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Where to Next for Islamic Finance?


This article was first published in Islamic Finance news Volume 17 Issue 20 dated the 20th May 2020.

Market developments


The Cayman Islands has been regularly used for special-purpose companies as the formal issuers of Sukuk for several years. In February 2020, the Cayman Islands was added to the EU’s blacklist of non-cooperative jurisdictions following a meeting of EU finance ministers. Ireland is a common law jurisdiction within the EU and a member of the OECD. The use of Irish SPVs as debt issuers, when structured correctly, can result in little or no taxable profit or leakage. Being tax-resident in Ireland also gives access to Ireland’s double taxation treaties. Ireland has signed more than 74 such treaties.

Innovations such as gold-based Sukuk in Turkey and Indonesia have demonstrated this product’s ability to adapt in times of uncertainty. For example, Turkey opened investment in retail and wholesale gold-based Sukuk in January and February 2019, resulting in over 28.5 tons of gold being raised. 


The UK formally withdrew from the EU on the 31st January 2020. EU rules will still apply in the UK until the 31st December 2020. After that date, UK-regulated financial institutions may no longer be able to passport their services across the EU, without a new framework which has yet to be negotiated as part of the UK’s exit from the EU. This puts Ireland in a leading position for UK financial institutions to base their pan-European business to access EU markets and investors. Ireland will be an extremely attractive proposition for issuers of listed debt after Brexit. 

Green finance

Green bond issuances increased to an aggregate value of approximately US$258 billion during 2019. The wave of optimism about green bonds extended to green Sukuk issuance in 2019. According to the Climate Bonds Initiative, outstanding issuance of green Sukuk totalled US$7.9billion in 2019, a significant increase since 2017 which saw total green Sukuk issuance of US$755 million. The optimism surrounding green finance generally has extended to social financing which is likely to gain greater prominence as part of the COVID-19 recovery. 

The Irish Stock Exchange, trading as Euronext Dublin, launched a new Euronext Green Bonds platform with more than 50 participating issuers. The Euronext Green Bond offering demonstrates Ireland’s commitment to sustainable finance. The Euronext Green Bond is intended to play an important role in a rapidly growing sector in Ireland and Europe. Sustainable finance is also a key priority in the Irish government’s Ireland for Finance 2025 strategy.  

Tax treatment of Sukuk in Ireland

The increased attractiveness of Ireland to list Islamic finance products stems largely from a 2010 amendment to Irish tax legislation. This introduced the concept of ‘specified financial transactions’ into Irish law, which granted equivalence to Takaful (insurance), Ijarah (leasing) and Islamic investment fund products. This means that interest payments on Sukuk (Islamic compliant bonds) that are listed on the Regulated Market or Global Exchange Market in Ireland can be made without any withholding tax, by relying on the quoted Eurobond exemption, provided all relevant conditions required for that specific exemption are satisfied. Reforms such as this led to the first issuance of a Sukuk bond under Irish law in 2018. 

Subsequently, the Irish Revenue Commissioners issued further guidance on the tax treatment of Islamic finance transactions in November 2018. This guidance consolidated the existing legal framework in Ireland and provided further clarity on the tax treatment of Islamic finance transactions. The Irish government has always demonstrated its willingness to enhance and bolster Ireland’s status as a leading jurisdiction for structured finance and debt capital market products across Europe and wider afield. 

The listing regime in Ireland Euronext 

Dublin is the leading debt-listing venue in the world. Ireland currently has two markets on which issuers can list securities:

  1. the Euronext Dublin market is a regulated market (Regulated Market), as defined in the Markets in Financial Instruments Directive 2014/65/EU (MiFID II). The Regulated Market is regulated by the Central Bank of Ireland, and
  2. the Global Exchange Market, or GEM as it is known, is a multilateral trading facility as defined in MiFID II. GEM is regulated by Euronext Dublin. 

Regulators on both markets have adopted a consistent approach when reviewing Islamic finance documents and have proven to be both accommodating and knowledgeable in their review and approval.

Where next for Islamic Finance in Ireland?

The aftermath of COVID-19 may create new opportunities generally, but particularly for Islamic financial institutions, given the active nature of Shariah compliant capital. On the 23rd April 2020, the United Nations Development Program highlighted a number of Shariah compliant tools that could be used as part of the pandemic response plan, including Zakat and Sukuk. Given Ireland’s acquired expertise since the first Sukuk facility was listed here in 2005, and the favorable tax treatment of Sukuk, we believe that Ireland is uniquely positioned to take advantage of the next  wave of Islamic financial products.

William Fry has considerable experience advising on all aspects of Islamic finance transactions from a legal and listing perspective.  

For more information, please contact Matthew Cahill, David Maughan, Lyn BrennanEoghan O’Tuama or your usual William Fry contact.

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