Special Tax Regime of Real Estate Investment Trust (REIT) in Spain
SOCIMIs (sociedades anónimas cotizadas de inversión inmobiliaria or a real estate investment trust) enjoy certain significant tax advantages given that, once they have fulfilled the necessary legal requirements, they are protected by a special tax regime based on a 0% Corporate Tax rate.
Notwithstanding the above, noncompliance with the lease requirement on properties during the statutory three-year period will determine the tax rate of all income generated from the properties within all tax periods, which would have resulted in the implementation of the special tax regime, in accordance with the general regime and the Corporate Tax rate.
Likewise, REITs in Spain shall be subject to a 19% special tax rate on the dividends distributed to shareholders that own either equal to or greater than 5% of the share capital, when such dividends are exempt or taxed under a 10% rate.
Additionally, REITs are entitled to a 95% reduction on the Property Transfer Tax, triggered on the acquisition of real estate assets, if they are residential properties to be leased or land for the promotion of residential properties to be leased. They also benefit from exemption to the Duty on Legal Documents (constitution, contributions, etc.)
Correspondingly, it should be noted that REITs will lose the right to apply the special tax regime, and be taxed under the general scheme for Corporate Income Tax, if any of the following situations arise: delisting from regulated stock exchange markets or multi-lateral trading systems, failure to complete reporting requirements for annual accounts, lack of distribution agreements or full or partial payment of dividends as decided by legal terms, withdrawal of application of the special regime, failure to comply with other legal requirements without them being rectified immediately.
On the other hand, in regard to the taxation of shareholders or investors they must differentiate between different circumstances:
- Shareholders that are resident companies (or non-residents with a permanent establishment in Spain) are subject to the Corporate Income Tax and shall include dividends within its taxable base without the right to apply for exemption to avoid double taxation;
- Spanish individuals will be taxed under the Income Tax and shall include the dividend in their taxable base subject to a maximum tax rate of 23%; and
- Non-residents without a permanent establishment in Spain who receive dividends from a REIT (or SOCIMI) will be subject to a withholding tax of 19%, unless an exemption (parent-subsidiary) or reduced treaty rate is applicable.
José María Mesa