1. The public regulated real estate company (Public RREC)
The public regulated real estate company (public RREC) has a status similar to that which exists in many countries : real estate investment trust (REIT) in the US, fiscale beleggingsinstelling (FBI) in the Netherlands, G-REIT in Germany, société d’investissements immobiliers cotée (SIIC) in France, and UK-REIT in the UK. This regime is currently governed by the law of 12.05.2014 and the royal decree of 13.07.2014 on regulated real estate companies.
The main characteristics of the public RREC are :
- closed-end company;
- stock exchange listing;
- activity consisting of providing buildings to users; as an ancillary activity, the RREC can invest its assets in listed securities;
- the Belgian subsidiaries of a public RREC can be approved as institutional RREC;
- diversification of risk : no more than 20 % of the consolidated property portfolio invested in a single property;
- consolidated debt limited to 65 % of the market value of assets; the value of mortgages and other securities is limited to 50 % of the total fair value of the properties and to 75 % of the value of the mortgaged property;
- very strict rules governing conflicts of interest;
- regular valuation of the property portfolio by independent real estate valuers; properties recognised at their fair value; no amortisation;
- results (rental income and capital gains on disposals minus operating expenses and financial charges) are exempt from corporate tax;
- at least 80 % of the sum of the corrected result and of the net realised gains on disposals of property assets not exempted from compulsory distribution are subject to compulsory distribution; the decrease in debt during the financial year can however be subtracted from the amount to be distributed;
- withholding tax of 30 % unless exemption or reduction according to international convention.
Companies applying for public or institutional RREC status, or which merge with a RREC, are subject to an exit tax, which is treated in the same way as a liquidation tax, on net unrealised gains and on tax-exempt reserves, at a rate of 12.75 %, until 31.12.2019 and at a rate of 15 % as from 01.01.2020.
Cofinimmo obtained its public RREC status on 26.08.2014. It had previously operated under the Sicafi/ Bevak status since 01.04.1996.
2. The institutional regulated real estate company (Institutional RREC)
The institutional RREC, governed by the law of 12.05.2014 and the royal decree of 13.07.2014, is a ‘light’ version of the public RREC. It enables the public RREC to extend the taxation characteristics of its legal form to its subsidiaries and to undertake specific partner-ships and projects with third parties. The institutional RREC status is acquired upon approval by the FSMA.
The main characteristics of the institutional RREC are :
- non-listed company controlled for more than 25 % by a public RREC;
- registered shares held by eligible investors or natural persons with a minimum holding of 100,000 EUR;
- no diversification or debt ratio requirement (consolidation at public RREC level);
- dividend distribution obligation;
- owned jointly or exclusively by a public RREC;
- exclusive purpose of providing buildings to users;
- no obligation to appoint a real estate valuer as real estate assets are appraised by the valuer of the public RREC;
- statutory accounts drawn up in accordance with IFRS regulations (same accounting scheme as the public RREC);
- strict rules on operations and conflicts of interest; subject to auditing by the FSMA.
The société d’investissements immobiliers cotée (SIIC) tax regime, introduced by the French finance Law for 2003 No. 2002-1575 of 30.12.2002 authorises the creation in France of real estate companies subject to a specific tax regime, similar to that of the RREC regime in Belgium.
Cofinimmo group opted, through its French branch, for the SIIC regime for the first time on 04.08.2008.
The essential characteristic of this tax regime is to introduce a system of taxation of profits at the level of the shareholder (the company is not, itself, subject to corporate tax because of its strictly real estate activities) and allows Cofinimmo to benefit from an exemption from corporate tax on the rental income and realised gains of its French branch and subsidiaries in return for an obligation to distribute 95 % of the profits from the letting of its property assets.
The main characteristics of the SIIC regime are :
- an exemption from corporate tax on the fraction of profits arising from i) the letting of buildings, ii) capital gains on property dispos-als, iii) capital gains on disposals of shares in subsidiaries having opted for the SIIC regime or in other companies with a similar purpose, iv) proceeds distributed by subsidiaries having opted for the SIIC regime, and v) shares in profits of companies engaged in a real estate activity;
- results distribution obligation : 95 % of the exempted profits arising from rental income, 60 % of the exempted profits arising from the disposal of properties, shares in companies and subsidiaries subject to the SIIC regime, and 100 % of the dividends distributed to them by their subsidiaries subject to corporate tax having opted for the SIIC regime;
- when opting for the SIIC regime, payment over four years of an exit tax at the reduced rate of 19 % on unrealised capital gains relating to properties and shares of companies not subject to corporate tax held by the SIIC or its subsidiaries having opted for the SIIC regime.
Cofinimmo obtained, through its Dutch subsidiary Superstone, the status of fiscale beleggingsinstelling (FBI) on 01.07.2011, subject to a shareholding test as of 01.01.2021. This tax regime allows companies to benefit from a total exemption from corporate income tax under certain conditions.
The main characteristics of the FBI regime are :
- only public limited companies, limited liability companies and mutual funds can be considered FBIs;
- the FBI’s statutory purpose and actual operations may only involve the investment of assets;
- investments in property assets may be financed by external capital up to no more than 60 % of the book value of the property assets;
- all other investments may be financed by external capital up to no more than 20 % of the book value of the investments;
- at least 75 % of shares or ownership interests in an unlisted FBI must be held by natural persons, entities not subject to income tax and/or listed investment companies;
- shares or ownership interests in an unlisted FBI may not be held, directly or indirectly, for 5 % or more by a natural person (or their partner);
- entities established in the Netherlands may not own 25 % or more of the shares or ownership interests of an unlisted FBI through non-resident companies or funds;
- FBI profits are subject to a 0 % corporate tax rate;
- the share of FBI profits that can be distributed must be paid to the shareholders and other beneficiaries within eight months following the close of each financial year;
- the profits on shares distributed are subject to a dividend with-holding of 5 %
The specialised real estate investment funds (‘B-REIF’) are governed by the royal decree of 9.11.2016 relating to specialised real estate investment trusts (Belgian Official Bulletin (Moniteur belge/Belgisch Staatsblad) of 18.11.2016). This tax system allows real estate investment in a flexible and efficient trust mechanism.
The main features of a B-REIF are :
- a light regulatory regime without the approval and direct super-vision of the FSMA, subject to certain conditions being met. Only the registration on a list held by the Belgian Ministry of Finance is required;
- financial instruments issued by an B-REIF can only be acquired by eligible investors;
- the B-REIF may be exempted from the AIFM law (law of 19.04.2014 on alternative investment funds and their managers), if certain criteria are met;
- the B-REIF is subject to a minimum investment volume of at least 10,000,000 EUR at the end of the second financial year following its inclusion in the B-REIF list;
- the B-REIF is a closed fund with fixed capital and cannot be publicly traded;
- the B-REIF invests in real estate, defined broadly, but without mandatory diversification requirements or (the use of) lever-age limits;
- the B-REIF draws up its statutory accounts by applying IFRS (excluding Belgian GAAP);
- the B-REIF is subject to an obligated annual distribution of 80 % of its results;
- the duration of a B-REIF is limited to ten years with the possibility of extending this period by consecutive periods of up to five years each.