Revised Legislation: Socimis to Pay Tax of 15% on Retained Profits

11 January 2019 – Expansión

The General State Budgets for 2019, which are going to be approved by the Council of Ministers today (Friday) and which are going to be presented to the Congress on Monday, will include a tax charge on the undistributed profits of Socimis, to which a tax rate of 15% will be applied, according to reports made by sources speaking to this newspaper. The measure was agreed between Podemos and the Tax Authorities although the Government did not include it in the Budget Plan that it sent to Brussels in October or in the draft bills that are already being processed. The General Secretary of Podemos, Pablo Iglesias, blames the Socimis for the “rental bubble”.

This measure follows other initiatives agreed with Podemos, which cause the greatest impact of the increase in taxes set out in the budgets to fall on companies: they include a tax of 5% on overseas dividends and the imposition of a minimum taxable base of 15% in terms of Corporation Tax, which will be added to the draft bills to create the Google tax and the Tobin tax.

Socimis (Listed Public Companies for Investing in the Real Estate Market) were created by Zapatero’s Government in 2009 to revitalise the real estate market. They enjoy a very beneficial tax regime. The rate of Corporation Tax applicable to them is zero, provided they fulfil a series of requirements: their minimum capital stock is €5 million, which may be invested in a single property; a minimum of 80% of the profits obtained from rental must be distributed in the form of dividends; and a minimum of 80% of the value of the assets in urban buildings must be leased for three years. For the rents received from other types of activities, the Socimis have to pay tax at a rate of 25%.

From now on, a tax rate of 15% will have to be paid on all of the profits not distributed by these types of entities.

“We need to discourage the promotion of these types of companies that promote the bubble model, undermine the public coffers and represent a grievance for competition. We consider that the special regime afforded to the Socimis, whose main feature involves a tax rate of 0% for Corporation Tax, needs to be reversed”, said Podemos in a recent document. It regards it as “necessary to reverse Government policy, based on forcing tax regulation to create a tax haven for companies that promote a new housing bubble”.

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

Spain’s Large Socimis are not Perturbed by Podemos’s Proposed Tax Legislation

14 October 2018 – La Información

The Socimis, one of the great tax regimes currently booming in our country, suffered a serious blow on Thursday after an agreement was published between PSOE and Podemos to push ahead with the State’s General Budgets. As a result, the Socimis are going to have to pay tax (at a rate of 15%) on any profits that they do not distribute as dividends, in other words, the funds that remain in the companies to increase their capitalisation. But, which companies are going to be most affected? Only the smallest ones.

In recent months, the large real estate companies on the Ibex and the Continuous Stock Market have been distributing significant dividends, in some cases even exceeding their accounting profits by two or three times. Therefore, the new measure will not affect them, given that only undistributed profits will be taxed. By contrast, the small entities that are listed on the Alternative Investment Market – where they have their own segment – barely exceeded the obligatory dividend distribution of 80% of the profits for that type of company in most cases.

If we take Merlin – a giant in the tertiary sector –by way of example. Last year, it obtained a profit of €114.5 million (after discounting the appreciation of its assets) and it dedicated 205% of its profits to dividends. Even high figures were recorded by Colonial, which distributed 267% of its profits to its shareholders, and Lar España, which is listed on the main stock market, and which distributed 236% of its results after taxes to the owners of its shares.

By contrast, the small companies on the MAB complied with the law in a comprehensive way but without distributing such significant figures. Such was the case of AP67, a Socimi whose assets are primarily residential, commercial and office-based, which distributed just over €240,000 of its total profits of €300,000.

Why do the small companies only distribute the legal minimum? Most of the companies listed on this market are owned by a small number of shareholders, normally those who have been with the entity since the beginning and, therefore, they have no commitment to the owners of those shares. In fact, the movement in shares is so small in the majority of cases that the volume is almost nil.

By distributing 80% of their profits as dividends, they pay tax of up to 25% on those earnings, whilst the remaining 20% is posted to reserves and, previously, there was no requirement to pay any tax on that. With this proposal, the money that is not distributed to the shareholders (in other words, that 20%) would be subject to a tax rate of 15%.

