French REITs you can invest in

French REITs you can invest in


French REITs

French REITs are referred to as les societes d’investissements immobilier cotees, or SIIC. They became a legal investment vehicle in France with publication of the executive order dated July 12, 2003. The French government desired to compete with Belgium, Dutch and German funds.

SIIC rules are slightly diverse from those for U. S. real estate investment trusts.

French REIT or SIIC Shell out 85% Not 90%

French SIICs are exempt from taxes as long as they pay out 85% of their recurring income. Unlike america REIT law, they are exempt from taxes on the up to 15% of their income that they don’t distribute.

They must pay out 50% of their capital gains within 2 yrs, but do not pay taxes on the remaining 50% associated with capital gains.

Therefore, SIIC (REIT) investors don’t receive quite just as much cash flow. They cannot have more than 60% of their stock owned by one shareholder or number of shareholders acting in concert.

These French Real Estate Investment Trusts should be listed in France on Paris Stock Exchange. However, according to recent law a genuine estate company can be listed on any qualifying stock trade, so there is no longer any requirement for foreign companies to setup French affiliates.

They cannot be privately owned. And they should have capital of at least 15 million euros.

Also, they might not provide services.

REITs

French SIIC qualifying activities are:

  • Purchase or development of the building with intent to lease
  • Participation in corporate subsidiaries engaged within the purchase or development of buildings with intent to leasing all of them
    Nonqualifying activities are subject to full, ordinary taxes.

Their properties should be in France. However, they are not subject to any official gearing requirements, limiting their percentage of balance sheet debt.

Efficient January 1, 2009 one shareholder cannot own more than 60% of 1 SIIC.

French SIICs Popular and Successful

And they must possess a free float of at least 15%.

French real estate companies companies that convert towards the SIIC structure have to pay a 16. 5% tax on the unrealized capital gains.

Paris is Europe’s biggest office building marketplace. providing a lot of opportunities to French REITs.

SIICs should withhold 25% of distributions to foreign shareholders, but many taxes treaties reduce this to 15%.

The professional group representing the actual SSICs or French REITs is Federation des Societes Immobilieres et Foncieres (FSIF). Jean-Paul Dumortier is actually chairman.

French “REITs” Specific tax regime

A specific tax regime – similar to that applicable to REITs in america or to Sicafis in Belgium – was introduced on 1 January 2003 in France to permit listed real estate companies to elect to benefit from a French corporate tax exemption on the rental income and real estate capital gains provided certain problems are met.
This regime has then been adjusted over period by subsequent legislation, including reforms known as “SIIC 2”, “SIIC 3” as well as “SIIC 4”
Qualifying companies
The specific regime may apply to investment companies that are listed on a French regulated market (SIICs) that:
• have a share capital of at least €15m,
• have as their predominant purpose the acquisition or construction of buildings having a view to letting them or the acquisition of direct or indirect participating interests in partnerships or corporate subsidiaries getting the same purpose, and
• elect to be subject to the particular SIIC regime. The specific regime may also apply to subsidiaries associated with SIICs provided that they are subject to corporate tax, they’re at least 95 per cent directly or indirectly held with a SIIC or by several SIICs, they have the same purpose as their parent plus they elect to be subject to this regime. Subsidiaries of SIICs that are not subject to corporate tax (i. e. partnerships) but which have the same purpose as their parent could also indirectly benefit from this regime insofar as rental income and gains they realise are taxable at the amount of companies which elect to benefit from this regime.
The Rectifying Finance Act for 2006 (referred to as “SIIC 4”) introduced new requirements related to the shareholders’ percentage of ownership from the SIIC, and according to which: resulting from the election but any excess is going to be definitively lost.
Corporate tax benefits post-election
The specific tax regime consists inside a corporate tax exemption which applies to income and gains limitedly listed legally.
Subject to the distribution requirements discussed below, the corporate tax exemption applies to:
• rental income derived from certain property rights and from real estate assets owned or held below a finance lease arrangement (whether directly or through property partnerships),
• capital gains realised directly, or through property partnerships, upon the sale of certain real estate rights or of buildings or of rights inside a finance lease arrangement, or of shares in real estate partnerships or in subsidiaries which have themselves elected for the advantage of the specific regime, provided however that the sale is not designed to an affiliate,
dividends received from (i) subsidiaries having elected for that specific regime and (ii) other SIICs, SPPICAV or foreign companies that have a similar activity, provided the beneficiary SIIC owns more than 5 percent of their share capital during two years.
It should be stressed that the Rectifying Finance Act with regard to 2006 (SIIC 4) introduced new provisions which goal at preventing that SIIC income remains fully exempt (both at the amount of the SIIC and of its shareholders). As a consequence of those new provisions, the SIIC is now subject to a 20 percent tax prepayment on that portion of the exempt income that is distributed to shareholders (other than individuals) who directly or indirectly own a lot more than 10 per cent of the SIIC’s financial rights and who’re not subject to French corporate income tax (or to some tax which is at least equal to one third of French corporate tax) on such distributions.
Distribution requirements
The SIIC corporate tax exemption is conditional upon the next distribution requirements being met:
• at least 85 per cent from the tax-exempt rental income is distributed by the end of the tax year following a year in which such income is realised;
• at least 50 per cent of the tax exempt capital gains is distributed before the end of the second tax year following the year where the gain is realised; additional contribution to corporate income tax applies in most cases.
Investment in French SIICs by non resident shareholders
Non resident shareholders who purchase French SIICs will be subject to a 25 per cent withholding tax (reduced to 18 percent when the beneficiary is anindividual resident in an EU nation, in Iceland or in Norway) on dividends distributed through the SIIC, subject to treaty relief or reduction. The withholding tax exemption provided for under the EU parentsubsidiary Directive would not be available regarding dividends paid out of income from theexempt sector. This withholding tax is distinct in the 20 per cent tax prepayment discussed above(applicable upon submission of exempt income to certain shareholders, see above).

