Real Estate Investments in Spain

James Berrio

jb@blaw.es

B Law & Tax

www.en.blaw.es

We are pleased to inform you about “SOCIMI”, a special tax regime specifically introduced by Spanish legislation in 2006 to promote investment in all kinds of real estate properties in Spain and abroad, including commercial premises, residential, and industrial properties.

The Spanish Law 11/2009 establishes a special regime for listed companies with a share capital of at least EUR 5 million, under which the Corporate Income Tax (hereinafter CIT) rate is 0%.

The SOCIMI regime is an optional regime that must be agreed by the General Shareholders Meeting and communicated to the Spanish Tax Office before the last three months prior to the conclusion of the relevant tax period.

The requirements to apply for this special tax regime are the following:

1. Corporate Purpose

The main corporate purpose for SOCIMI companies has to be the acquisition and development of urban real estate assets for lease, or the holding of shares in the share capital of other companies, resident or not in Spain, whose main corporate purpose is the acquisition of urban real estate assets for lease with the same benefits distribution policy as the SOCIMI, as we are going to explain. However, SOCIMIs might perform other accessory activities, provided that these activities represent less than 20% of the company’s incomes in each tax period.

2. Investment

In general terms, SOCIMIs must invest at least 80% of their assets in leasable urban properties or land plots acquired for the development of leasable urban properties. The properties (or shares in other SOCIMIs) which integrate the assets must remain leased for at least three years, including any time when they may have been offered for lease, with a maximum of one year.

3. Trade Requirements to Be Accepted for SOCIMI

The shares in a SOCIMI company must be admitted to trading in a regulated market and the minimum share capital of a SOCIMI company has to be EUR 5 million.

Also, it is required that the company has only one class of shares and they must be nominative.

Regarding the name of the company, it must include “SOCIMI, S.A.” or “Sociedad Cotizada de Inversión en el Mercado Inmobiliario, Sociedad Anónima”.

4. Payment of Dividends

SOCIMIs are obliged to distribute as dividends to their shareholders the profit obtained in the fiscal year, as follows:

• 100% of profits from dividends or shares in profits distributed by companies which have the main corporate purpose for SOCIMIs.
• At least 50% of the profits deriving from the transfer of properties and shares, subject to the fulfilment of their main corporate purpose, once the maintenance periods mentioned above have elapsed. The rest of these profits must be reinvested in other properties or shares, subject to the fulfilment of their main corporate purpose, within three years following their transfer. Failing that, such profits must be fully distributed together with the profits, if any, that come from the year in which the reinvestment term finishes. If the elements subject to reinvestment are transferred prior to the end of the maintenance period, those profits must be fully distributed together with the profits, if any, that come from the year in which they were transferred.
• At least 80% of the rest of the profits obtained by the SOCIMI.

Taxation of SOCIMI

The CIT rate applicable for SOCIMIs is generally 0% and the SOCIMIs are not allowed to compensate their negative taxable bases.

On the other hand, the SOCIMI is subject to a special levy of 19% on dividends distributed to “Qualified Shareholders”.

The Qualified Shareholders are those whose interest in the entity’s share capital is equal to, or greater than, 5%. Such dividends distributed to them are exempted or are taxed at a lower tax rate than 10%, provided that the shareholder who collects the dividend is not an entity to which the SOCIMI Law applies, with certain exceptions.

Taxation of Shareholders

The dividends distributed — charged to profits or reserves — are treated as follows:

• The deduction for avoiding double taxation (Article 21 of the CIT Law) does not apply when the recipient of the dividends is a payer of the CIT or Non-Resident Income Tax (hereinafter, NRIT) with Permanent Establishment in Spain.
• The dividends received are taxed when the recipient of the dividends is a payer of the NRIT without Permanent Establishment in Spain, with some exceptions.

The capital gains obtained in selling of the shares in companies which have opted for this regime are treated as follows:

• The deduction for avoiding double taxation does not apply in most cases when the recipient is a payer of CIT or NRIT with Permanent Establishment in Spain.
• The capital gain or loss will be determined in accordance with the Personal Income Tax Law when the recipient is a payer of this tax.
• The exemption provided in Article 14 of the NRIT Law does not apply when the shareholder holds at least 5% of the share capital.

Finally, any shareholder whose holding in the company’s equity is equal to or greater than 5% and who receives dividends or shares in profits for which it pays tax at a tax rate of at least 10%, will be obliged to notify this circumstance to the company within ten days of the day following the day when they are paid. In case this notice is not made, it would be understood that the above-mentioned requirement (10% taxation) is not met.

XLNC MAGAZINE | No. 06 | October 2020