REIT – Real Estate Investment Trust – soon in Poland!
The Polish Parliament is currently working on a bill introducing to the Polish law system a so-called Real Estate Investment Trust (REIT). The REIT Institution has been operating in many countries, including the United States, the Netherlands and France and it is a popular investment tool in the real estate industry.
The purpose and main object of REIT’s activity is to invest in real estate. Usually, they benefit from a special tax status when certain statutory requirements are met, thanks to which revenues earned by investors benefit from tax preferences.
Terms of incorporation of REIT
According to the bill which is the subject of works of the parliament, the Polish equivalent of REIT will be called a company investing in the lease of real estate (statutory abbreviation: F.I.N.N.). Obtaining of the REIT status will require compliance with a number of conditions, including, but not limited to:
- REIT must have the status of a joint-stock company,
- The share capital of the company is at least 50,000,000 Polish zlotys,
- The shares of REIT must be admitted to trade on the official listing market (currently the main market of the Warsaw Stock Exchange),
- All shares of the company are bearer shares,
- The company does not issue preference shares,
- the subject of the predominant activity of REIT must be lease of residential real estate located on the territory of the Republic of Poland, not excluding the possibility of conducting this activity by its subsidiary companies,
- REIT must have a registered seat and management board on the territory of the Republic of Poland – this requirement is strongly correlated with tax solutions to be introduced by the Act,
- The company must be entered into the register of companies investing in the rental of real estate, which will be kept by the Polish Financial Supervision Authority.
Requirements for REIT assets, revenues and liabilities
Due to the special tax status to be held by REIT, act also provides specific requirements regarding the structure of assets and revenues as well as the relationship of liabilities resulting from debt financing towards the value of assets. REIT will be obliged, among others, to:
- maintain the value of residential properties owned by it and maintain the value of shares in subsidiary companies at a level not lower than 80% of the carrying amount of the company’s assets;
- obtain at least 90% of income from lease of residential real estate owned by him or from the sale of these properties, which were leased by REIT before their sale, at least for a year, or from the shares in subsidiary companies or from the sale of shares in subsidiary companies;
- maintain the nominal value of liabilities resulting from debt financing, including loans, borrowings or bonds issued at a level not higher than 50% of the carrying amount of assets;
- make the distribution of profit for the shareholders resulting from the annual financial statements in the amount of:
- the entire profit (with the reservation that it is possible for the management board to exclude certain amounts from the division between shareholders), which may be designated for distribution in accordance with the provisions of commercial companies law, or
- constituting a total of at least 90% of the total revenue earned in the financial year for the rental of residential real estate or from the sale of residential real estate that were rented by a company that has been investing in renting real estates for at least a year, including income received through a subsidiary companies, reduced by some of the expenses incurred in the financial year.
Tax preferences for REIT
Meeting these rigorous statutory requirements will allow taking advantage of the tax preferences provided in the form of:
- Corporate Income Tax (CIT) rates on income obtained by REIT from the lease of residential real estate in the amount of 8.5%
- postponement of the tax liability for incomes of REIT from lease of residential real estate, from the sale of such real estates, from the sale of shares (stocks) of subsidiary companies of F.I.N.N. and from dividends and other incomes from the participation in profits of subsidiary companies of REIT – until their equivalent is paid as dividends for investors (stockholders)
- release of stockholders of REIT from income tax for paid dividends.
The legislator’s idea is that the above tax preferences are supposed to be an encouragement for investors to use REIT as a special investment tool on the residential real estate market.
It should be noted that according to the bill, the Polish REIT model will be limited basically to the residential real estate sector as pursuant to provisions of bill residential real estates shall constitute at least 80% of the balance sheet value of REIT or its subsidiary company.
REIT regulation — entry into force
The expected date of entry into force of the act is 1st of January 2019.
Our Law Firm, on the basis of an experience in the field of company’s law and real estate law, offers comprehensive legal services in the process of incorporation and registering F.I.N.N, as well as legal support in the process of admission the shares of REIT . to trade on the main market of the Warsaw Stock Exchange, cooperating in this scope with brokerage offices.