Susceptible to tax treaty provisions, capital gains realized on the sale of shares in a SIIC predominantly committed to French real estate by non-resident shareholders who own directly or indirectly a minimum of 10 per cent of the share capital of the SIIC are subject to a French tax prepayment which applies for a price of 33. 33 per cent. Taxpayers resident in the EUROPEAN UNION, Iceland or Norway may however benefit from a reduced price of 16. 5 per cent (corporate) or 16 percent (individuals). Sales of shares in SIICs by non resident shareholders which don’t meet the above-mentioned criteria are not subject to French taxes.
Transfer tax and 3 per cent annual real estate taxes
Two other advantages which derive from an investment in SIICs are (i) an exemption in the 5 per cent transfer tax (applicable upon the fingertips of for tax years opened from 1 January 2007, and provided the SIIC has elected for that specific regime with effect from the same date:
− upon inception from the SIIC regime, at least 15 per cent of the SIIC’s funds and voting rights
must be held by shareholders each having, directly or indirectly, less than 2 per cent of the actual SIIC capital and voting rights;
− no more than 60 percent of the SIIC capital and voting rights must be kept (directly or indirectly) by one or several shareholders (besides SIICs) acting jointly (action de concert);
• SIICs having elected for that specific regime prior to 1 January 2007 are also concerned through the second condition above but have until 31 December 2008 to adhere to this requirement.

Corporate tax consequences of the election for the particular regime
Provided this election is filed prior to the end from the fourth month following the opening date of a given taxes year, it will become effective on the first day associated with such tax year. The election is irrevocable and the specific tax regime will therefore only cease to use if the conditions required for this regime to be available are no more met.
When making the election for the specific regime, companies are treated as though they were ceasing their real estate activity so that latent gains and unrealized profits based on the activity which is to become exempt are immediately taxable. Latent increases on buildings, on rights in finance lease arrangements, on certain real estate rights and on shares in property partnerships are however not subject to standard corporate tax (currently for a price of 33. 33 per cent, plus the additional contribution) but instead to an “exit tax” at the reduced rate of sixteen. 5 per cent. Payment of this “exit tax” is spread on the four-year period, the first 25 per cent instalment being paid on 15 December of the year where the election is made.
All carry-forward losses existing at the time of the election enables you to offset any tax liability
• 100 per cent of the tax exempt dividends is redistributed within the year following the year in which they are received.
Income or gains based on ancillary activities which are subject to standard corporate tax won’t fall under the distribution requirements.
To the extent that different types of income and gains are subject to different tax treatments and various distribution requirements, income and expenses need to be properly allocated first between your exempt and the non-exempt activities and then between the various types of exempt income and gains.
Specific allocation rules allow SIICs to determine which net earnings qualifies for the exemption and to what extent it must be distributed.

Tax treatment of shareholders
To the extent that it provides for a corporate tax exemption at the amount of the electing company (save for the application, as the situation may be, of the 20 per cent tax prepayment), the particular regime allows to transfer the taxation of qualifying real estate income and gains realised through the SIIC to its shareholders. The tax treatment of such shareholders varies based on their place of residence and on their status.
Tax remedy of French resident shareholders
Dividends distributed by SIICs out of income or gains based on ancillary non-exempt activities will be subject to standard tax guidelines. On the other hand, dividends distributed out of exempt income or gains won’t be eligible for the benefit of the parentsubsidiary regime and France corporate shareholders will therefore be subject to standard corporate income tax regarding such dividends.

French resident individuals will, whether the dividend is distributed from exempt or non-exempt income, be subject to standard tax guidelines applicable to dividends.
As regards capital gains realised upon sale of shares inside a SIIC (by a shareholder other than a SIIC), they’ll be subject to the standard capital gains tax rate on the actual sale of securities (i. e., a global rate of 29 percent currently) if realised by French resident individuals. Capital gains realised by French resident corporate shareholders is going to be subject to corporate income tax at the standard rate associated with 33. 33 per cent; these gains may however qualify for that reduced rate of 16. 5 per cent (15 percent for sales which occurred during tax years before 31 Dec 2007), if the shares transferred are participating shares that have been held for more than 2 years by the selling shareholder.

The shares issued by non-listed companies committed to real estate) – thus, the disposal of shares issued by SIICs would either be fully exempt or susceptible to a 3 per cent transfer tax capped at €5, 000 if it’s embodied in a written agreement and (ii) an exemption in the 3 per cent annual real estate tax, which only pertains to non-listed companies holding, directly or indirectly, French real estate.
Efforts and sales to SIICs
Gains realised by companies subject to corporate tax upon the transfer of buildings, real estate rights, shares in companies which are predominantly invested in French property or rights in a real estate financial lease in exchange for shares issued by a SIIC along with the sale (in exchange for cash) of similar assets to some SIIC are subject to a specific “exit tax” of sixteen. 5 per cent rather than to ordinary corporate income taxes at standard rate.

The benefit of this reduced exit tax is conditional upon the receiving or purchasing SIIC undertaking to keep the assets contributed or purchased for at least 5 many years. A penalty equal to 25 per cent of the factor or purchase value of the assets is due by the SIIC in the event of breach of this undertaking. This treatment applies to transfers designed to SIICs up to 31 December 2008.
The benefit of this reduced tax can also be available for contributions or sales made to SIIC subsidiaries susceptible to the same conditions and provided also that the SIIC subsidiary remains inside the specific tax regime for at least 5 years. In case of non compliance with one of these conditions, the above-mentioned Penalty applies.

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