Regulation

Dutch REIT rule changes boost competitiveness

Dutch REITs will compete better with their European peers thanks to new legislation allowing certain ancillary services to qualify for special tax regime treatment, says the European Public Real Estate Association (EPRA).

These additional business activities must be carried out by a regular taxable subsidiary of the REIT (or 'FBI' in Dutch) and may include services such as providing meeting space, in-house catering, supplying energy to tenants and using social media and marketing tools in, for instance, shopping centres.
 
The possibilities for Dutch REITs to do property management in joint-venture situations have also been expanded.
 
Ronald Wijs, a member of EPRA’s tax committee, says: “This legislation is a major improvement. It should allow Dutch REITs to manage their property portfolios in a more dynamic way and to meet the changing demands from investors and tenants. As a result, it should enable the Dutch FBIs to compete on a more level playing field with REITs in other countries. The Dutch listed property industry, with the strong support of EPRA, has consulted closely with the Ministry of Finance to achieve this very positive change in the rules.”
 
The broadening of permitted activities within the FBI structure is subject to a number of requirements:

  • The permitted activities should take place in a taxable subsidiary earning an “at arm’s length” remuneration.
  • The ancillary activities should directly relate to the investment properties of the FBI or certain affiliated entities.
  • The (fiscal) value of the shares in the subsidiary that performs the activities may not exceed 15 per cent of the (fiscal) equity of the FBI.

 
The turnover of the ancillary activities may not exceed 25 per cent of the FBI’s turnover (on a property-by-property basis).
 
To avoid the taxable profit of the subsidiary from being eroded and the value of this company being kept artificially low, the subsidiary is required to be entirely financed with equity.
 
Dutch REITs form the second largest component of the FTSE EPRA/NAREIT Developed Europe REITs Index after the UK, with six companies with a combined market capitalisation of around EUR24bn representing about 30 per cent of the index. The total market cap of the index, containing 43 constituent listed companies, was roughly EUR79bn in mid-January. 

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