What are common ownership structures for ownership of commercial real estate?

Real Estate

Japan Small Flag Japan

The owner (mostly corporate entity) most commonly holds commercial real estate in fee simple. However, in the non-recourse transactions undertaken by investment funds and other sophisticated investors, typically an SPC is created to obtain financing and to hold the fee simple properties or the trust beneficiary interest thereof (in which case a trustee owns fee simple properties). Some advantages of the trust structure are: (1) lower acquisition and registration taxes, (2) the Real Estate Syndication Law (which requires the SPC to have a certain license unless exceptions are met) does not apply, (3) the benefit of the trustee’s cash management, and (4) the benefit of the trustee’s due diligence of the property.

Nonetheless, the use of a certain type of SPC called a “TMK” (for tokumei mokuteki kaisha) under the Law Concerning Asset Liquidation can avoid falling under the Real Estate Syndication Law, making it easier for the TMK to use ownership of fee simple. The use of a TMK may also have beneficial tax consequences to many investors.

Portugal Small Flag Portugal

Commercial real estate is usually owned by entities and not individuals. The type of vehicles used are mainly commercial companies, notably joint stock public companies (sociedade anónima) for larger companies and private limited liability companies (sociedades por quotas) in the case of smaller companies which want a more flexible structure and fewer corporate government requirements. Other vehicles such as Real Estate Funds and Real Estate Companies have been less required lately. Portugal has not yet implemented the legislation concerning the so-called REITS. The market has been waiting for this legislation for quite a long time.

Ireland Small Flag Ireland

The most common structures are individuals, corporate entities, co-ownerships and limited partnerships.

The most popular structure for international investors in recent years is an Irish Collective Asset-management Vehicle (ICAV) – a corporate structure specifically designed for investment funds and attractive to investment managers seeking to market their funds in the U.S. Non-Irish tax resident investors are subject to 20% tax on income and gains earned from the ICAV with the ICAV itself not paying tax on its income or gains.

Real Estate Investment Trusts (REITS) were introduced in 2013 as a new vehicle for investment. Subject to meeting certain criteria, a REIT will not be liable to either Corporation/ Income Tax on its property rental income or property profits, or Capital Gains Tax on disposals of assets of its property rental business.

Mexico Small Flag Mexico

The most commonly used ownership structures for commercial real estate are:

  • Direct ownership by individuals (least common structure due to increased liability exposure)
  • Direct ownership through companies
  • Trusts, including specific real estate trusts which rights are publicly traded (e.g. FIBRAs and CKDs)

FIBRAs (fideicomisos de inversión en bienes raíces). Are a Mexican equivalent of REITs (real estate investment trusts) that have become one of the most attractive mechanisms for real estate developers for its tax benefits. Real property owners create a FIBRA by conveying title to a Mexican trust which, in turn, issues real estate trust certificates in a registered stock exchange providing that the resources obtained from such allocation are used to acquire and develop real estate intended for leasing, based on certain eligibility criteria established under the FIBRA governing documents.

CKDs (certificados de capital de desarrollo). Development capital certificates (known as CKDs) are investment vehicles structured through a Mexican trust which receive resources from the public offering of trust certificates (mainly from pension plan funds), to finance national infrastructure and real estate projects, as well as to perform investments of private capital in promoted companies.

Sometimes, real estate is transferred indirectly to a buyer through the acquisition of (i) shares or equity interests in the specific vehicle or entity holding title to real property, or (ii) beneficial interests in the corresponding real estate trust.

Real estate trusts became popular mainly because of its flexibility as investment vehicles. For instance, by implementing a real estate trust structure, owners and private investors could transfer title to real property and funds, respectively, to develop a specific project, providing for different rights and obligations each of them would assume through their beneficial interests under the trust agreement.

The Netherlands Small Flag The Netherlands

In the Netherlands it is more common for legal entities to be used to acquire commercial real estate than natural persons. The most common used legal entity for the acquisition of commercial real estate is a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid), as special purpose vehicle, or in the capacity as custodian of a fund or general partner of a limited partnership. The choice may depend on various (tax) factors, but does not influence the amount of real estate transfer tax or municipal taxes due.

