Answer ... Irish companies and non-Irish companies (eg, Luxembourg companies), as well as real estate investment trusts (REITs), are used by investors to acquire real estate assets in Ireland. In recent years, investors in the Irish real estate market have most commonly used Irish regulated funds (QIAIFs) to acquire Irish real estate. QIAIFs may be established as Irish collective asset-management vehicles (ICAVs), unit trusts, investment companies, common contractual funds or investment limited partnerships. The ICAV is the most popular corporate structure for a QIAIF investing in real estate.
Irish companies: The two most common forms of Irish companies used by investors to acquire real estate are a private limited company by shares (LTD) and a designated activity company (DAC). An LTD need not have any stated objects in its constitutional documents and has the capacity to undertake any activity without restriction. The members’ liability in a LTD if the company is wound up is limited to the amount, if any, unpaid on the shares they hold.
The constitutional documents of a DAC set out its objects, and the DAC only has the power to undertake the activities as set out in its objects and is restricted in this way. The members of a DAC have liability with regard to both:
- the amount, if any, that is unpaid on the shares they hold; and
- the amount they have undertaken to contribute to the assets of the company, in the event that it is wound up.
Institutional investors may also use a public limited company (PLC). The liability of members in a PLC is limited to the amount unpaid (if any) on shares held by them. LTDs, DACs and PLCs are separate legal entities and have the capacity of a natural person, and may sue or be sued in their own names.
REITs: A REIT is a type of PLC which was introduced in 2013 specifically to deal with Irish real estate assets and to facilitate collective investment in Irish real estate. Provided that a REIT meets certain criteria, it will not be liable for corporation or income tax on its real estate profits or real estate rental income or capital gains tax on disposals of certain real estate assets. The Finance Act 2019 has limited the existing provision which allows a REIT to avoid any latent capital gains tax exposures when it ceases to be within the regime, so that the provision applies only where the REIT has been in operation for a minimum of 15 years.
Non-Irish companies – a Luxembourg company: International investors frequently use non-Irish companies such as Luxembourg companies to acquire real estate in Ireland. Luxembourg companies are generally used as they are tax efficient and offer flexible structures.
Irish regulated funds – the ICAV: As set out above, the ICAV is currently the most popular regulated fund vehicle for professional and high-net-worth real estate investments. The ICAV is a corporate vehicle similar to an investment company. The ICAV was specifically created for the Irish funds industry, making it a more flexible structure from a corporate law perspective. It is also a tax-efficient structure. An ICAV may be structured as an umbrella fund with segregated liability between sub-funds. As a result, many large scale real estate investors use this structure to hold different real estate assets in different sub-funds under the same ICAV. The main advantage of QIAIFs (as set out above, the ICAV is a type of QIAIF) is that the usual restrictions of the Central Bank of Ireland (CBI) relating to asset diversification, borrowing and leverage are disapplied – for example, there are no borrowing or leverage limits for a QIAIF. For this reason, the CBI restricts the availability of QIAIFs to professional and institutional investors only and a minimum subscription (€100,000 or currency equivalent) applies.
As a result of changes introduced in 2016, many investors will be subject to a 20% tax on profit distributions or disposals of units in a QIAIF. As a result of changes introduced in 2019, QIAIFs can be subject to tax on deemed income where their leverage exceeds 50% of the cost of the assets.