After a wait of many years, the Spanish REIT regime (known as “Sociedad Anónima Cotizada de Inversión en el Mercado Inmobiliario”, or SOCIMI) was introduced in October 2009. However, the crisis-stricken Spanish real estate market in 2009 onwards, added to the overly restrictive regulation and unattractive tax regime of SOCIMIs (which were subject to a corporate tax rate of 19 per cent) led to the failure of the regime, reflected in the fact that by 2012 not a single SOCIMI had been incorporated.

In December 2012, the Spanish government—aware that the initial regime did not meet real estate investors’ expectations—introduced reforms in order to make SOCIMIs more attractive. The main feature of the new regime is that SOCIMIs now qualify for 0 per cent taxation, placing them on a par with the REITs of neighbouring countries in terms of tax liability. The reforms appear to have hit the right note, because under the new regime, a number of SOCIMIs have been incorporated. Moreover, the SOCIMI structure has become the preferred arrangement for large international investors to invest in Spain in those cases when divestment is planned only in the medium term.

Key features of SOCIMIs

SOCIMIs’ activity

The purpose of SOCIMIs is restricted to the ownership of: (i) urban real estate acquired for leasing purposes, (ii) plots of land acquired for the development of urban real estate to be leased after development is complete and (iii) shares in other listed SOCIMIs or foreign REITs or non-listed Spanish or foreign companies that could be deemed to be assimilated to SOCIMIs or Spanish regulated real estate collective investment institutions.

Investment requirements: the 80–80 rule

At least 80 per cent of the value of the SOCIMI’s assets must be invested in qualifying assets or shares and at least 80 per cent of its income (exclusive of capital gains) must arise from rental income and from dividends of qualifying shares.

There is no requirement regarding a minimum number of assets to be held by a SOCIMI, meaning that a SOCIMI can be incorporated with only one asset. A SOCIMI is therefore a viable option to structure major real estate projects having one company and one asset/set of assets per project (for example, shopping malls or hotels) with the objective of better managing risks and liabilities. 

There is, however, a minimum holding period required: SOCIMIs’ assets must be held for a minimum period of three years. Non-productive assets must be put up for lease but, if a tenant can be found within one year, that year will count towards the minimum holding period. 

Mandatory distribution of dividends

The SOCIMI is required to distribute 80 per cent of profits arising from rental income and ancillary activities, 50 per cent of profits from the disposal of qualifying assets or shares and 100 per cent of profits arising from qualifying shares.

Listing requirements

SOCIMIs must be listed on a regulated stock exchange or multilateral trading facility in Spain, the European Union or the European Economic Area (for example, Spain, UK, Ireland, etc.).

Notwithstanding the general rule, non-listed Spanish companies whose main purpose is the acquisition of urban real estate for leasing purposes, that are subject to a mandatory dividend distribution regime similar to the SOCIMI regime, which comply with the investment requirements referred to above, and that are fully owned by one or more SOCIMIs or qualifying foreign REITs, may also apply the SOCIMI regime.

Tax regime

SOCIMIs are taxed at 0 per cent provided the shareholders owning at least 5 per cent of the SOCIMI are taxed on the dividends received at a minimum nominal rate of 10 per cent. Where shareholders do not meet this requirement, SOCIMIs are taxed at a 19 per cent corporate tax rate on the dividends distributed to those shareholders (this 19 per cent is a tax to be paid by the SOCIMI and not a withholding tax on the dividends distributed).

EU Directives and tax treaties

SOCIMIs are eligible for the avoidance of double taxation under the EU Directives and tax treaties signed by Spain.