What are SOCIMIS and how do they work?

SOCIMIS or Sociedades Anónimas Cotizadas de Inversion en el Mercado Inmobiliario (Listed Corporations for Investment in the Real Estate Market) are the Spanish version of the REIT (Real Estate Investment Trust), an investment vehicle born in the USA in the 60s. The main activity of a SOCIMI is the acquisition, promotion and rehabilitation of urban assets for lease, either directly or through the purchase of shares of other SOCIMIS.

Pressured by the Spanish real estate lobby, SOCIMIS were launched by the Spanish government in 2009, and reviewed in 2013. The reviewed version has proven to be very successful and is now considered a case study in other countries.

After the burst of the Spanish real estate bubble and the corresponding dramatic decrease in prices, investors from outside of Spain decided it was a good time to enter the market. That is why a significant portion of the shares of big SOCIMIS such as Merlin Properties, Hispania, Lar España or Axiare belong to international shareholders.

There are currently 29 SOCIMIS listed on the Spanish stock exchange, 24 of which are also listed on the Alternative Investment Market. In 2017, 35 new SOCIMIS are expected to be added.

During the summer of 2016, Corona Patrimonial was listed on the stock exchange with various office buildings in its portfolio and a share capital of 109 million euros. GMP was listed with 42 euros per share and a capitalization of 819,47 million euros. Quonia and ISC Fresh Water Investment, owner of Sabadell Bank branch offices, were also brought public. Other SOCIMIS that entered the race this past summer were Vitribio, Asturias Retail and Leisure, Hardley, Silvercode Investments, Jaba Inv. Inmobiliarias, Inversiones Doalca, Hereb Habaneras and Corpfin Capital Prime.

SOCIMIS’ main features

SOCIMIS are investment vehicles that benefit from preferential fiscal conditions.
Their main features are:

  • SOCIMIS are exempt from the payment of Capital Tax (Operaciones Societarias) and have a 95% tax rebate on Transfer tax and Stamp Duty (“Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados”).
  • A SOCIMI is taxed at a corporate income tax rate of 0%, only if the shareholders owning at least 5% of the corporation are taxed on their dividends at a minimum rate of 10%.
  • If the investors of a SOCIMI are taxed at a lesser rate than the mentioned above, then the corporation is taxed at 19%.
  • The assets of a SOCIMI can be located in Spain or outside of Spain and can be residential properties, parking lots, hotels, malls, offices, warehouses, and so on, residential properties being the least common. The assets could also consist of shares in other SOCIMI’s
  • 80% of a SOCIMI’s portfolio must be leases and 80% of the company’s profit has to come from leased assets, as well.
  • The leases in a SOCIMI’s portfolio have to be of a duration of at least three years.
  • The SOCIMI’s is obliged to distribute dividends on an annual basis in a proportion determined according to the origin of the profits obtained:
    • 80% of its general benefits, including benefits derived from rental income;
    • 50% of the profits obtained by the transfer of assets (real estate and shares and shares) suitable for the application of the special tax regime (properties for leasing and shares and similar entities). The remaining 50% must be reinvested in qualifying assets within three years of the date of transfer. Failing that, said benefit shall be distributed in full together with the other benefits;
    • 100% of the profits coming from the entities in which SOCIMI participates.
  • The minimum share capital to create a SOCIMI is 5 million euros.
  • A SOCIMI can be listed in the Alternative Investment Market. In order to be quoted there, the company will have to be valued by an independent expert assigned by the Mercantile Registry.
  • SOCIMIS present their accounting books every semester instead of each trimester as is the case with other companies.
  • SOCIMIS have no debt limit.

If you are thinking in investing in a SOCIMI or want to create one and want legal advice on how to do so, please don’t hesitate to contact us.