While Romania has a lower corporate tax rate of 10%, there are several reasons why Israel, along with many other countries, favors Ireland over Romania for domiciling index funds or ETFs:
1. Fund Ecosystem & Experience
Established Financial Hub: Ireland has long been a global leader in the fund industry, especially for ETFs and index funds. The country is home to an extensive infrastructure of service providers, fund administrators, legal experts, and experienced regulators. This mature ecosystem makes it easier to launch and manage funds efficiently.
UCITS Framework: Irish-domiciled funds benefit from the UCITS (Undertakings for Collective Investment in Transferable Securities) regulatory framework, which is recognized and trusted globally. It offers robust investor protection and facilitates the cross-border sale of funds within the EU and beyond.
2. Tax Efficiency for U.S. Investments
Withholding Tax on U.S. Dividends: While Romania has a lower corporate tax rate, it may not have the same tax treaties and agreements that make Ireland attractive for accessing U.S. equities. Irish-domiciled funds benefit from a reduced 15% U.S. withholding tax on dividends due to its treaty with the U.S., whereas Romania might face the full 30% withholding tax on U.S. dividends, reducing potential returns.
3. Currency and Hedging Options
Irish funds often provide more sophisticated currency hedging products, which are beneficial for international investors (like those in Israel) dealing with multiple currencies. This infrastructure may not be as developed or widely available in Romania.
4. Reputation and Global Recognition
Global Trust: Ireland’s reputation as a stable, trusted, and established jurisdiction is important for international investors. Romanian-domiciled funds may not have the same level of recognition or trust from global investors or institutions, which is crucial when investors are looking for large, liquid, and globally accessible funds.
5. Access to Global Markets
Distribution Networks: Irish funds have widespread access to global distribution platforms, enabling Israeli investors to invest easily. Ireland's deep integration into European and global financial markets makes it a more convenient choice for launching and managing globally distributed ETFs and index funds.
6. EU Passporting
Ease of Marketing Across Europe: While Romania is also an EU member, Ireland's extensive experience in UCITS fund management offers easier and more streamlined passporting for funds across the EU, giving them access to a wider investor base.
7. Cost of Setting Up and Maintaining Funds
While Romania might offer lower taxes, setting up and maintaining funds might be more cost-effective in Ireland due to its specialized and competitive service providers. Ireland has economies of scale when it comes to fund services, making it more cost-efficient for large funds despite the higher tax rate.
In summary, while Romania offers a lower corporate tax rate, Ireland's established ecosystem, tax treaties (particularly with the U.S.), global recognition, and deep infrastructure make it more attractive for domiciling index funds and ETFs. For Israeli investors seeking tax-efficient, globally accessible funds, these factors weigh more heavily than the corporate tax rate alone.