The Netherlands levies corporate income tax (vennootschapsbelasting) on companies resident in the Netherlands based on their worldwide income. Non-resident companies are taxed on their Dutch-sourced income, such as income and capital gains derived from real estate located in the Netherlands, for example rental income. The applicable corporate income tax rate is 20% over the first EUR 200,000 (EUR 250,000 per 2018) Dutch-sourced taxable income and 25% on any surplus. The Dutch-sourced taxable income may be lowered by costs incurred related to the Dutch real estate, such as interest on loans. Tax treaties concluded by the Netherlands generally allocate the right to tax income from Dutch real estate exclusively to the Netherlands.

Rental income received by a Dutch entity such as a private company with limited liability extracted via dividend distributions is in principle subject to Dutch dividend withholding tax.

Norway Small Flag Norway

In the commercial real estate market it is common for entities to be used for acquiring real estate. The main reason is the tax advantage, and the limited company (no: aksjeselskap) is often preferred. Due to different tax regimes over the last 20-30 years, it is also common to find a structure where a limited company owns a general partnership (no: ANS) or a limited partnership (no: KS).

In order to avoid paying the 2,5% stamp duty for registration of transfer, there is a significant number of companies – most common a limited company – that owns no other assets than the title to ownership, while the actual ownership is held by another company. The combination of transfer of the property and transfer of the title holding company can be executed without registration in the land register, and the 2,5 % transaction cost is saved. Dependent on how this title holding structure has been established, there may be a risk of defeat of creditors if a former owner of the property falls bankrupt.

Romania Small Flag Romania

In order to avoid certain restrictions upon land ownership by non-EU nationals/companies (see point 4 above) most real estate investments are usually performed through a Romanian-registered company (a special purpose vehicle incorporated in Romania). If the developer is also going to use the facilities for its own business activities (e.g. hypermarket chains) then the special purpose vehicle will usually lease out the building to the group company which performs the actual commercial activity in exchange for a rent set at arm’s length.

Russia Small Flag Russia

Individuals normally own street retail and small size property.

Large size and top quality properties are generally owned by companies. When a Russian corporate vehicle for ownership of real estate is used, it is normally a Russian limited liability company (LLC). International institutional investors commonly use corporate structures with entities incorporated in Cyprus, the British Virgin Islands, Jersey and Guernsey, etc. The key drivers for this solution are obvious: tax advantages, customary system of common law, simple and quick procedures for change of corporate control.

Sweden Small Flag Sweden

Since 2003 the typical structure of a real estate transaction is through a sale and purchase of the shares in a limited liability special purpose vehicle (SPV) holding the real estate or property in question. In Sweden there are, as of now, no ‘thin capitalisation’ or similar rules, meaning that a dormant limited liability company with only SEK 50,000 in share capital may purchase real estate worth SEK 100 million (or more, with no limitation based on legal requirements), establishing an SPV structure for sale of the property (known as ‘packaging’). The background behind this structuring is that since 2003, such share transfers are, as a general rule, tax exempt, meaning that there will be zero income tax on the profits made on the sale of the shares. Applicable taxes will then be stamp duty and income tax on the property transfer into the SPV holding. However, the property transfer into the SPV will normally be made on a price or value equal to the tax residual value involving zero income tax also in this step of the structuring.

Direct real estate transfers carry a stamp duty of (currently) 4.25 percent for legal persons (less for physical or private persons and some other legal entities) based on the higher of the purchase price and the tax value of the property the year before the transfer. If there is no tax value on the property – because it involves a property category that under law is exempt from property tax (such as certain public service properties, for instance schools or care properties) or involves a newly established property through land parcelling measures – there will be a need for a valuation report. Currently, there is no stamp duty on the transfer of shares of real estate companies. This means that most transactions, from a processing and documentation standpoint, are made as indirect share transfer deals, rather than direct property transfers.

