Coming soon REIT: - it's easy!

Coming soon REIT: - it's easy!

  • analysis of whether and to what extent the Customer meets the requirements for the exemption from CIT,
  • roadmap of actions to be carried out in order to be entitled for the exemption, and:
  • legal support of these actions.

About the draft of the Act on companies active in real estate rental market says Atty. Małgorzata Skawińska:

Those who rule have not recently mollycoddled shopping centre developers.  Retail sales tax (currently in suspension) or a draft of the act to ban work on Sunday directly hit the retail market, and consequently their tenants.  As if that was not enough, the government plans to impose an income tax on the increase of assets of investment funds (currently investment funds as such do not pay income tax).  However, in mid-October 2016, the Ministry of Finance presented a draft of act on real estate rental market companies (REIT Act). This initiative provides for significant tax preferences for entities investing in commercial real estate.

From the justification of the act on REIT one can draw a conclusion that the legislator would like to encourage home private capital to invest in commercial real estate.  However, the real estate rental market companies must meet a number of statutory requirements.  First of all, they must become public companies.  The minimum share capital must reach 60 million zloty, at least 70% of the assets of such companies must have a form of real estate or shares or stock of subsidiaries or other companies from real estate rental market, and the balance sheet value of liabilities may not exceed 70% of the balance sheet of assets.  Further restrictions show that a company active on real estate rental market will have to achieve not less than 70% of profits from the rental of real estate or parts thereof (on account of rent) or chargeable disposal of real estate or parts thereof.  In addition, revenues of such companies are to be obtained from rental of at least three properties or parts thereof.  In the opinion of the Ministry of Finance it is to provide the diversification of portfolio.

If a company engaged in rental of real estate meets the aforementioned requirements and reports this fact to the head of tax office, it will obtain an exemption from CIT tax.  Also exempted from tax will be dividends paid out by REIT subsidiaries and income of subsidiaries derived from the rental of real estate or parts thereof, as well as from chargeable disposal of real estate or parts thereof.

Thus, the activity of Polish-REITs will be focused on the commercial real estate market.  REITs will be able to invest in office buildings, shopping facilities or warehouses, but the possibility of investing by such companies in buildings or apartments is explicitly excluded.  Of course, it is all about properties located only on Polish territory.

It seems that the biggest disadvantage of REITs is their public nature. Of course, the assumption is such that these are the instruments designed to accumulate investments of private persons, individual investors who do not need to be professionals dealing with commercial real estate market. Nevertheless, public companies must be admitted to public trade, which means the necessity for dematerialisation of shares, issuing the prospectus, which must be accepted by the KNF.  At a later stage of functioning, the REIT will have to submit to inflated information disclosure requirements characteristic for listed companies.

Will the today's commercial real estate developers be willing to surrender to the above limitations?  Time will show. Certainly, if the Law on companies of the commercial real estate rental market will come into force, it will constitute a very attractive option to consider for investors who already have shopping centres in their portfolio, for which to go public is not a barrier.  Especially as the current investment instruments based on investment funds, may soon lose much of their attractiveness.  

The Law on real estate rental market companies is expected to enter into force on January 1, 2017. REIT service - it's easy! will finally be presented after the announcement of this act in the Journal of Laws.  We will provide this service in cooperation with our partner - AXELO Law Firm (www.axelo.pl), dealing with issues of tax strategy and stock exchange matters.

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