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EPRA knocks Spain’s REIT plans

The European Public Real Estate Association says the new Spanish regime for property investment fails to capture the benefits of a ‘true REIT’.


Spain has come under fire from the European Public Real Estate Association for the way it has drafted new REIT legislation.

The association says the recently introduced Spanish regime for sociedades de inversión en el mercado inmobiliario (SOCIMI) failed to capture the benefits of a true REIT structure and is a “missed opportunity” for the Spanish Government.

EPRA views the REIT label as unjustified because the SOCIMI regime has departed from the standard model of tax exemption at the entity level. Instead, a reduced 18 percent flat rate is charged on profits made by the SOCIMI itself.

“The half-way option chosen by the Spanish Government appears to be motivated by the fear of a loss of tax revenue,” said EPRA’s finance director, Gareth Lewis. EPRA said the industry’s view was that corporate tax and other onerous restrictions would limit the ability of the SOCIMI regime to attract new capital back into the Spanish market. This would deny Spain the benefits that REITs are capable of bringing, which have been witnessed in the more classical REIT markets.

“The reason REITs have been so successful in the more mature real estate markets, such as the US, Japan, the UK, France, the Netherlands, Belgium, Italy and Germany, is down to their ability to access a global pool of investment that comes from being part of a widely understood, transparent and well managed investment vehicle,” Lewis added.

EPRA says that there is ample evidence to show that REIT regimes increase government tax receipts through increased taxation on the dividend flow to investors, resulting in an increase in transfer tax generation. The impact of accrued investments by the REITs also generates VAT, local property taxes, transaction costs and social charges.

As an example, it is estimated that the conversion to a SIIC (the French REIT equivalent) of Europe’s largest REIT, Unibail-Rodamco, has resulted in a recurring contribution to the French government being multiplied by four through indirect taxation.

“Despite the good intentions surrounding the introduction of the Spanish SOCIMI, EPRA continues to think that Spain would highly benefit from adopting a real REIT regime based on the consistent common rule of taxation of profits at shareholder level,” said chief executive, Philip Charls. “The more successful REIT markets are those where governments have struck a healthy balance between tax revenue protection and creating a market that investors are comfortable with. The Spanish property sector deserves a more ambitious structure than the SOCIMI.”