However, there is a proposal for change of the tax legislation for ‘packaging’ of real estate into SPVs, involving inter alia proposed income taxation on the sale of shares and changes of applicable rates of stamp duty, possibly also extending stamp duty charges to property amalgamation measures and to the sale of shares. A government inquiry released its report on such issues on 30 March 2017 and the legislation process has been initiated. However, several government representatives, many market players and tax experts have criticised the suggested changes and it is commonly believed that the proposal, in its current form, will not lead to legislation. The uncertainty following the proposal may already have affected market interest in investing in Sweden, specifically among international private equity investors. Changes in tax legislation will most likely lead to variations in the structuring of real estate deals and the market closely follows the legislative process.

Commercial real estate is typically owned and managed through one or several limited liability corporations, but ownership under other forms of association also exists. Direct ownership of commercial real estate by individuals/natural persons is relatively unusual. The main driving factors behind the ownership structures currently in use are, naturally, tax optimization and limitation of owner liability.

Switzerland Small Flag Switzerland

Commercial real estate can be acquired and owned either by individuals or by legal entities. However, in practice, it is much more common to own commercial real estate through legal entities than directly by the ultimate individual owner.

There are many reasons for this, but the main one is obviously that commercial real estate is often acquired by companies to operate their own business activities. Furthermore, when commercial real estate is acquired by individuals for investment purposes, the choice for such individuals to acquire a commercial building through a real estate company is justified for practical and tax reasons, as well as to act as a protective shield against potential liabilities.

Commercial buildings are often leased to several different owners and require contracts with many different suppliers for administration, maintenance, security and other services. Therefore, in view of dealing with all aspects of a commercial building, it is easier from a practical point of view to have it owned and managed through a legal entity rather than directly by the individual who ultimately owns it. The legal entity also provides the ultimate individual owner(s) with a protective shield against the tenants and potential litigation.

Finally, the use of a legal entity for the acquisition and holding of commercial real estate can also have some tax benefits if it is properly structured.

The most common legal entities used for the acquisition of commercial real estate are companies limited by shares (public limited companies called Société anonyme) and limited liability companies (private limited companies called Société à responsbilité limitee). Both types of companies limit the liability of its shareholder(s)/partner(s) to the amount of the subscribed share capital.

Turkey Small Flag Turkey

There are no statistical studies indicating the percentage related to the type of the ownership but both there are some tax advantages for the companies.

In case the company (except the companies having real estate trade as its main activity) owns the real estate, it is exempt from VAT and %75 of the corporate tax by transferring it on the condition that the real estate properties are held for over two years.

Brazil Small Flag Brazil

Taxation on the sale and lease of a real property is an important fact to be considered. In the commercial business of realty, taxes on individuals are, mostly, rather greater than taxation on legal entities. At sale, for example, when it is carried out by an individual, the owner may have to pay 15% of income tax on capital gain (difference gained between the sale amount and the acquisition amount). Should the sale be carried out by a legal entity that develops real estate businesses, the taxation may be at 6.73% on the transaction amount. In the case of leases, taxation on the amount received as rents may reach 27.5% for individuals and range from 11.33% to 14.53% for legal entities. The corporate type is more associated to the peculiarities of the transaction structure (title of the real property held by legal entity linked to a certain corporate activity, establishment of investment or governing rules etc.), and do not represent, in principle, any other differences for taxation purposes.

United States Small Flag United States

Commercial real estate is typically owned by corporations, trusts, partnerships, limited liability companies, or limited partnerships. Tax concerns, personal liability of the investors, management concerns, and transferability of ownership interests are all factors to be considered in selecting the appropriate entity through which to own the property.

A corporation is (i) managed by its board of directors, (ii) continues in existence regardless of the death, bankruptcy or sale of interests of any shareholder, with few exceptions for certain tax reasons, and (iii) generally protects shareholders from personal liability for the corporation’s obligations. By default, a corporation is treated as a "C" corporation for U.S. federal income tax purposes. Profits of a "C" corporation are taxed at the corporation level and, if dividends are distributed to shareholders, at the shareholder level, thus limiting its attractiveness to investors. Under certain circumstances, a "C" corporation can elect to convert to an "S" corporation. An "S" corporation is only subject to one level of tax. Among other limitations, however, a shareholder of an "S" corporation may only be an individual who is a U.S. citizen or resident alien, estate or certain types of trusts.

