As of February 1, 2019, the number of EU countries with a REIT regime has increased to 14 and now represents 85% of the EU’s GDP. Portugal is the latest addition to the club, a development for which EPRA’s public affairs team has been advocating since 2016 when promoting a REIT framework at the first REIT Conference in Lisbon. After two years of intense collaboration with various stakeholders in Portugal and meetings (including with the Minister in charge of the dossier last summer in Estoril), we see the Portuguese Council of Ministers agreeing to introduce a legal framework for the so-called Sociedades de Investimento e Gestão Imobiliária (or SIGIs for short) in January this year as a positive and encouraging sign.
SIGIs need to comply with strict requirements as regards to portfolio composition, mandatory distribution of profits and limits on indebtedness. Their corporate purpose is the acquisition of freehold rights, surface rights or other rights over property of a similar nature, to be allocated to leasing or other forms of commercial use, including leases for the use of units or spaces in shopping centres or offices, which are very common in Portugal. Among others, SIGIs can also invest in development and urban regeneration projects, as well as in land that will qualify as urban land for construction purposes within three years from acquisition. Portuguese REITs may also hold participations in other SIGIs or in companies with registered offices in other Member States of the EU or EEA.
From a taxation perspective, the Portuguese government opted for a corporate income tax exemption on income received and considered as having a ‘passive’ nature, such as investment income, rental income and capital gains. Taxation will be at investor level, mainly via withholding tax on both income distributions made by the SIGI to its shareholders and capital gains arising from the sale of its shares at a rate of 10% (for non-residents), 25% (for resident companies) and 28% (for individuals).
EPRA welcomes the news about the Portuguese REIT regime as long-term yields from REITs continue to be extremely attractive to pension funds, insurance companies and other long-term investors and, in our opinion, will benefit both the Portuguese and the European property markets. The successful Spanish SOCIMI regime, as amended in 2013, may have partly served as an inspiration. We are now looking forward to a similar success story in Portugal.