Hopes for Irish ETF tax changes as fund value expected to reach €3 trillion here by 2029

The Irish funds industry is hopeful government ministers will move to tweak the tax treatment of exchange-traded funds (ETFs). It comes as a new report by global audit and advisory firm EY predicted ETFs in Ireland will reach €3 trillion by 2029, with assets forecast to rise 15 per cent annually until 2030.

Lisa Kealy, a former chair of the Irish Funds Council and the financial services markets leader at EY, told the Business Post the ETF industry here needs to continue to innovate if it is to remain the leading domicile in Europe. There have been concerns about the impact of some of Ireland's tax rules, namely deemed disposal, on retail investors here.

"Our tax incentives need to change in order to encourage and remove some of the impediments on investing," Kealy said.

Irish-domiciled ETFs represent more than 70 per cent of the total European market, outstripping nearest rival Luxembourg, with major players such as BlackRock, State Street and Vanguard all having significant operations here. Estimated assets under management were over €1.6 trillion at the end of 2024.

Tax inefficient

Fund managers are now incredibly keen to see the Department of Finance's Funds Sector 2030 report, which contained an array of recommendations for consolidating and boosting the industry, fully implemented.

Kealy said there were hopes in the industry that ministers have taken note of the need to change Ireland's eight-year deemed disposal rule. This sees investors forced to pay a 41 per cent exit tax if they have retained their fund. The current system, she said, is “tax inefficient”.

The report, published last year, acknowledged concerns around the “challenges of administering the deemed disposal regime” and the impact “in the case of ETFs, the individual retail investor”.

The Central Bank’s Derville Rowland, currently seen as a leading contender for the top job at the new EU financial crime watchdog, noted in a speech last year that while Ireland has emerged as a key ETF hub in Europe, the take-up of the new financial products by Irish households remains tiny.

In 2015, households accounted for less than five per cent of total Irish residents’ holdings of ETFs, before falling to less than three per cent by 2019, according to the most recent Central Bank data.

Kealy said despite the recent turmoil hitting US stock markets, ahead of Donald Trump's tariffs hitting trading partners, “we are not seeing any signal of change”. While the US remains the global ETF powerhouse, she said Europe’s funds industry is at the “beautiful stage of catching up – with Ireland at the centre”.

The industry is now eyeing with interest active ETFs, as fund managers attempt to find a way to respond to the rise of index-tracking products. EY also said that part of the trends driving growth included digital platforms making it easier for younger people to invest, and new products such as single-stock ETFs and digital asset ETPs launched in the last 12 months.