The primary goals shared by investors when selecting a vehicle to own commercial real estate – avoiding double taxation and limiting liability to the amount invested – can be achieved in many cases through the use of a limited partnership or limited liability company, and in certain jurisdictions, a business trust. In most cases, a Delaware limited liability company is used mainly because such an entity achieves both of these objectives, is easy to form and operate, and Delaware's laws are well developed and provide for a lot of flexibility. Another entity that achieves the goal of avoiding double taxation and limitation of liability is a real estate investment trust (a "REIT"). If the proper election is made, a REIT can be in the form of a limited liability company, a partnership, a corporation or a trust. Provided an entity qualifies as a REIT, it generally is not taxed on its otherwise taxable net income and gains to the extent that it distributes such income and gains to its shareholders. Rather, shareholders of a REIT are generally subject to tax on such distributions so that an investment through a REIT is typically subject to a single level of tax and not the double level of tax that generally applies to "C" corporations. In order to qualify as a REIT, an entity must satisfy certain requirements with respect to its ownership, operations, income, and assets. If an entity's status as a REIT is terminated because it fails to meet the applicable REIT requirements and does not satisfy certain relief provisions, the terminated REIT will be taxed in the same manner as a "C" corporation.

United Kingdom Small Flag United Kingdom

Commercial real estate can be held directly by individuals or through entities, although it is more common for high value commercial asset to be held through specifically created structures, often formed outside of England and Wales.

Common ownership structures include:

  • limited liability companies;
  • offshore property unit trusts; and
  • limited partnerships.

Limited liability companies: Limited liability companies, formed specifically for the purpose of holding the real estate in question, are a common holding structure and are often based offshore. Corporate vehicles offer limited liability, which allows investors to ringfence assets and liabilities, and they can also provide tax advantages for some classes of investors (for instance, offshore entities holding commercial investment properties are typically outside of the UK capital gains regime, and selling the shares in a corporate vehicle means that a purchaser should not have to pay stamp duty land tax on the transfer of the property). Corporate vehicles are also used in order to provide privacy and anonymity for investors, although UK corporates are subject to disclosure of certain beneficial owners under the "People with Significant Control" regime and there are proposals to introduce a similar regime for offshore holders of UK real estate.

Offshore property unit trusts: Under these structures, the property is held by trustees (usually two to allow a purchaser to have the comfort of "overreaching" the trust on a sale see Q13) on behalf of investors who hold units in the unit trust. Property unit trusts are a commonly formed in Jersey (JPUTs) or Guernsey (GPUTs).

Property unit trusts have a number of key tax advantages – if drafted properly they can be tax transparent for UK income tax purposes whilst also benefitting from being outside the capital gains regime in a similar way to offshore companies. Transfers of units in a property unit trust do not give rise to stamp duty land tax and typically do not give rise to local stamp duty. Property unit trusts were historically very popular as they previously also benefitted from seeding relief under which property could be transferred into the property unit trust free from stamp duty land tax, creating a very tax efficient method of transferring property. Although seeding relief for offshore property unit trusts has been withdrawn, they still remain a popular and tax efficient way of holding property.

Limited partnerships: Limited partnerships are a common holding structure for English and Welsh property, with English, Jersey and Guernsey limited partnerships commonly used. The exact nature of the limited partnerships varies with some having legal personality whilst others (including English limited partnerships) do not. Limited partnerships are typically transparent for most tax purposes (including income and capital regimes) and they are therefore a popular structure for tax-exempt investors (although the transparent nature means that transferring interests in a partnership that holds property is normally subject to stamp duty land tax). Limited partnerships are a very flexible structure, without many of the rules and restrictions that apply to corporate vehicles.

