News › Weekly Alert Article
Finance Bill 2013 Updates REITS
Initial impressions are that the Government has decided to follow the UK regime quite closely. Taxand Ireland discovers the criteria a REIT must meet.
- At least 75% of the aggregate income of the REIT must derive from property rental business - unlike the position in the UK, there is no balance of assets test.
- The property rental business must include at least 3 rental properties. No one property can represent more than 40% of the total market value of the properties involved in the property rental business. This is subject to a 3 year grace period.
- While no borrowing threshold has been set down, a tax charge will arise to the extent that the sum of the property financing costs and rental income exceeds the rental income by a ratio in excess of 1.25:1.
- At least 85% of the property rental income (excluding capital gains) for each accounting period must be distributed to shareholders on or before the REIT's normal filing date for the company's tax return in respect of the relevant accounting period.
- Property income dividends paid by the REIT will be subject to Dividend Withholding Tax (currently 20%).
- It must be resident in the State.
- It must be a company incorporated under the Irish Companies Acts.
- Shares must be listed on the main market of a recognised stock exchange of a member state of the EU. A 3 year grace period applies to this requirement.
- It cannot be a close company (unless controlled by "qualifying investors" such as life assurance companies, pension schemes and certain collective investment schemes). This is subject to a 3 year grace period.
- A tax charge will arise if the REIT pays a dividend to shareholders with 10% or more of the share capital, distribution or voting rights in the REIT (other than "qualifying investors"), unless "reasonable steps" were put in place to prevent the making of the distribution to such person.
- Provision is made for the establishment of "group REITs".
- A charge to tax will arise where an asset forming part of the property rental business is developed (at a cost exceeding 30% of the market value of the asset at the date of commencement of the development) and sold within a 3 year period.
Unlike the position when REIT legislation was initially introduced in the UK, the draft legislation does not provide for a fixed conversion charge for existing companies converting to REIT status. A corporation must notify the Revenue Commissioners of its intentions to become a REIT and must file an annual electronic return. Overall the introduction of REITs will be welcomed as a positive step for Ireland.