reit - Real estate investment trust

Investing in Spanish real estate, if adequately structured, can benefit from special schemes offered by Spanish Tax Laws, that may significantly reduce the standard Corporate income taxation rate of 25%.

Despite COVID 19 may have affected the real estate market, the privileged Spanish climate and life style still make this country as one of the most attractive places in the world where to spend summer holidays or even telework throughout the whole year with nice views to the sea. Given that we may consider the current context of a transitory nature, it is the right moment to check how to carry on your next real estate property investment in Spain.

What is a REIT – Real estate investment trust?

When it comes to significant investments, quoted companies having a minimum share capital of 5 million can elect to be subject to the beneficial so – called “Sociedades Cotizadas de Inversión Inmobiliarias – SOCIMIS”, Real estate investment trust.

Let us learn a bit more about it.

How REITs work

✔ Spanish real estate investment companies can benefit from an advantegous tax scheme of being taxed at the Corporate income tax rate of 0% subject to the following requirements:

  • At least 80% of their investments must consist of real estate for lease; land to promote and then lease; or, portfolio investments in other entities having the social purpose of a REIT. In both cases, the property lease or the investment shares must be kept for at least three years.
  • At least 80% of their income must derive from property real estate lease to entities not forming part of the group or from their portfolio investments in the form of dividends. The remaining 20% income can be freely chosen.
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Tax advantages of REITs

✔ As they are not subject to Corporate income tax, tax losses carried forward cannot be set off against profits and they cannot benefit from any double taxation tax relief or any tax investment credit either.

✔ Non qualifying income is subject to the standard 25% Corporate income tax rate.

✔ A special 19% rate applies on dividends paid to shareholders having a minimum 5% of the REITs share capital when such dividends are tax – exempt or taxed at a rate lower than 10%, at the shareholder’s level. It must be noted that these entities are obliged to distribute dividends on 80% of the profits deriving from their qualifying rental income and on 50% of the profits deriving from disposal of the real estate properties and portfolio investments used in their special social purpose.

✔ An adequate planning of the shareholding structure may result in the REIT becoming a real flow through entity of the profits generated towards its non resident shareholders which, if subject to a minimum 10% tax in their respective countries, may benefit from the Parent subsidiary Directive (if the requirements for it are met) or from reduced Treaty rates while the REIT would also avoid the 19% special tax.

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Publicado el 02-2021 por PBS