Will ISA's be coming to Ireland anytime soon?

No. This only affects a doctor or dentist who is choosing between locating in Ireland or locating in Poland; it won't change at all the balance of interests as between locating in Ireland or any country other than Poland.

Our Polish dentist, debating between practice in Ireland and practice in Poland, will consider not only how advantageously he can invest the amount he saves from what he earns practising dentistry, but also what he will earn practising dentistry in the first place. And the latter consideation is going to be the much bigger factor.

Consider: The value of the account is capped at 23k euro. Assuming, say, an 8% return, that will generate income of about 2k. Even if taxed at 50%, the tax exemption yields a saving of 1k/year. If our dentist's after-tax income in Ireland is even 1k/year higher than it would be in Poland, that offsets this factor completely.

Couple of other points:

If I'm reading this correctly, once the value of the account exceeds 23k, then the excess value is taxed annually at ~1%. That's an annual levy on the fund value, not on the return. Not clear from what I have read whether you would also lose the tax exemption on the investment return. If so, that's pretty heavy.

More to the point: the stated aim is to to "sustain growth amid low investment in [Poland's] economy", "attract capital to boost growth and competitiveness", "increasing the competitiveness and innovation of the economy and strengthening the security of the entire country". This suggests an expectation that the money in these accounts will be invested in Poland. EU-wise, of course, that's a big no-no; you can't offer tax incentives designed to distort investment choices in favour of your own country at the expense of other member states. So I'd love to know how they're going to square that particular circle. If they can't square it, much of the rationale for this policy doesn't hold water, and the policy may not be sustained.

It may be — wild guess here — that there's already a strong culture of middle-class investors in Poland investing in Polish businesses, and that Poland has a vibrant stock market which reflects this, and that they are confident that additional investment funds attracted by these measures will largely flow to Polish businesses without the need for any restrictions or rules to make this happen. If so, that's definitely not a characteristic that Ireland shares.
 
All things considered, we're living in one of the best Countries in the World. Not sure why anyone would want to leave here or not want to come to live here for the sake of a savings scheme. I know which side of the State balance sheet I'd be putting you on if that was your thinking.
 
I had chatgpt run two simulations for 1M zloty (233,000 Euro) invested over 10 years at 7%.
  • The first under the Polish system that's proposed
  • The second under Irish rules where 33% CGT gets applied at the end.



Polish proposal would work out even better if some of your returns are paid out as dividends which are taxed even more heavily than capital gains here.

Chatgpt also pointed out Sweden has a similar system to this called the ISK. Apparently 3.5m people in Sweden hold an ISK, extremely popular.
 
Raskolnikov said:
Poland is doing very well and having a simpler, less onerous personal taxation regime is going to be a big pull.
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Poland is doing well, but it still had net emigration of 238,000 people last year. So I think "big pull" has to be seen in context; it may just mean a reduction in emigration. Polish migration figures are heavily affected by the war in Ukraine but, still, disregardign war refugeese I don't think it has experienced net immigration at any point in recent history.

Raskolnikov said:
I had chatgpt run two simulations for 1M zloty (233,000 Euro) invested over 10 years at 7%.
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I don't know how meaningful a 1M zloty simulation is, given that the max you can put is 100k zloty. With 1M zloty in the the account, virtually the whole of the acount balance is going to be levied at ~1% each year. Does your simulation factor this in?

Plus, I don't see how you're getting a negative tax rate. Theres zero tax on fund earnings, how can that yield a tax rate of less than 0%?
 
100k is tax free, the balance above charged at 0.85% on an annual basis. I asked the simulation to take this into account.
Plus, I don't see how you're getting a negative tax rate. Theres zero tax on fund earnings, how can that yield a tax rate of less than 0%?
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That's a tilde, not a minus sign.
 
@Raskolnikov

It’s about demand as much as supply.

Poland has its own currency and capital markets. So more savings in zloty by Poles means more investment by Polish firms.

Ireland is part of the euro area. A large majority of Irish SMEs don’t even borrow and multinationals in Ireland have zero need for capital from Irish savers.

This is why IBEC and other industry groups don’t lobby for this. Instead we get silly stuff like CAT relief for family-owned farms and businesses which fossilises low productivity.
 
Dr Strangelove said:
Ireland is part of the euro area. A large majority of Irish SMEs don’t even borrow and multinationals in Ireland have zero need for capital from Irish savers.
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I think this is kind of the point. The Polish economy needs investment capital; the primary purpose of this scheme is to obtain that from Polish savers.

The Irish economy doesn't need investment capital — it apparently has no difficulty attracting all the capital it wants.