For tax experts, these measures may scare off foreign investors, especially funds, which regard Spain as a good opportunity for investing after the framework for Socimis was brought into line with those governing REITs in countries such as France and Germany. Moreover, “other countries have an advantage over Spain going back many years and they offer more beneficial tax frameworks”, something that the new tax will only serve to dent in the Spanish system.

In light of the possible approval of the draft presented on Thursday by Unidos Podemos and PSOE, the Socimis “will distribute all of their profits as dividends to avoid the double taxation of the same money”, said a high-profile tax advisor consulted by La Información.

Original story: La Información (by Lucía Gómez)

Translation: Carmel Drake

Colonial’s Board Approves Conversion Of Company Into A Socimi

25 May 2017 – Expansión

Colonial is going to propose to its shareholders that the firm turn itself into a listed real estate investment company (Socimi), according to a statement issued on Tuesday by the group to Spain’s National Securities and Exchange Commission (CNMV).

The company has explained that the measure, which has already been adopted by the Board of Directors, will be subjected to a vote at the next General Shareholders’ Meeting, scheduled to be held on 29 June.

The real estate company explained that becoming a Socimi “would not involve any change in the group’s corporate strategy or in its business plan” and that, by contrast, it would mean that the profits and cash flow would increase “significantly”.

Specifically, Colonial wants to adopt this structure retrospectively, with effect from 1 January 2017.

In addition, the company states that becoming a Socimi would have a positive impact of €72 million on its own funds, as it would allow it to pull back some of the provisions accounted for in 2016.

Colonial also highlights that with this step, the effective tax rate would be reduced to 0% and also, that the group would be able to continue using a “tax shield”, amounting to more than €1,300 million to structure investment or divestment operations.

Moody’s assigns a Baa2 rating to Colonial

On the other hand, on Tuesday, the agency Moody’s assigned a credit rating of Baa2 (investment grade) to Colonial, with a stable outlook.

In this sense, it is worth noting that the company already saw its rating improve on 19 April this year, when S&P increased its debt rating to BBB (investment grade) from BBB- (low investment grade), also with a stable outlook, to become the Spanish real estate company with the highest credit rating in the sector.

Original story: Expansión

Translation: Carmel Drake

Socimis Fear Rise Of Left-Wing Coalition, Unidos Podemos

26 May 2016 – El Economista

Since 9 May 2016, when the political leaders of Podemos, Pablo Iglesias (pictured above, right), and Izquierda Unida, Alberto Garzón (pictured above, left), announced their intention to stand together in the upcoming General Election on 26 June, the possibilities of them beating the Socialist Party and, even, forming a Government, have increased considerably (the D’Hondt electoral law penalises minority groups).

The fact that Unidos Podemos has become a real option, according to the latest polls, is being felt on the stock exchange in sectors such as real estate. The Socimis have seen an average decrease in their share prices of 1.5% since 10 May, which represents a difference of 3.6 percentage points with respect to the Ibex 35, which has risen by 1.6% during the same period.

In its election manifesto, the purple party – which now has the support of IU – proposes reforming the tax regime for Socimis (as well as for the Sicavs). The real estate vehicles are currently exempt from paying Corporation Tax, provided they fulfil certain requirements, such as distributing 80% of their net profits as dividends.

“What it (the regime) does is raise the taxation (liability) up to the shareholders. They bear the taxation through their remuneration in the form of capital income (provided their share stakes exceed 5%), says Ana Hernández, an expert in Socimis.

Merlin Properties, the largest Socimi in the market, with a market capitalisation of €3,100 million (more than twice the size of the second largest firm, Hispania), is suffering more than most from the downward trend. Within the last month, short positions of the company’s shares have almost tripled, from representing 0.4% to 1.15% on 13 May, according to data prepared by the CNMV. Meanwhile, its share value had decreased by 20% since the last General Election was held on 20 December, more than double the 8% drop that the Ibex 35 has seen during the same period.

