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Islamic finance from an Irish perspective

Islamic finance from an Irish perspective

Islamic finance from an Irish perspective

As the awareness of Ireland’s Islamic finance capabilities grow and as UK authorised Islamic financial institutions may seek a European location from which to passport into the EU due to Brexit, Ireland could be increasingly used as an onshore location for Islamic finance, according to Tom Woods, Head of Tax & Legal at KPMG in Ireland.

In looking at the steps that Ireland has taken to position itself as a location of choice within the EU for Islamic finance transactions, it is important to understand its key strengths in certain capital-intensive and financial sectors and the related benefits that Ireland offers. Ireland is an English-speaking member of the eurozone with passporting rights to the EU market and has a highly regarded international financial services industry which continues to grow. Some of Ireland’s key sectors are: 

Funds

Ireland is one of the main international hubs for globally distributed investment funds. There are almost 14,000 funds administered with the total value of assets under management (AuM) now standing at EUR4.4 trillion (US$4.93 trillion) in global AuM. Approximately 20% of the Islamic funds market outside the Middle East are located in Ireland. 

Aircraft leasing

Over half of the world’s leased aircraft are leased through Ireland with Irish lessors owning over 60% of the world’s fleet of leased aircraft; 14 of the 15 largest leasing companies in the world have a significant presence in Ireland. There are an estimated US$125 billion-worth of AuM in Ireland. Ireland offers a deep pool of expertise in this area. With demand from Irish lessors for more than US$25 billion a year to fund new aircraft purchases, the use of Islamic finance represents a real opportunity to grow in Ireland as lessors look to diversify their capital sources. 

Securitisations

Ireland has a well-established regime for conventional securitisations and is a very highly regarded global center for issuing and listing debt. Securitisation vehicles are ideal for Sukuk issuances. The Irish Stock Exchange (Euronext Dublin) is popular with sovereign and corporate bond issuers from the Middle East. 

In 2018, a subsidiary of Abu Dhabi Islamic Bank listed a US$750 million Sukuk facility on the Irish Stock Exchange. Other issuers from the Middle East on the Irish Stock Exchange debt markets include Saudi Electricity Company, Emirates, Kuwait Energy, Ruwais Power Company and Emirates Telecommunications Corp. 

In 2017, the Irish Stock Exchange listed the biggest-ever Sukuk issuance, raising US$9 billion. The Irish Stock Exchange also has sovereign bond listings from Middle Eastern countries, such as Kuwait, Jordan, Oman and Bahrain. 

In 2016, Saudi Arabia issued a US$17.5 billion sovereign bond on the Irish Stock Exchange. 

Sustainable finance

Ireland has a growing profile as a world-leading center for sustainable finance. There are currently EUR31 billion (US$34.73 billion)-worth of sustainable finance activities in Ireland. A EUR22 billion (US$24.65 billion) climate action infrastructure plan is underway and EUR3 billion (US$3.36 billion)-worth of state-backed green bonds were issued in 2018. Investing in sustainable finance sits very well with Shariah principles. 

Fintech

Ireland is fast becoming a global center for fintech. Ireland’s vibrant and dynamic technology sector, well-established global financial services center and proactive ecosystem have provided the perfect fit for international fintech companies seeking to grow. This should also attract more Islamic finance activity to Ireland. 

Projects

Ireland also finances many large projects, such as the building of roads, schools, water treatment plants and such, through public-private partnerships (partnerships between the public and private sectors). Such projects are ideally suited to Islamic finance investment. 

The Irish government in their Implementation of the International Financial Services Strategy launched in 2015 included Islamic finance as a sector which the government intends to continue to develop. Some of the steps already taken by the Irish government to develop Islamic finance offerings are: 

  • The financial regulator established a dedicated team specializing in Shariah compliant funds in order to expedite the approval process and it also confirmed that it will proactively engage with its regulatory counterparts in the Middle East. In addition to this, the Irish Stock Exchange also has an Islamic finance team dealing with the listing of Islamic financial products. Ireland’s Islamic finance capabilities could also offer UK authorised Islamic financial institutions a European location from which to passport into the EU.  
  • Tax legislation was introduced in 2010 which ensured parity of tax treatment for Islamic finance products, with further enhancements in 2012 and 2013. Under Irish law, Shariah compliant investment funds are taxed on the same basis as conventional investment funds; Ijarah arrangements, broadly similar to leasing transactions, are taxed under the same principles as conventional leasing transactions and Takaful and re- Takaful arrangements are treated in the same manner as insurance and reinsurance transactions. Furthermore, the financial return on ‘credit transactions’ (loans structured as Murabahah or diminishing Musharakah), ‘deposit transactions’ (deposits structured as Mudarabah, Murabahah or Wakalah) and ‘investment transactions’ (investments in investment certificates, such as Sukuk issuances) are treated in the same way as interest received or paid under a conventional arrangement for tax purposes. 
  • The Irish government has negotiated and concluded tax treaties with most of the countries engaged in Islamic finance including the UAE, Bahrain, Saudi Arabia, Malaysia, Turkey, Pakistan, Egypt, Morocco, Kuwait and Qatar.

Sector knowledge plus an attractive tax regime

According to the European Central Bank, Ireland has developed a strong foundation for the Islamic finance industry, with a supportive legal and tax environment, easy access to the European market, a skilled workforce, supportive infrastructure, business-friendly policies and a stable regulatory environment. 

When you combine Ireland’s significant strength in each of the sectors mentioned with our attractive tax regime that now also applies to Shariah equivalent transactions, Ireland’s Islamic finance offerings become very persuasive. Ireland is being used much more as a center for Islamic finance products. The steps taken should position Ireland as the preferred EU location to drive this industry forward. KPMG has a global Islamic financial team which the Irish practice (KPMG Ireland) is a member of. KPMG Ireland would be delighted to assist with any queries you may have on how Ireland can help you with your Islamic financial business. 

This article was first published in Islamic Finance News Volume 16 Issue 20 dated the 22nd May 2019, and is reproduced here with their kind permission.

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