Islamic Finance:
An opportunity for Ireland
Gary Tobin
Department of Finance
Jim Byrne
Office of the Revenue Commissioners
IBF Islamic Finance Seminar - 10th June, 2010
Overview of Presentation
Part 1 (Gary Tobin)
 Overview of Islamic finance market
 Motivation behind Irish legislation
 Opportunities for Ireland
 Next steps
Part 2 (Jim Byrne)
 What’s in the legislation



Parameters
Transactions Covered
Future
Developments in Islamic Finance
1970s
1980s
1990s
Treasury
Services
Equity Funds
Property
Retail
Banking
Commercial
Banking
Islamic
insurance
Leasing
Securitisation
Asset
Management
What is Islamic Finance?
• Islamic finance requires all transactions to
comply with Shari'a principles (Shari’a is the
body of Islamic religious law).
• Islamic finance must observe a prohibition
on earning interest (riba), on
uncertainty/speculation (gharar) and
investment in ‘unethical’ businesses,
products or services (such as alcohol,
tobacco, pork, gambling
What is Islamic Finance 2?
• Shari’a compliant products are typically
backed by or based on an identifiable and
tangible underlying asset;
• The investor and investee share the risk of
all financial transactions.
• Under Shari’a law money is used to
measure value and is not an asset in itself.
Islamic Financial Products
Loan
Diminishing
Musharaka
Sukuk
Ijara
Wakala
Bond
Lease
Large Deposit
Murabaha
Mortgage
Mudaraba
Bank Deposit
Overview of Islamic Finance
Middle East
South
East Asia
Key
Islamic
Financial
Markets
Europe
Global Islamic Finance Market
• The market for Islamic financial products is
focused around 3 main centres;
– Middle East (Bahrain, Abu Dhabi, Qatar)
– South East Asia (Labuan Malaysia)
– Europe (London)
• Industry is still in its infancy with issues
around standardisation, regulation and
consistent interpretation of Shari’a still to
be overcome.
Overview of Islamic Finance
• Islamic finance is considered to be the fastest
growing sector of finance in the world
• Assets have grown to $822bn in 2009, an
increase of 29% on 2008.
• The Global Sukuk market is estimated by S&P to
be worth $100bn.
Global Islamic Finance Market
• Islamic finance is considered to be the
fastest growing sector of finance in the
world, globally it is estimated that Islamic
finance assets have grown to US $822bn
in 2009 an increase of 29% on 2008.
• The Global Sukuk market is estimated by
S&P to be worth $100bn.
Motivation for Irish legislation
Competitor
Jurisdictions
New DTAs with
GCC
Irish Muslim
Community
Motivation for
Legislation
Trade Links
With GCC
New IFSC
Opportunity
Islamic Finance in Ireland
• What we offer currently;
• Already it is estimated that Ireland is a
location for 20% of Islamic funds domiciled
outside of the Middle East.
• The Financial Regulator can and does
authorise Shari’a compliant investment
funds under collective investment scheme
legislation.
Islamic Finance in Ireland
• The Revenue Commissioners issued an ebrief in October, 2009 that clarifies the tax
treatment of Shari’a compliant funds,
leasing and insurance services in Ireland.
• The technical changes provided in
Finance Act 2010 will give equality of
treatment to Islamic financial products as
compared to conventional financial
products.
Opportunities for Ireland
• Niche markets
• Ireland as a Gateway to Europe
• Opportunities for direct investment using
the Sukuk (Islamic Bond) structure
New Opportunities for Irish
Business (European)
• Build on strength of existing leasing,
insurance and Funds industry
– Takaful/Re-Takaful industry
– UCITS structure
• Ireland as a gateway to Europe for Islamic
finance?
• New sources of investment and capital
– Sukuk structures
New Opportunities for Irish
Business
(Domestic)
Opportunities for ethical investment
• The ethical approach and the physical nature of
the traded asset in Islamic finance is an
opportunity that the Irish Financial Services
industry would be in a strong position to promote
to Muslim and Non-Muslim clients.
Irish Muslim Community
• The Minister for Finance has committed to
examining the introduction in a future Finance Bill
of additional legislation that will provide the Irish
Muslim Community with products consistent with
their faith.
Ireland’s Expanding DTA Network
New Opportunities for Irish
Business (International)
• Ireland is strengthening business links with
GCC – DTAs concluded with Saudi Arabia,
UAE, Kuwait and Bahrain.
• Negotiations are also at various stages with
Morocco and Egypt.
• Ireland also has strong links with South Asia
where we have a DTA with Malaysia and
negotiations this year will commence with
Indonesia.
Next Steps
D.T.A.s
M.O.U.s
Enabling Legislation
B2B
Marketing Ireland
in
The Region
Part 2: What’s in the legislation
Jim Byrne
Office of the Revenue Commissioners
Parameters
• Tax Briefing
– Funds
– Leasing
– Insurance
• Legislation provides parity of treatment
• Facilitates but does not require Shari’a
compliance
• Focus on Substance not Form
Transactions Covered
• Credit transactions – loans (including asset
backed loans) and mortgages
• Deposit transactions – bank deposit
• Investment transactions – investments in
bonds or other securities
Credit Transactions
• Credit return treated as interest
• Where plant/machinery, customer entitled
to capital allowance on asset
• Where finance raised, customer not
entitled to loss relief where sells asset for
lower price.
Deposit Transactions
• Customer places amount with financial institution
and shares in profits / losses from use of money
by institution
• No partnership for tax purposes between bank
and customer - No permanent establishment for
customer
• DIRT applies to “return” as if it were interest
• Section 130 rules (profit participating interest)
apply where return in excess of normal
commercial amount
Investment Transaction
• Certificates or bonds issued by company
• Certificates entitle holder to return based
on profits or gains from underlying assets
• Return treated as interest on security
• Section 130 applies if excessive interest
paid.
• No Stamp Duty on issue, transfer or
redemption of certificate
Future
• Guidelines
• Domestic Market
• Revenue Opinions