Concern amongst investors

“There is noise (in the market)”, acknowledged sources in the sector, although “maybe it is excessive”. (…).

“Spain is an attractive country for real estate investment” said Jesús Amador, analyst at Bankinter, who recognises, nevertheless, that the latest “initiatives” motivated by Town Halls close to Podemos “may influence” the investments made by the Public Administration, following “the cuts to investment for Operación Chamartín, the controversy with Plaza de España and the problems in Barcelona”. (…).

The left-wing coalition proposes a minimum tax rate for Companies of 15%, which, in the absence of more data, would also become the future tax rate for the Socimis. “If they make the work more complicated”, said the President of one Spanish firm, “they will kill many of them off”.

Original story: El Economista (by Laura de la Quintana)

Translation: Carmel Drake

Podemos Positions Itself Against Socimis & The RE Recovery

26 April 2016 –

The political party led by Pablo Iglesias (pictured above) wants to put a stop to these investment companies, which are responsible for investing billions of euros each year.

Podemos has proposed an attack on the Socimis (listed real estate investment companies), whose appearance has helped the recovery of the real estate sector in recent times. Pablo Iglesias has put the tax structures of Socimis, private equity firms and entities holding foreign securities (ETVE) in the firing line; he says that he wants to “ensure productive investment and tax equity”. And it is true that the tax treatment of Socimis is different to the rules that apply to other companies, but the Socimis also have to comply with certain requirements, such as holding share capital of €5 million, and not €3,000 like an SL, and listing on the stock exchange, such as the MAB, IBEX 35 or Main Market.

– Tax rate of 0%. Socimis are taxed at a rate of 0% for Corporation Tax purposes.

– Special rules need to be taken into account for entities that have been taxed under a general regime that start paying tax under the Socimi regime: if ownership of a property is transferred prior to the application of the Socimi regime, then the rental income shall be understood to be generated on a linear basis (unless proven otherwise) during the holding period, and so the previous tax regime and the Socimi regime will be applied to the rental income on a proportional basis.

In addition, Podemos also wants to axe Sicavs, control the shareholders and the money in cash, limit the maximum percentages per shareholder and have them monitored by the Tax Authorities and not by the CNMV like now.

Encourage “informers” and allow tax inspectors to work under cover in order to combat tax fraud. The informer would be rewarded with some of the economic fine imposed on the offender, whilst a fund would be created for paying tax confidants.

This is part of the Comprehensive Plan to Combat Fraud that will be presented to the Economic Committee on Wednesday. According to the text, tax revenues would increase by between 1% and 1.5%.

Moreover, Podemos considers that it would be worthwhile to integrate all of the networks of the Tax Authorities and the regional and state Social Security departments for greater coordination.

Meanwhile, Podemos’s proposals also include lowering the criminal liability threshold for tax offences to €50,000, as well as increasing, in general, the “prescription period” to ten years, applying the penalties currently provided for when the defrauded amount exceeds €120,000.

Original story:

Translation: Carmel Drake

2015 Tax Year: Treasury Raises Tax Rate On Second Homes

18 April 2016 – Cinco Días

The owners of second homes must pay tax on them in their annual income tax returns and many will incur a tax increase this year. The tax percentage on second home properties was fixed at 1.1% until now for homes whose cadastral values have been reviewed since 1994 and at 2% for homes reviewed before that date. The reference date now has been set as 2005, which means that more taxpayers will have to pay 2%.

The campaign for the filing of tax returns for 2015, which began last week, incorporates the new features of the tax reform approved by the Government, which mainly resulted in reductions in tax rates and tax brackets. Nevertheless, as a study published on Thursday by the Registry of Tax Advisors (REAF), an independent body formed by the General Council of Economists, shows there are also some changes that will harm the taxpayer. One of those affects the owners of second homes.