So this, to coin a phrase, is a Polish solution to a Polish problem. Ireland doesn't have this particular problem and, if we did, for the reasons already discussed this probably wouldn't be a good solution to it.
 
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Raskolnikov said:
That's a tilde, not a minus sign.
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OK, thanks.

Not sure why ChatGPT can only approximately model the outcome of the OKI scheme. But I think the answer might have something to do with this.

The idea with the 0.85% annual levy is that it's supposed to approximate to the tax you would pay, under the ordinary rules, if you invested in risk-free government deposits. So, for example, if government desposits pay 3.5%, and the tax you pay on earnings from government deposits is 25%, then you would expect to pay tax at 25% on income equal to 3.5% of your investment, which works out at 0.875% of the value of your investment.

In other words, theres's no point in putting your money into an ISK account if you intend to invest the account in government deposits; you'll pay pretty much the same amount of tax either way. The scheme is intended to provide a tax incentive to people who are putting their money into higher-yielding (and therefore riskier, and more volatile) investments.

So, you asked ChatGPT to model an ISK investment yielding 7% a year. But the yield on ISK investments, even if it averages 7% a year, won't be 7% every year; it will go up and down.

And here's the thing; you pay 0.85% of your fund value every year, no matter what the investment return is. In years when the investment return is less than 3.5%, you'd actually be better off if you weren't holding your investment through an ISK account; you'd pay less tax. And, in years where you have negative investment returns, you'd pay no tax at all outside the ISK. But, inside the ISK, you're still paying tax, and because you have no earnings to pay it with it's depleting your principal — not only has the value of your investments fallen by (say) 5% over the year, but you now pay a levy of 0.85% so that the total fall in your account value is 5.85%.

What we have here is the opposite of euro cost averaging — an investment strategy where you invest the same amount each month, but you get more shares/units in months when prices are low than you do in months where prices are high, so the average price you paid for the shares/units you hold is lower than the average price of those shares/units over the period. Here, when the price of your units falls, you have to sell some of them. And, once you've sold them, you don't get to benefit from the subsequent rise in the price.

Which means that how the ISK tax incentives work out for you depends not just on the average investment return but on the volatility of that return — the more volatile the return, the less well you do.

I ran a simple simulation (Excel, not Chat GPT) modelling a 1 million investment for 10 years on three different assumptions:
  • A: Investment return of 7% each year: final fund value 1.792 million
  • B: Investment return alternating between 4% and 10% each year: final fund value 1.785 million
  • C: Investment return alternating between -3% and 17% each year: final fund value 1.715 million.
In case B, even though the investment return every year is above the 3.5% risk-free return on which the 0.85% rate for the levy is calculated, because the investment return is somewhat volatile the final fund value is lower than in case A

In case C, the investment return is very volatile and includes years of negative returns, and the final fund value is signficantly lower than in Case A.

So, perhaps in your model ChatGPT's prevarication about the tax is because it doesn't know how volatile the return will be (because you haven't stipulated that) and a precise answer isn't possible without this datum.
 
Fair enough — the picture is more mixed than I suggested.

But I think the other objection remains — I don't see that a tax-incentivised investment account on the Polish/Swedish model is going to be especially effective at channelling investment into SMEs or construction companies. If the vibe on this site is anything to go by, people who had access to such an account would mostly use it to channel money into ETFs. I don't know that there's a compelling public policy justification for offering tax incentives for that.
 
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T McGibney said:
The SME and construction sectors are vastly undercapitalised.
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By what metric?

It’s a question of supply and demand. On the supply side Ireland has no scarcity of funds to invest hence you see lots of people on this site looking for ISA-type schemes. What is missing is demand - there is no business lobby looking for one.
 
Dr Strangelove said:
It’s a question of supply and demand. On the supply side Ireland has no scarcity of funds to invest hence you see lots of people on this site looking for ISA-type schemes. What is missing is demand - there is no business lobby looking for one.
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There is also the matter of structures and mechanisms. Raising investment capital from the public is a highly-regulated activity, and the compliance costs are very considerable, which makes it unattractive unless you're raising a lot of money. You can raise more modest sums privately by soliciting investments from venture capitalists, but this is time-consuming and expensive, both for the business owner seeking investors and for prospective investors considering and evaluating the investments proposed to them. Venture capitalists, too, have a minimum threshold of investments that they are willing to investigate and make a decision about.

Introducing something like the ISK account wouldn't fix this problem. The ISK account seems to be mainly directed at facilitating and encouraging investment in listed, traded securities. Even if the rules about ISK accounts could be availed of by a provider using the account to channel funds into private venture capital investments, with the fund manager investigating and making decisions about proposed investments, actually doing that wouldn't be any easier or cheaper than it is today. And of course the fund manager would have to be paid to do it.
 
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