SOCIMIs: Are they the “REIT” option for you?

Real Estate Investment Trust

Real Estate Investment Trust

A Real Estate Investment Trust, or REIT, is an excellent vehicle for investing in real estate, because it offers numerous tax advantages. Any corporation, trust or association that specialises in real estate should consider becoming a REIT, because it lowers, or in some cases eliminates, corporate income tax.

In order to qualify as a REIT, the company has to have most of its revenue and assets linked to real estate investments. REITs also have to distribute most of their taxable income as dividends to shareholders. One of the advantages is that the company can then deduct these dividends paid out to shareholders from its corporate taxable income.

SOCIMIs

The equivalent of the REIT here in Spain is the SOCIMI (Sociedad Anónima Cotizada de Inversión en el Mercado Inmobiliario). SOCIMIs were introduced as an option in Spain in October 2009, but because the requirements for qualification were too high, they did not become popular. As the Spanish government wants to promote the real estate market here—and in particular, property leasing—it reworked some of these qualifications in 2012, easing up on many restrictions. Before that, SOCIMIs had to have 15 million euros of capital, an intimidating sum indeed! That has been reduced to 5 million euros, making it easier for smaller investors to get into the real estate game.

Tax Advantages

Previously, SOCIMIs had to own at least three properties, but now a company can be classified as a SOCIMI with just one property. The obligation to rent out properties for at least seven years has been lowered, and now SOCIMIs can begin to benefit from tax benefits after leasing their properties for a minimum of just three years. The prerequisite that external financing should be limited to less than 70% of the SOCIMI’s assets was also scrapped.

These changes include some major tax advantages as well—chief among them lowering corporate income tax from 19% to 0%. As with REITs in other countries, this tax exemption is contingent upon distributing profits amongst shareholders. Before the changes made in 2012, SOCIMIs were obligated to distribute 90% of their profits, but now they only have to distribute 80%.

Another lifted restriction is the requirement to trade only in regulated markets. SOCIMIs are now free to trade in Spain’s Alternative Stock Market. Being able to trade on this more flexible market will save issuers a great deal of expense. It also offers the benefit of ensuring immediate liquidity for investors.

So what do you think? Are they the “REIT” option for you?

Thanks to all these changes, SOCIMIs are now an extremely advantageous investment vehicle in Spain for both small and large players. If interested, you can contact the Real Estate Department at Argali Abogados.

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