Listed Investment Companies in the Real Estate Market (SOCIMI)

What are SOCIMI?

SOCIMI are investment vehicles whose purpose is to boost the rental Real Estate market. Its main investment is urban Real Estate (houses, commercial premises, offices, residences, hotels, garages, etc.).

Requirements:

a) Legally: SOCIMI must be publicly listed or traded companies whose ownership is organised via shares of stock, with a minimum capital investment of €5M. The shares must be nominative and all have the same political and economic rights. The shares should be traded on a regulated market as if excluded from trading, it will result in the loss of the special tax regime (therefore it will be taxed under the general IS tax regime).

b) Corporate purpose: as predicted, the main aim must consist of:

1. 1. Acquisition and promotion of urban real estate for rent.
   2. Shares in the capital of other SOCIMI or non-resident companies with the same aim and similar legal system.
   3. Unlisted SOCIMI.

Real estate of urban nature are those which are located on urban land. They are not considered real estate because:

• They have special characteristics and are electricity, gas and oil plants, dams, reservoirs, motorways, roads, airports and ports.
• They are usually rented by third parties (financial leases). In this case, the amount of rent has to be less than the residual value.

The properties must be acquired in Real Estate and include the space, the flight or sub-property.

c) Accounting: every activity must be accounted for separately, with the necessary breakdown to identify the income of each Real Estate.

d) Investment Requirements: they must have invested at least 80% of the value of their assets. The value of the asset is determined according to the measurement of the individual or consolidated balance sheet. The SOCIMI may choose to value their asset at the price of the balance sheet or at the price of its market value.

e) Maintenance of Investment:

1. 1. Real estate must be leased for at least 3 years. The time that has been offered in a lease is calculated with a maximum of one year.
   2. Shares in companies must be held for at least three years from their purchase. Additionally, they can be calculated from the beginning of the tax period in which the special tax regime applies.

f) Income: from every tax period, at least 80% of the money will be the income from:

1. 1. The rent income of the real estate, in order to fulfil its main corporate purpose;
   2. Or dividends or income from profitable shares due to the fulfilment of the main corporate purpose;

This calculation is based on the individual or consolidated result. Failure to comply with this percentage means that the special tax regime does not apply. As an exception, the special tax regime may be applied if it corrects such non-compliance in the following year.

g) Distribution of Income (Dividends): there is a requirement to distribute the profit obtained in each financial year, once the mandatory commercial obligations have been fulfilled. In particular:

1. 80% of the profits from the Real Estate leases or accessory activities.
2. 50% of the profits derived from:
   • the transfer of Real Estate; or
   • share in other companies that affect the fulfilment of the main aim.

The rest of the profit must be reinvested in other properties or shares related to the fulfilment of the corporate purpose in the following 3 years. If the profit is not reinvested, the remaining profit must be distributed. Equally, if the profit is transferred before the established maintenance period, the remaining profit must be distributed.

3. 100% of the profits derived from the company dividends in which it has invested.

Tax Regime

As mentioned, listed and unlisted SOCIMI may choose to be taxed under a special tax regime. However, in any event, it must comply with the requirements established in the Law 11/009.  The application of this regime requires the approval of the general board and the communication to the AEAT (Spanish Tax Agency). Notifying the AEAT must be done before the last three months before the end of the financial year. If the AEAT is notified after the deadline, it will be applied in the next financial year.

Generally, SOCIMI will not be taxed but in the event of non-compliance with the established requirements, the income from certain activity will be taxed at the general rate.

Instead, the companies (SOCIMIs) will be taxed differently (considered an IS tax). This regime will tax 19% of all the dividends and shares in distributed profits to partners when:

• The share in the company’s capital is equal to or greater than 5%; and
• Such dividends, in the partners’ head office, are exempt or taxed at a rate of less than 10%.

Not applicable: when a partner, receiving the dividend, is a company (SOCIMI) to which this law applies.

Accrual: day of the profit-sharing agreement.