Legal frame
The property investment fund's regime is governed by the Royal Decree of 7 December 2010 which replaces the previous texts. The idea is closely related to that of the Real Estate Investment Trust (REIT - USA) and the Fiscal Investment Institutions (FII - Netherlands).
The aim of the legislator is that an investment fund should ensure maximum transparency in its real estate investments and maximum cash-flow dividends, while the investor enjoys a whole array of benefits.
The property investment funds are under control of the Financial Services and Markets Authority and are subject to specific regulations, of which the striking requirements are the following:
- adopt the form of a limited liability company or a limited partnership with a share capital with minimum capital of € 1.250.000
- a company with fixed capital and a fixed number of shares
- compulsory stock exchange listing
- limited possibility for concluding mortgages
- a debt ratio limited to 65 % of the total assets
- financial charges resulting from the borrowed capital may under no circumstances exceed the threshold of 80 % (comprising only rental charges and no instalment payments) of the total operating and financial income of the property investment fund
- strict rules relating to conflicts of interests
- recording the portfolio at market value without the possibility of depreciation
- a three-monthly estimate of the property assets by independent real estate experts
- spreading of the risk: a maximum of 20 % of capital in one building, except certain exceptions
- a property investment fund may not engage itself in “development activities”; this means that the property investment fund can not act as a building promoter aiming to erect buildings in order to sale them and to cash a developer profit
- an exemption from corporation tax on the condition that at least 80 % of the profits are distributed
- a deduction of a liberating withholding tax on dividend of 15 % when the dividend is paid
The aim of these rules is to limit risk for the shareholders.
Companies which merge are subject to an exit tax of 16,995 % on the potential added-value and on tax-free reserves.