The legislation establishes that taxpayers who own second homes must pay a real estate tax on the basis of the general tax base. Until now, if taxpayers owned homes whose most recent cadastral review took place after 1994, they reported a tax charge in their tax returns equivalent to 1.1% of the cadastral value of their properties. For reviews before that date, the tax rate was 2%. For example, the owner of a second home with a cadastral value of €300,000, which was last updated in 1998, used to have to pay €3,300 (i.e. 1.1% of €300,000). From this year onwards, only homes whose cadastral reviews have been reviewed since 2005 may apply the 1.1% rate; all others have to apply 2%. This means that the owners of homes with valuation updates between 1994 and 2005 will incur a tax increase. In the case of the example described above, the owner of the €300,000 home will have to pay €6,000 from this year, compared with €3,300 that he previously recorded in his tax return.

Town halls are responsible for approving cadastral reviews. In theory, the more time that has elapsed since the last update, the larger the difference between a property’s cadastral value and its market price. For this reason, the Treasury has established a higher tax rate for homes with older cadastral values. In fact, the tax reform establishes that the 1.1% rate will apply to homes whose cadastral values have been reviewed within the last ten years. In other words, for the tax year 2016, the date for determining the application of the different rates (1.1% vs 2%) will be 2006. (…).

Original story: Cinco Días (by Jaume Vías)

Translation: Carmel Drake

Regional Gov’ts Demand Rental Tax Payments From Tenants

3 March 2016 – El País

Tenants in the Community of Madrid with a residential rental contract signed within the last four years are now going to have to pay ITP (Property Transfer Tax or ‘Impuesto de Transmisiones Patrimoniales’). In the case of a rental charge of €600 per month, the tenant now has to pay almost €29 per year of the contract. Currently, it is typically for rental contracts to last three years, which means a cost of €86.40, to be made in a single payment. It does not matter whether this clause is included in the contract signed between the owner and the tenant or not.

Since the start of 2015, as part of its plan to combat fraud, the Ministry of Finance in the region of Madrid has been making a mass claim for the payment of this tax to the surprise and amazement of tenants, who have never heard of such a charge before. However, Madrid is not the only region. Cataluña, Asturias, Andalucía and Galicia have also included the ITP claim in their tax control plans.

The weak regional coffers are unable to forgive the payment of this tax any longer, the corresponding legislation has actually been in force for more than two decades. Until now, the Madrilenian Government, during the mandate of Esperanza Aguirre and then Ignacio González, generated revenues of €600,000 per year from this source. Now, Cristina Cifuentes’s Government hopes to raise a lot more, although it does not provide any figures. Cataluña, which is immersed in the same process, raised almost €6.4 million in 2015, compared with €482,000 previously. (…)

In force since 1993

Unbeknownst to the vast majority of Madrilenians, the ITP on rental payments in nothing new; in fact it has been in place since 1993, when the state law governing Tax on Property Transfers and Stamp Duty ruled that it considered a rental contract to be an onerous acquisition, much like a purchase. And the tax has even been envisaged in the law since 1980 (…).

Until now, “the small quantities involved meant that the Administration was not interested in allocating resources to find pockets of fraud against this tax, but now inspection activity is much simpler, given that with a simple cross reference of data, it is easy to find the debtors”, says Pelayo de Salvador Morell, a lawyer at the law firm deSalvador Real Estate Lawyer. (…).

The tax charge or amount to pay is obtained by applying the rate set by the regional government in each case, to the taxable base. Cristina Cifuentes’s Government is applying the State’s standard rate of 0.4%. Other regional governments, such as Cataluña, have increased the rate to 0.5%, which means that instead of the €86 mentioned above, tenants in Cataluña will have to pay €108 for three year rental agreements.

The payment of the tax must be made within 30 days of the contract being signed, through various means, such as using the stamp-impressed paper stocked in tobacconist shops…submitting the self-settlement 600 form to the General Tax Authorities…or telematically through the online office. Despite the mandatory nature of this legislation, the Community of Madrid has chosen to not penalise for non-compliance…due to the high cost involved. It is claiming only the amount of the tax that should have been paid at the time, plus late payment interest. (…).

Original story: El País (by Sandra López Letón)

Translation: Carmel Drake