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Spanish Real Estate Investment Trusts (SOCIMI)
A SOCIMI (Sociedades Anónimas Cotizadas de Inversión Inmobiliaria) translates as Listed Corporations for Investing in the Real Estate Market and is similar to a Real Estate Investment Trust in the UK. SOCIMIs are public limited investment companies, created to encourage long-term investment in the Spanish property market through investment in Spanish urban real estate for rent such as homes, hotels or commercial premises.
What is a SOCIMI?
SOCIMIs are limited companies listed on stock exchange markets whose activity is restricted to the use of properties for lease. On the downside, a SOCIMI has higher running costs than some other types of funds, but if the fund is large enough, the tax advantage more than compensates for this.
In addition to properties in Spain, SOCIMI can have real estate properties anywhere in the world, and may have up to 20% of their investment portfolio in non-real estate assets, although to that percentage different tax rules apply.
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SOCIMIS are attractive investment vehicles which benefit from:
- substantial tax breaks on transaction costs and profits allowing shareholders to maximise their investment
- being a stable, relatively low-risk liquid investment that can be bought and sold on
- convenience for investors as they are a relatively hassle-free investment platform
- no legal restrictions regarding the transfer of shares
- no minimum investment requirement per investor
- being a method by which investors can diversify where they invest their capital
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In addition to one of the most dynamic real estate investment vehicles, SOCIMIS offers one of the most efficient, fiscally speaking, asset structures in Europe.
Spanish REIT (SOCIMI) Requirements
The law around SOCIMI has evolved and partially relaxed over the years, most recently being amended in 2016 with the removal of some of the regulatory barriers and improvement in their tax treatment.
There are various legal requirements a SOCIMI must comply with including:
- The main activity or purpose of a SOCIMI should be the acquisition and development of urban real estate for leasing and/or hold a stake in the share capital of other SOCIMIs or entities without residence in Spain that have the same corporate purpose and are subject to a similar regime.
- The SOCIMI must invest at least 80% of its assets in urban real estate for leasing, in lands for development of leasable property or shares in other SOCIMIs/similar companies.
- At least 80% of a SOCIMI’s annual must come from leasing real estate and/or dividends or profits from shares in other SOCIMIs or similar companies.
- Real estate that belongs to the assets of the SOCIMI must remain leased for at least three years.
- The shares of the SOCIMI must be listed for trading on a regulated market or on a multilateral trading system, such as the Mercado Alternativo Bursátil
- Significant shareholders must undertake not to sell shares during the first year of the SOCIMI’s listing
- The SOCIMI must have a minimum share capital of 5 million euros, which must be fully paid-up
The SOCIMI must annually distribute dividends to its shareholders as follows:
- 100%of the profits arising from qualifying equity investments
- 50% of the gains obtained from the disposal of real estate (the remaining part of the gain must be reinvested in other real estate within a three-year period)
- 80% of all other profits.
SOCIMI Tax Regime
- Provided that the investment and dividend distribution requirements are met SOCIMIs are Corporate Income Tax taxpayers, although subject to a tax rate of 0%
- SOCIMIs will become subject to a 19% tax rate on the gross amount of dividends distributed to shareholders holding at least a 5% stake in the SOCIMI when such dividends are either tax- exempt or subject to a tax rate lower than 10%
- Spanish Corporate Income Tax shareholders or non-resident shareholders with a permanent establishment in Spain will be taxed on any SOCIMI dividend/gain without any tax credit.
- Spanish tax resident individuals will be taxed on any SOCIMI dividend/gain as savings income
- Non-Spanish investors are entitled to benefit from tax treaty reduced rates and even the tax exemption under the EU Parent-Subsidiary Directive, depending on their tax residence and tax status.
SOCIMIs are an interesting investment vehicle given their stable profitability, liquidity and certain significant tax advantages given that they are protected by a special tax regime based on a 0% Corporate Tax rate. Notwithstanding specialist legal and tax advice is required to ensure they have fulfilled the necessary legal requirements and tax compliance.
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