Bulgaria Small Flag Bulgaria

In Bulgaria, for commercial purposes, ownership over real estate by legal entities is more common than direct ownership by natural persons. The reason for this is the limited liability of the legal entities and thus, the most preferred forms are the limited liability company (in Bulgarian “ООД”) and the joint stock company (in Bulgarian “АД”). Another reason is the publicity, surrounding the legal entities in Bulgaria. The financial documents, registered pledges and insolvency requests will all be published in the commercial register, thus providing more reliable information about the seller and the buyer, their financial status and potential rights of third parties over their assets.

The annual real estate municipal tax for the property and the land stamp duty tax in case of transfer of real estate are the same for natural and legal persons. The amount of the taxes depends on the location and the designation (legal status) of the real estate and not on the legal nature of the property owner.

In accordance with the Bulgarian tax law, the transfer of land with buildings on it is subject to VAT taxation. Thus, a legal entity being the acquirer will be able to make use of the VAT tax deduction rules.

France Small Flag France

Individuals usually use transparent entities known as ‘non-trading real estate companies’ (sociétés civiles immobilières or SCI) to hold and rent commercial real estates on an unfurnished basis. The tax result of French SCI is subject to income tax at the level of the individuals directly. Capital gain realised through French SCI held by individuals upon the sale of the commercial real estate can be tax totally exempted from capital gain tax and social contributions if the real estate has been held for at least thirty years.

Germany Small Flag Germany

Commercial real estate can be held directly by individuals or through entities, although it is more common for high value commercial asset to be held through specifically created structures which are, depending on the ultimate owner, formed in- or outside of Germany or by open-ended or closed-ended funds as well as REITs.

Common ownership structures include:

  • limited liability companies or corporations;
  • limited liability partnerships; and
  • REITs or Open Ended Funds.

Limited liability companies: Limited liability companies, formed specifically for the purpose of holding the real estate in question, are a common holding structure and may be based in Germany or outside Germany. Corporate vehicles offer limited liability, which allows investors to ring-fence assets and liabilities, and they can also provide tax advantages for some classes of investors (for instance with respect to trade tax and capital gains). Corporate vehicles are also used in order to provide privacy and anonymity for investors.

Limited liability partnerships: Limited partnerships are also a common holding structure for German property. German limited liability partnerships have a legal personality and are typically transparent for most tax purposes. Limited partnerships are a very flexible structure from a governance perspective, without many of the rules and restrictions that apply to corporate vehicles. German limited liability partnerships are registered in the commercial register and usually have a general partner with unlimited liability which in turn is a limited liability company.

REITs, Open-Ended and Closed-Ended Funds:

The G-REIT is a real estate investment trust formed as a stock corporation. They have a number of key tax advantages. However, they are subject to relatively strict governance rules (e.g. minimum distribution rules, minimum number of shareholders, minimum capital and leverage rules). They are subject to the laws of the German Stock Corporation Act (AktG) as well as the REIT Act (REITG) and may only hold ownership in real estate (except for existing residential real estate) as well as participations in real estate companies.

The German open-ended fund is a mutual fund issuing units and regulated by fund rules and is managed by the KVG as asset management company. It does not have a legal personality but its assets are owned by the KVG on behalf of the open-ended fund. The KVG needs authorisation of a management company for UCITS or as an AIFM. The open-ended fund has various tax advantages.

German closed-ended funds are managed by an asset management company which has authorisation as an AIFM.

Hong Kong Small Flag Hong Kong

Investment holding companies are commonly used to hold and dispose of commercial real estate in Hong Kong. A share transfer of the relevant company will in effect transfer the target real estate. The stamp duty applicable would therefore be the stamp duty on the sale and purchase of shares, which is equivalent to 0.2% of the higher of the consideration and the fair market value of the shares being transferred.

Spain Small Flag Spain

Commercial real estate can be held directly by individuals or through entities, although it is more common for high value commercial assets to be held through specifically created structures.

Common ownership structures include:

  • Limited liability companies; and
  • SOCIMIs (Spanish REITs).

Limited liability companies: Sociedades Anónimas ("S.A.") and Sociedades Limitadas ("S.L.")

