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SOCIMI: One of the Most Effective Instruments for Investment in the Spanish Property Market

The legal and tax system of the SOCIMI (Sociedades Colectivas de Inversión Inmobiliaria), also known as REITs (Real Estate Investment Trusts) in the English-speaking world, was simplified in late 2012, and a series of measures were introduced in order to make them more appealing, resulting in a significant increase in foreign investment in the Spanish property market.

The main feature of the new system is that the SOCIMIs are subject to a zero rate on corporate tax, which has made them a highly competitive option when compared to the foreign REITs. These reforms seem to have paid off and this can be seen in a significant increase in the number of SOCIMIs registered with the Spanish Stock Market Commission.

Hereafter, we shall analyze the main features of the SOCIMI, starting with its corporate purpose, consisting of (i) urban assets for lease (via acquisition or promotion) or (ii) stocks or shares in the capital stock of other SOCIMI or foreign entities of an analogous nature or similar activity.

As for the other features of the SOCIMI, these include the following:

  • They must have a minimum capital of five million euros. The subscription of capital may be made by non-cash contributions.
  • SOCIMIs can be set up with a single real estate asset and the property does not have to be located in Spain.
  • The shares of the SOCIMI are to be admitted to negotiation on a regulated market (such as our traditional stock exchange) or to a Spanish multilateral trading system (like our Alternative Stock Market) or to a multilateral trading system in any other member state of the European Union or the European Economic Area.
  • At least 80 percent of their assets must be real estate of an urban nature intended for rent, land for the development of this real estate or shares in other SOCIMIs or foreign REITs.
  • At least 80 percent of the income should come from the lease or REIT dividends paid by SOCIMI subsidiaries.
  • It is important to allocate the profit obtained by sharing it amongst the partners on an annual basis, in a proportion determined according to the source of the profits: 80 percent of its general profits, among them profit from rental income: 50 percent of the profits derived through the transfer of assets (real estate and stocks and shares) suitable for the application of the special tax system.
  • The leased property must remain leased for a minimum period of three years.
  • There are no limitations on the debt or external financing.

In conclusion, we can say that the main developments in the regularization of the SOCIMIs in Spain have resulted in the tax system being designed to avoid cases of double taxation, as well as being admitted to trading in order to provide investment liquidity and the obligation of regularly sharing their profits. This has led to a greater participation of foreign investors in the Spanish property market.

If you are interested in investing in the Spanish real estate market, you may want to know more about this the SOCIMIs and about this topic in general. Please take advantage of our free no obligation first consultation and give us a call and our experts would be happy to further explain the main advantages.

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