Minister McGrath publishes terms of reference for ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’

The Minister for Finance Michael McGrath today (Thursday 6 April) published the terms of reference for the Department of Finance to conduct a review of Ireland’s funds sector and produce a report ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets.’

Ireland is a global centre of excellence for asset management and funds servicing with the latest figures showing regulated and unregulated funds in Ireland having approx. €4.6 trillion in assets under management. Nationally, this funds sector employs some 17,000 people across 180 companies.

Under the broad and interlinked themes of Open Markets, Resilient Markets and Developing Markets, this framework will seek to ensure that Ireland maintains its leading position in asset management and funds servicing and that we continue to see support for our national and regional economies. The review will also seek to ensure that Ireland’s funds sector framework is resilient, future-proofed, supportive of financial stability and a continued example of international best-practice.

The multi-disciplinary Review Team will be led by the Department of Finance, with support from state bodies, including Revenue and the Central Bank of Ireland, and will conclude its work in summer 2024.

The team will look at a range of issues, which are set out in the published Terms of Reference, and these include examining the regimes for Section 110 entities, Real Estate Investment Trusts (REITs) and Irish Real Estate Funds (IREFs). The review team will also examine international contexts, effects on employment and the economy and the wider taxation regime for funds, life assurance policies and other related investment products.

Commenting on today’s publication Minister McGrath said:

Commenting on today’s publication Minister of State Carroll McNeill said:

Funds Sector 2030: A Framework for Open, Resilient & Developing Markets - Terms of reference.

The Irish Fund Sector in Context

Ireland is a global centre of excellence for asset management and funds servicing, with over 30 years of experience. This funds sector is one of the largest employers within the overall International Financial Services (IFS) sector, with 180 companies directly employing > 17,000 people. IFS employment is also now more spread across the country and no longer solely concentrated in Dublin.

As Ireland has become a leading domicile for fund entities, including internationally distributed investment funds and for hedge funds, the roles undertaken here now span investment management; management companies (ManCos) and fund oversight; depositary and administration; and professional advisory services, including audit, tax and legal. In summary, Ireland is:

• the third largest funds domicile in the world and the second largest in Europe with regulated and unregulated funds having approx. €4.6 trillion in assets under management
• the fastest growing major European domicile for funds, accounting for almost 19% of all European fund assets
• a leading European domicile for exchange trade funds, representing 67% of the European market

Government policy

In October 2022 a new International Financial Services Strategy was launched which restated the government’s vision that Ireland should remain internationally competitive and be a top-tier location of choice for specialist international financial services. Furthermore, the importance of the IFS sector for the Irish economy was noted along with a recognition that Ireland is now a very significant global financial centre.

Detail on certain types of funds

The Finance Act 2013 introduced the regime for Real Estate Investment Trust (REIT) companies in Ireland. The REIT regime is to allow for a collective investment vehicle which provides a comparable after-tax return to investors to direct investment in rental property, by eliminating the double layer of taxation at corporate and shareholder level which would otherwise apply.

REITs are required to distribute 85% of all property income profits annually to investors. Dividend Withholding Tax (DWT) at a rate of 25% must be applied to these distributions, other than those distributed to certain limited classes of investors such as pensions and charities as they are more generally exempt from tax.

An Irish Real Estate Investment Fund (IREF) is an investment undertaking where 25% or more of the value of that undertaking is made up of Irish real estate assets. Generally IREFs must deduct a 20% withholding tax on distributions to non-resident investors however certain categories of investors such as pension funds, life assurance companies and other collective investment undertakings are generally exempt from having IREF withholding tax applied provided the appropriate declarations are in place.

Section 110 is set out in the Taxes Consolidation Act 1997 and it is intended to create a tax neutral regime for bona-fide securitisation and structured finance purposes.

Securitisation involves the creation of tradeable securities out of an income stream or projected future income stream generated by financial assets. Securitisation allows banks to raise capital and to share risk and, by providing a repackaging and resale market for corporate debt, it lowers the cost of debt financing. Such financing is useful for the productive economy as it can underpin the supply of finance to industries and companies in Ireland, Europe and further afield.