The S.A. and the S.L. were traditionally the corporate vehicles most used in Spain. Both companies operate in a similar way, although the S.L. requires fewer formalities.

Limited liability

In both companies, the liability of the shareholders or members is limited to the stake held in the share capital of the company.

Share capital

The minimum share capital for an S.A. is 60,000 euros, and at least 25% of this amount should be paid up upon incorporation. In the case of an S.L., the minimum share capital is 3,000 euros, which may or may not be fully paid up upon incorporation, with the contribution of assets subject to financial valuation being possible in both cases.

It is common for companies incorporated as investment vehicles to have a relatively low share capital and to capitalise through shareholder loans, so as to minimise as far as possible the Company's Corporate Income Tax ("CIT"). Although there is no thin capitalisation rule under Spanish tax legislation (i.e. no specific debt to equity ratio is required), earning stripping rules apply as regards tax deductibility of net financial expenses.

As a general rule, net financial expenses incurred by Spanish entities would be deductible for tax purposes up to an amount of 30% of their operating profit (EBITDA) for the financial year. In any event, an expense amount of EUR 1 million would always be deductible (if incurred).

In the case of entities belonging to a tax consolidated group, the 30% limit and the EUR 1 million threshold would refer to such tax group.

Please note that additional limitations exist in the case of LBO transactions (i.e. acquisition of an entity and subsequent merger or subsequent application of the CIT consolidation regime).

Furthermore the difference between the 30% limit and the net financial expenses for the tax period could be accumulated (i.e. be added to the 30% limit) in the tax periods ending in the following 5 years.

Lastly, it should be noted that any net financial expenses not deducted for tax purposes may be deducted in the following tax periods, provided that the 30% limit is complied with in such years.

In addition to the above, fair market conditions and strict documentation obligations should be observed as regards any indebtedness incurred with related parties. In particular, the taxpayer would be obliged to carry out a comparability analysis in order to determine a fair market value of the remuneration agreed under the relevant transaction.

Please also note that interest derived from Profit Participating Loans granted as from 20 June 2014 by companies which belong to the same corporate group (regardless of their tax residence) are not deductible for CIT purposes.


Companies are incorporated through deeds granted before a Notary Public, including the company by-laws. In general, such incorporation requires: (i) evidence via a bank certificate of the share capital being paid up, (ii) an attorney with sufficient powers to appear before a Notary Public to incorporate the company, and (iii) a certificate showing that the corporate name of the company has been reserved.

Period before the company may operate

The company acquires a legal identity pursuant to its registration at the corresponding Commercial Registry. The period for such registration varies from province to province, but tends to be approximately one month as from its filing at such Registry. The acquisition of a property by a company which has been incorporated but which is pending entry in the Commercial Registry is possible, although problems would arise, such as acquiring the potential personal liabilities of the parties which granted the sale and purchase, or the non-registration of the sale and purchase of the property in the Land Registry until the registration of the company at the Commercial Registry has been confirmed.

Directors and company representation

A company is represented by Administrators or by a Board of Directors. The Administrators or Directors may be entities or individuals, of any nationality and do not need to reside in Spain. Please note that if the Administrator or Director is a foreign person, he/she will have to obtain a Spanish tax identification number (known as "NIE"). Certain formalities have to be fulfilled in order to obtain a NIE. Should the Administrator or Director be an entity, it will have to appoint an individual as representative.
The post of Administrator or Director may be remunerated or not, depending on the provisions of the company by-laws. The law establishes certain cases of incompatibility for the exercise of the post as Administrator or Director of a company, usually referring to persons in public office. Administrators and Directors are subject to liabilities as established by law, which may be covered by current insurance policies on the market.

Administrators or Directors may be joint or joint and several, and accordingly should act together or individually without distinction. When the company is represented by a Board of Directors, the post of member of the Board of Directors in itself does not imply any capacity to represent the Company, although a Managing Director may be appointed to perform the same duties as those of the Board, save those which may not be delegated by law.


