Real Estate Investment Trusts (REITs) permit investors (including small ones) to participate in the real estate market in a tax-advantaged manner. The REIT structure first appeared in the United States in 1961. It was introduced to Europe by way of REIT legislation passed in the Netherlands in 1969.

Introduction of REITs in Poland is one of the goals of the "Plan for Responsible Development" announced by the current Polish government. The first version of the bill was published in October last year and, on 26 May of this year, the Ministry of Finance announced its second, improved draft, which has become a hot topic for discussion among the real estate community in Poland.

According to this second draft, Polish REITs are to have the status of joint-stock companies, be listed on the Warsaw Stock Exchange, have their registered seat or management board located in Poland, and commence with capital amounting to at least PLN 50M (approx. EUR 12M). They will be allowed to invest in commercial and residential properties (residential buildings were excluded in the first draft of the bill), directly or through subsidiaries. Other types of investments, such as highways, BTS towers, or wind farms will not be permitted.

Every year REITs will have to distribute at least of 90% of their profit to shareholders in the form of a dividend. However, part of their profit derived from the disposal of real properties, shares of their subsidiaries or other REITs may be used to purchase real properties or shares of other entities investing in real estate. According to the draft, distributable profit is to be calculated on the basis of "book" profit, which has created some controversy as such gain may simply reflect a revaluation of properties or a fluctuation of currency exchange rates (rents are usually denominated in EUR) and may not be a true indicator what the REIT actually has the ability to pay as a dividend. This point seems to be still open for discussion and the real estate sector hopes that necessary changes will be made during parliamentary scrutiny of the bill.

Income derived directly or indirectly from a REIT's leasing of real properties will be exempt from CIT until its distribution as a dividend, at which point it will then be subject to CIT taxation at a preferential rate of 8.5% (instead of 19%). What is important is that such income will be taxed solely at the REIT level; the dividend recipients (investors) will be exempt from taxation. As a result, the effective tax burden incurred on profits earned and distributed by REITs in Poland will amount to 8.5%, irrespective of whether the investor is a Polish or non-Polish resident.

An important aim of REITs is to increase the involvement of domestic private capital in the real estate market which is currently dominated by foreign investors. It should also have a positive impact on the Polish capital market.

As this legislation is supported by the government it can be reasonably assumed that it will come into effect on January 1, 2018.