Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) was incorporated into French law by Order 2013-676 published in the Official Journal on 27 July 2013. The directive simplified the legal framework for asset management and collective investments funds, while enhancing professional and other investor protection and it is having a significant impact on the alternative investment fund industry in Europe and beyond.
A number of competitiveness measures have been taken to make French collective investment products more attractive, particularly real estate collective investment schemes (OPCIs) of which, according to a study published by the Financial Markets Authority (AMF) on 9 January 2015, there were more than 184 (at the end of 2013) operating with gross assets under management of EUR30.6 billion. Most of those pursue an investment policy focused on a specific real estate asset category, mainly office premises (more than 50 per cent of real estate assets) or retail premises (more than 20 per cent of real estate assets).
OPCIs are collective investment bodies whose securities are not listed on the stock exchange and whose purpose is investment in real estate. The settingup of an OPCI is subject to prior agreement from the AMF, the OPCI being represented by a French portfolio management company (société de gestion) also approved by the AMF.
Since the implementation of the AIFMD in France, OPCIs are divided into two main groups: those that are open to general public investors with no minimum subscription amount (known as “Grand Public”) and OPCIs open to professional investors (known as “Organisme Professionnel de Placement Immobilier”, or OPPCI) with a minimum subscription of EUR 100,000. These represent approximately 90 per cent of OPCIs.
The purpose of OPCIs is investment in real estate assets that they lease, or that they build for the purpose of leasing, and that they hold either directly or indirectly, including those that have yet to be completed, all operations required for their use or resale, the carrying out of all types of works to these real estate assets, and, secondarily, the management of financial instruments and deposits. The implementation of the AIFMD in France enables OPCIs to hold real estate rights directly through financial leases (known as “credit–bail immobiliers”) which was previously only possible through a corporate intermediary.
The real estate assets of an OPCI (which must constitute at least 60 per cent of its overall assets) mainly consist of real estate assets built or acquired in order to be rented, finance lease rights over such properties, shares in certain non-listed real estate companies, shares in listed real estate companies and shares in French or foreign OPCIs.
The AMF issues an authorization to OPCIs and OPPCIs after checking the information supplied in the regulatory documents (undertaking rules or articles of association and/or prospectus, where applicable) and in advertising documents. The AMF also monitors these funds throughout their lifetime.
OPPCIs are required to hold:
- real estate assets, accounting for at least 60 per cent of their portfolio (with some differences in portfolio composition for SPPICAVs (open-end real estate investment companies, known as “sociétés de placement à prépondérance immobilière à capital variable”) and FPIs (unincorporated real estate investment funds, known as “fonds de placement immobilier”);
- a cash reserve, accounting for at least 5 per cent of their portfolio; and
- the rest of the portfolio, which should be made up of financial assets (for example, securities).
This structure has the inherent characteristics of collective investment schemes enabling investors to enjoy greater liquidity, since the minimum real estate investment ratio is much lower than for an SCPI (société civile de placement immobilier) and fosters more dynamic financial management of the portfolio.
OPPCIs which take the form of an open-end real estate investment company are the most commonly used and can be set up as a French société anonyme with at least seven shareholders or as a French société par actions simplifiée with at least one shareholder as long as the bylaws do not prohibit the plurality of shareholders. The possibility of using the form of a société par actions simplifiée makes the use of OPCIs more flexible as it makes it possible to have only one shareholder and to avoid the complex scheme used in the past with multiple shareholders.
Among the mandatory advisers, an independent real estate valuer must be appointed who will provide an annual valuation of the real estate assets owned by the OPPCI. Following the incorporation of the AIFMD, only one real estate valuer is mandatory for OPPCIs (instead of two previously). In addition, a custodian (dépositaire) must be appointed, either a credit institution or an investment firm, which will monitor the management of the OPPCI as well as keeping the securities of the financial assets. Finally, a statutory auditor must be appointed to certify the annual accounts of the SPPICAV and to attest to the accuracy of the information provided.
These real estate investment schemes are hugely tax-efficient since SPPICAVs are exempt from paying corporate tax provided that they meet certain requirements and particularly if they comply with distribution obligations. In order to qualify for the corporate tax exemption, the SPPICAV is required to distribute within five months following the end of a fiscal year, at least (i) 85 per cent of the profits of the previous year; (ii) 50 per cent of the capital gain made from the sale of real estate assets during the financial year or the previous financial year; and (iii) 100 per cent of the net income of the previous financial year derived from distributions from companies held by the SPPICAV which benefit from a corporate tax exemption on their real estate activity.
Shareholders are taxed on the distributions received from the SPPICAV or gains on their shares. The level of taxation liability varies, depending on whether the shareholder is an individual or a company and whether the shareholder is considered to be a French resident for tax purposes.
However, the tax efficiency of a French OPCI involving Luxembourg shareholders will be adversely affected by an amendment to the France– Luxembourg treaty adopted on 5 September 2014. As from the ratification of this amendment, capital gains made by a Luxembourg company on the sale of shares of a company or OPCI holding, directly or indirectly, mainly real estate in France, will no longer be liable to tax in Luxembourg (where they could, in certain circumstances, be completely exempt from tax), but will instead be liable to taxation in France. However, it should be noted that this amendment takes effect as from the calendar year following its ratification. This means that all transactions completed during 2015 will still benefit from the current tax savings on capital gains related to the France–Luxembourg treaty.