The incorporation of a company, as well as any increase of its equity (i.e. share capital, share premium, other shareholder contributions to equity) are subject to but exempt from Capital Duty taxation ("Impuesto sobre Operaciones Societarias").

On the other hand, any decrease of share capital where previous contributions are reimbursed to the shareholders are subject to Capital Duty taxation at a 1% rate on the market value of the assets/rights reimbursed.

Under certain circumstances, some investors consider it appropriate to issue shares with a share premium, so as to reduce such Capital Duty on the return of funds to shareholders since the return of share premiums is not subject to such Capital Duty taxation.


Spanish Real Estate Investment Trusts (or the Spanish acronym SOCIMIs) are special legal and tax investment vehicles specifically devoted to real estate assets that generate rental income.

Spanish SOCIMIs will be subject to a 0% Corporate Income Tax (CIT) rate subject to a mandatory annual dividend distribution of profits. Accordingly, rental income and capital gains generated by SOCIMIs will be taxed at a 0% CIT rate, provided that the real estate assets are owned for a minimum of three (3) years as from the date of application to adhere to the SOCIMI regime.

The legal requirements of SOCIMIs are as follows:



Legal form

Sociedad Anónima (S.A.)

Minimum share capital



Mandatory listing

Yes, also permitted in Alternative Markets within the EU (MAB, AIM, etc.)

Corporate object /

Qualifying assets

a)      The acquisition and development (including refurbishment) of urban real estate for rental purposes

b)      The holding of registered shares in the capital stock of Sub-SOCIMIs: non-listed companies – regardless of whether or not they are tax resident in Spain - whose primary corporate object is the acquisition of urban real estate for rental, and which are subject to equivalent investing, income distribution and leverage requirements.


Investment requirements

(asset & income test)

Asset test

At least 80% of the SOCIMI's assets shall consist of "Qualifying Assets":

a)      Urban real estate for rental purposes.

b)      Shares in similar entities (i.e. other SOCIMIs, SUB-SOCIMIs, international REITs or real estate collective investment schemes).

Activity test

At least 80% of the SOCIMI's annual revenues must derive from the lease of Qualifying Assets, or from dividends distributed by qualifying subsidiaries (Sub-SOCIMIs, foreign REITs and real estate collective investment schemes).

Lease agreements between related entities would not be deemed a qualifying activity and therefore, the rent deriving from such agreements cannot exceed 20% of the SOCIMI's total revenue.

Capital gains derived from the sale of Qualifying Assets are in principle excluded from the 80/20 revenue test. However, if such Qualifying Asset is sold prior to the minimum three-year holding period, then (i) the capital gain would compute as non-qualifying revenue; and (ii) it would be taxed at the standard corporate income tax rate (25%). Furthermore, the entire rental income derived from this asset would also be subject to the standard CIT rate (25%).


Holding period of the assets

Qualifying Assets must be owned by the SOCIMI for a three-year period since (i) the acquisition of the asset by the SOCIMI, or (ii) the first day of the financial year that the company became a SOCIMI if the asset was owned by the company before becoming a SOCIMI. In the case of urban real estate, the holding period means that these assets should be rented; the period of time during which the asset is on the market for rent (even if vacant) will be taken into account, with a maximum of one (1) year. If the holding period is not maintained, the SOCIMI will be taxed at a 25% CIT rate for all type of income related to such asset, during its entire holding period, together with the accrued default interest.


Mandatory distribution of dividends

a.       80% as a general rule (rental income)

b.      50% of the profits derived from the sale of Qualifying Assets. Any excess amount must be reinvested within the following 3 years. If no reinvestment is made, 100% of the profits should be distributed.

c.       100% of dividends distributed by the SOCIMI’s subsidiaries


Nigeria Small Flag Nigeria

It is increasingly the case that corporate entities (particularly limited liability companies) are used to acquire commercial real estate. One key reason for this practice is that ownership of a property can be transferred without triggering the requirement for Governor’s consent, since the equity in the company is being transferred instead of the property itself. This process is also faster and cheaper.

Updated: January 25, 2018