Q&A: key requirements for a real estate investment trust in Belgium.

Key regulatory requirements

What are the basic source-of-income requirements for a REIT?

As such, there is no legal requirement in terms of source of income. However, considering the eligible investments, the source of income of regulated real estate company (BE-REITs) and specialised real estate investment fund (SREIFs) will be rental income and capital gain (in the case of direct investment in immovable property), and dividends and capital gain (in the case of indirect investment in immovable property). For SREIFs that grant loans to subsidiaries, interest is also a source of income.

What are the basic asset composition requirements for a REIT?

BE-REITs and SREIFs can only invest in 'immovable property' as defined by applicable regulations.

What are the basic distribution requirements for a REIT?

BE-REITs and SREIFs are subject to a yearly distribution obligation amounting to at least the positive difference between 80 per cent of their net operational result as determine by Royal Decree and the net reduction of their indebtedness in the course of a financial year. Realised capital gains, provided that they are reinvested within four years, are exempted from this distribution obligation. For the BE-REITs, no distribution is allowed if the (statutory or consolidated) indebtedness ratio exceeds 65 per cent or will exceed this limit as a result of the distribution.

What happens if a REIT fails to meet the basic regulatory requirements? Is relief available if a company fails to meet any of these requirements?

If the Financial Services and Markets Authority (FSMA) concludes that the BE-REIT does not observe the regulations and/or its articles of association, this does not necessarily lead to a loss of the BE-REIT status. Instead, the FSMA may, for example, make the necessary recommendations to the BE-REIT to remedy the situation, subject to a grade period, which can be linked to a penalty of maximum €50,000 per day of delay with a maximum of €2,500,000. Or, the FSMA might impose temporary sanction (eg, a public notice). the FSMA could also ask the market authorities to suspend the listing of the shares. The ultimate penalty would be to omit the BE-REIT from the BE-REIT list. The BE-REIT would then lose its status and would become a regular stock-listed company. The official loss of status would start as of the date of notification. Additional, if there is an intentional infringement of certain regulations, a prison sentence and/or a fine could be imposed on the directors of the BE-REIT, as well as on the promotor of the BE-REIT.

The tax administration is competent to monitor the compliance of the SREIF with the regulations. In this respect, a yearly compliance questionnaire has to be filed by the SREIF and returned to the tax administration. In the case of infringements that are not remedied, the tax administration can decide, after motivated notice, to strike the SREIF from the SREIF list, with the loss of its regulatory and tax regime as a consequence.

The loss of the tax status, which entails a switch from accounts in International Financial Reporting Standards to accounts in Belgian GAAP and tax-exempt status to taxable status, shall also have tax consequences:

• with respect to the results of the year concerned, they will be subject to the BE-REIT/SREIF tax regime until the loss of the regime and to the regular corporate income tax from this date;
• the share capital of the BE-REIT/SREIF, in the sense of the corporate law, shall be considered fiscal capital for the purposes of corporate income tax and withholding tax;
• the retained earnings, not yet distributed, built up under the BE-REIT/SREIF status, shall be considered taxed reserves for the purposes of corporate income tax and withholding tax since these retained earnings have indeed been subject to their own tax regime; and
• the revaluation surplus corresponding to the latent gain that has been subject to the exit tax shall be considered a taxed reserve for the purposes of corporate income tax and withholding tax since this revaluation surplus has indeed been subject to its own tax regime. If these revaluation surpluses have not been subject to the exit tax (eg, because they result from a fair value assessment under the BE-REIT/SREIF status), they will be considered tax-exempt reserves.

What best practices should be considered to ensure compliance with the key regulatory requirements for REITs in your jurisdiction?

Compliance requirements are quite detailed in the regulations and usually subject to circular or template questionnaires from the FSMA. These circulars and questionnaires have as such contributed to the development of best practices in the sector.

An important regulatory requirement to closely follow is the risk diversification requirement and the interpretation of the concept 'single real estate project' given by the FSMA. Risk diversification must be assessed and monitored taking into account, also, the risk on the co-contracting party, which means that despite the fact that a BE-REIT would own several immovable properties these properties might be seen as a 'single risk' if rented to the same tenant.

Are the requirements for a publicly traded REIT raising capital different from those imposed on private REITs or public non-REIT companies?

In addition to the specific BE-REIT legal framework, BE-REITs are subject to the rules applicable to listed companies.

What are the ongoing securities and disclosure requirements for publicly traded REITs?

BE-REITs are listed entities and as such are subject to the rules applicable to Belgian listed companies. These include:

• periodical information disclosure (eg, specific annual and half-yearly reports, which include governance, remuneration and ESG information);
• compliance with market abuse rules (eg, disclosure of inside information, prohibition of insider dealing, managers' transaction disclosure);
• disclosure of significant holdings (the identity of shareholders holding at least 5 per cent of the voting rights or assimilated rights must be disclosed unless the articles of association provide for a lower threshold); and
• specific governance rules (eg, rules on conflict of interests, board committees).

Do the stock exchanges in your jurisdiction have any special rules that do not apply to unlisted or private REITs?

No, SREIFs are unlisted and are not subject to regulated stock exchange rules.