taxes such as income tax, capital gains tax, dividend withholding tax, and exit tax.
Lorna Bent
Lorna Bent

The return on certain Irish domiciled funds are taxed through the operation of exit tax at source on income and gains with no requirement to report the income / gains on the income tax return, while other Irish and foreign fund investments must be self-assessed by the investor. Investments in ETFs, in particular, have become more and more popular, private individuals can now even invest in ETFs via Revolut.

However, Irish investors may not be aware of the unfavourable tax treatment that can apply to ETFs as follows;
• gains on disposals of units in Irish / EU ETFs are subject to 41% exit tax as opposed to capital gains tax at 33%;
• income payments from Irish / EU ETFs are subject to 41% exit tax (albeit no USC or PRSI applies);
• there is no loss relief for investments in Irish / EU ETFs;
• for Irish resident but non-Irish domiciled individuals, the favourable remittance basis of tax does not apply to gains on disposals of EU ETFs;
• a deemed exit event occurs on the holding of an ETF investment every 8 years and on death of the investor;
• investing in ETFs makes the investor a chargeable person for income tax purposes i.e. the investor must file an annual Form 11.

Furthermore, while previously Revenue accepted that US ETFs should be taxed under general principles, Revenue removed this accepted practice with effect from 1 January 2022. Therefore, a private individual must consider the legal and regulatory nature of each investment fund to assess the correct tax treatment. Overall, this can discourage domestic household investment into investment funds.

This article appeared in the March 2024 edition of the Irish Tax Monitor.