Investors …tax on funds, an overview and some resources

For the Irish individual investor, a special tax regime can apply to investments in foreign funds, known as the “Offshore Fund” regime.  Matters can get complicated here quickly; firstly, in determining whether this special regime applies and then, understanding the tax implications associated with it.

When within the scope of the main regime, here are five key tax impacts to note for Irish individuals: 

  • 41% flat rate exit tax - contrast with top marginal rate on dividends of 55% and Capital Gains Tax of 33%

  • Deemed disposal every 8 years - needs to be tracked, very important as minimal mitigation now for “offshore” errors

  • Exit tax on death - client profile here very important as no CGT on death (alternative ordinary regime)

  • No offset of losses - again client profile key

  • Non Irish domiciled? Foreign fund may be automatically within scope of Irish tax.

Further resources:

Irish/EU regulated Funds versus Equities …overview for the Irish individual investor - client focused article

Gintax article - “Key Irish tax considerations for individual investors in foreign funds” overview of entire area, more adviser focus [February 2021 publication]

Flowchart - basic overview

Irish Revenue guidance:

Irish Revenue guidance has increased here over the last few years and there are now three key documents of relevance:

Manual 27-04-01 …Offshore Funds: Taxation of Income and Gains from EU, EEA and OECD member states

Manual 27-02-01… Offshore Funds:  Taxation of Income and Gains from certain offshore states

Manual 27-01A-03 …Exchange Traded Funds (ETFs) - currently being updated [March 2021]

SUMMARY

Foreign funds can be complex. If this complexity is not for you, then a regulated Irish fund may be the answer - the Irish tax compliance should be taken care of by the Fund itself, please review the fund documentation supplied to confirm. The tax should be broadly as outlined above.

Formal tax advise should otherwise be obtained in all circumstances.