Ireland changes tax rules to attract renewables investors
The Republic of Ireland is looking to change its tax rules to bring in investors in the renewable energy sector. In this post, Ray O'Neill from Fincovi looks at five key changes you should be aware of.
Competition in the market is driving top quartile renewable energy funds to look at domiciling their assets in Ireland.
The revision of Irish Investment Limited Partnership (ILP) laws, as outlined in the draft bill published in June, has already caught the attention of fund managers who are serious about growing their funds, attracting new investors and increasing yield.
The Irish Government has an ambition to attract 5% of the $3.3tn global private equity (PE) market, with a focus on green finance.
Indeed, it has been suggested that jurisdictions such as Luxembourg are nervously anticipating a steady flow of up to 25% of their PE funds relocating to the Emerald Isle in the next 24 months. Money talks.
The bill will introduce several changes to the current legislation of particular significance to wind investors. Here are five changes you should be aware of:
1. Segregated liability
The bill allows ILPs to establish an umbrella fund, with segregated liability between the sub-funds. This gives lots of flexibility for investors to get access to different asset classes at different stages of their development while putting a comforting ring-fence on the liability of each sub-fund.
2. A safer harbour for Limited Partnerships (LPs)
The same bill gives more certainty and clarity around the activities a limited partner can and cannot undertake, without increasing liabilities.
3. Simpler to change
LPs can participate in advisory committees and vote on changes to the partnership agreement, now with only a simple majority, without losing limited liability status.
4. Dual naming
ILPs operating in a non-English speaking jurisdiction can register a 'dual foreign name' to facilitate translation requirements.
5. Limited Partner Obligations
It is likely partners will not be required to contribute to the capital of the partnership going forward, other than for the prescribed terms of the partnership agreement.
From wings to turbine blades
Ireland is already an attractive place to establish an investment platform. Its legal, regulatory and tax environment could be beneficial to any renewables fund. Irish corporation tax allows for neutral treatment, provided certain conditions are met.
It also has a wide and expanding tax treaty network, second to none, with an established world-beating aviation sector already taking full advantage of the tax regime and local expertise.
With over 60% of global leased aircraft being leased out of Ireland, the government and financial services industry is now ramping up its green finance offer to mirror its longstanding success in aviation.
Once you’ve moved in
Renewable energy fund managers are subject to increasing regulatory requirements, rising costs and pressures to reduce fees.
Jurisdictional tax efficiencies i.e. moving your fund to Ireland, is certainly one way to compete. But success will also hinge on the effectiveness of the manager’s infrastructure, in-house operations and outsourcing strategies.
The trend in the industry – and Ireland is no different – is to outsource financial management, reporting and portfolio reviews. As well as securing good savings, fund managers that embrace administrative and governance outsourcing reduce the risks associated with old “organically” developed in-house processes. No more Excel files everywhere!
Fund managers need to show investors how they can systematically cut costs, enhance governance and speed up the data cycle, so that they can achieve sustainable returns. Anything that can help add depth to this element of the investor pitch is worth more than consideration. It’s an imperative.
If you're keen to make this your new home from home, Ireland is ready to assist.
Fincovi is a renewable energy financial services company headquartered in Ireland, and is a silver sponsor at our Financing Wind Europe conference in London next month. The company offers cost-effective SPV admin, banker / investor reporting services, asset performance analysis and advisory services.