Dáil Éireann Debate, Wednesday - 4 February 2026
374. Deputy Aidan Farrelly asked the Tánaiste and Minister for Finance to explain the policy reasoning behind applying a higher-than-normal rate of capital gains tax to exchange-traded funds; and if he will make a statement on the matter. [7581/26]
View answerAn “Exchange Traded Fund” or “ETF” is an investment fund that is traded on a regulated stock exchange. There is no separate taxation regime specifically for ETFs. ETFs, being collective investment funds, generally come within the regimes set out in the Taxes Consolidation Act 1997 for such funds. The domicile of the ETF will generally determine the applicable fund regime, specifically whether the ETF falls within the domestic fund regime or the offshore fund regime. This response confines itself to the position for domestic ETFs and ETFs deemed ‘equivalent’ to a domestic ETF located in the EU, EEA or an OECD Member State with which Ireland has a Double Tax Agreement (‘OECD/DTA jurisdictions’).
For domestic investment funds which include ETFs, a ‘gross roll-up’ applies under the domestic fund regime such that there is no annual tax on income or gains arising to a fund, but the fund has responsibility to deduct an exit tax in respect of payments made to certain unit holders in that fund. Exit tax applies at a rate of 38 per cent (with effect from 1 January 2026) in respect of Irish resident individual investors (unless the fund is a Personal Portfolio Investment Undertaking in which case tax at 60 per cent applies), and 25 per cent in respect of Irish resident corporate investors. To prevent indefinite or long-term deferral of this exit tax, a disposal is deemed to occur every 8 years.
Where the units in an Irish domiciled ETF are bought and sold on a stock market (i.e. quoted) and cleared through a recognised clearing system, the ETF does not deduct exit tax, and the investor must account for the tax through the self-assessment system. Where the units in the ETF are not quoted and cleared, the fund must remit the exit tax to Revenue.
For ETFs located in the EU, EEA or OECD/DTA jurisdictions which are deemed ‘equivalent’ to an Irish ETF, the tax treatment of an investment made in such a fund is similar to that which applies in respect of an investment made in an Irish domiciled ETF. However, as an EU, EEA or OECD/DTA domiciled fund cannot apply Irish exit tax, Irish investors in such funds are, in all cases, required to account for this tax at a rate of 38 per cent through the self-assessment system.
It is important to note that capital gains tax (CGT) and the taxation of ETFs are separate and apply in different circumstances. CGT at a rate of 33% generally applies in respect of the disposal of a specific asset. ETFs make multiple disposals of assets over the lifetime of the fund which are not individually taxed.
Where, for example, an Irish resident individual invests directly in a company by acquiring shares rather than investing in an ETF, any income payments received (dividends) are subject to income tax at the individual’s marginal rate and gains from the disposal of shares are subject to CGT. In contrast, where an individual has invested in a domestic ETF, the gross roll-up regime applies and there is no annual taxation of the income and gains of the fund, but taxation generally arises where value passes from the ETF to the investor or on a deemed disposal every 8 years.
The rate of tax applicable to ETFs may be distinguished from the rates applicable to income and gains from other investment products due to availability of the ‘gross roll-up’ regime, where the income and gains can roll-up tax free within the fund. The value that passes to an investor in an ETF, in respect of which tax at a rate of 38% generally applies, will reflect a combination of both the income and gains from the underlying investments in the ETF.
In October 2024, my predecessor published the ‘Funds Sector 2030: A Framework for Open, Resilient & Developing Markets’, a wide-ranging review of the funds and asset management sector. This report sets out a series of recommendations to ensure that, in pursuit of continued growth in the funds and asset management sector, Ireland’s funds sector framework remains resilient, future-proofed, supportive of financial stability and a continued example of international best-practice.
Taking on board the recommendations of the ‘Funds Sector 2030 final report, in Finance Act 2025, the rate of taxation that applies to Irish funds and equivalent offshore funds was reduced from 41 per cent to 38 per cent.
A Roadmap is currently being developed, for publication in early 2026, which will set out a proposed approach to simplify and adapt the tax framework to encourage retail investment. This work will also take account of developments at an EU level in respect of the Savings Investment Union, including the European Commission Recommendation on Savings and Investment Accounts. This is a complex area of taxation that encompasses a wide breadth of tax legislation on domestic funds, life assurance products and offshore funds. Detailed consideration is therefore being given to the best way to bring about the necessary reforms and to support a greater level of retail investment in capital markets.
