Real estate investment companies: tax advantages and Spanish residence
In the 60`s REITs (Real Estate Investment Trust) were born in the US, with the goal of making large-scale investments in real estate accessible to small investors. The formula chosen was to equate investment in real estate to investment in any industry; through the purchase of stocks in the stock exchange. Therefore, although not required, most REITs are in the public stock exchange.
In Spain REITs are called SOCIMI (Real State Investment Companies) and their purpose is limited to the acquisition of property for rental purposes. They include both urban real estate and plots of land acquired for the development of urban property to be leased after the development is complete, including shopping centers or others.
SOCIMIs are regulated by Law 11/2009 of 26 October, of Real State Investment Companies. The Law marks that these companies must be included in a stock exchange or regulated by the multilateral trading system in Spain, the European Union or the European Economic Area (eg Spain, the UK or Ireland). The REIT may avoid double taxation under EU Directives and tax treaties signed by Spain.
Moreover, there is no requirement regarding a minimum number of assets that a REIT should hold, which means you can have a single asset.
It does require, however, a minimum investment period: assets shall be maintained for a period of at least three years.
Furthermore, if the investment in a REIT reaches one million euros, the Entrepreneurs Act of 2013 will allow the investor to apply for the Spanish Golden Visa, the residence in Spain.
Being able to invest internationally creates many opportunities for small and large investors in real estate investment companies, which enjoy tax advantages over traditional real estate opportunities, and in the Spanish case also may involve access to the residence permit for foreigners. Specifically, the REIT is taxed at 0% provided that the holders of at least 5% of the REIT shareholders are taxed on dividends received at a minimum nominal rate of 10%. When shareholders do not meet this requirement, the REIT is taxed at a corporate tax rate of 19% on dividends distributed to shareholders (the 19% is a tax payable by the REIT and not dependent on dividends distributed).
Currently the investment requirements must comply with the 80/ 80 rule; ie at least 80% of the value of the assets of the REIT must be invested in qualified assets or shares and at least 80% of the income (excluding capital gains) must come from rental income and qualified dividends.
You can also buy a property through a foreign legal company as long as the company is not domiciled in a tax haven and the investor has, direct or indirectly, the majority of the voting rights and can appoint or remove a majority of the members of the board.