On 03.04 2024 at the Ministry of Development and Technology, the Minister together with the ministerial advisors presented the sssumptions to the Law on Polish REITs. Which assumptions were presented?
S.I.N.N. company investing in rental real estate market
REIT (Real Estate Investment Trust) is a vehicle for collective investment in the rental real estate market – presented currently in a joint-stock company model. They allow investors to enjoy returns from real estate investments as if they directly owned the properties, while also mitigating certain associated risks, and enhancing the wealth of individual investors – they remove obstacles to entering the real estate market, minimize concentration risks, and level the tax playing field for small individual investors compared to large institutional ones.
Purpose of the vehicle
The real estate market in Poland has been lobbying for setting up the REIT regime for many years. What is expected from REIT?
- increase in the potential and liquidity for the construction of rental properties based on the equity of small investors
- accumulation of Polish capital, greater liquidity, and stability in the real estate market
- an incentive for long-term saving, a new investment instrument for pension funds, so far disallowed
- creation of new jobs, an additional source of income for the state budget (taxes from REITs outperform those from bank deposits)
Key tax assumptions
One-tier taxation of S.I.N.N. – deferred CIT tax payment at the nominal 10% tax rate on leasing activity [with assumed effective tax rate oscillating around 20% without depreciation costs]. Tax to be levied at the moment of dividend payouts.
Similarly to the model known from family foundations, business activity other than leasing will be taxed at a higher tax rate – 19% assumed.
Income derived by the subsidiary company from property rentals or property sales is CIT-exempt, provided it’s distributed as dividends to a S.I.N.N. type company within 9 months after the tax year ends. Any other income of the subsidiary company is taxed according to standard regulations.
No CIT and PIT taxation on dividends paid out by S.I.N.N. at the level of the investors. The taxation system is to balance the tax position of investors, both institutional and individual, as well as the interest of the state budget.
Investment targets
S.I.N.N. is assumed to invest solely in real estate properties located in the territory of Poland. Target properties may be both commercial and residential, comprising offices, shopping centers, residential premises, a social and student housing [so PRS and PBSA market included].
Dividend payouts
Dividend payouts will be obligatory in S.I.N.N., as it is supposed to be a dividend-type investment vehicle, where the investors should receive a stable dividend income on an annual basis.
Therefore, the obligation will cover a distribution of min. 90% rental income reduced by some expenditures [financing costs of acquisition, operational costs, CAPEX type costs, property taxes related to the real estate and CIT]. Fulfillment of this requirement will be confirmed by the certified auditor in the annual financial statement.
Dividends are to be paid out by the end of the 3rd quarter following the end of the financial year.
Statutory conditions
S.I.N.N. will be obliged to fulfill a number of statutory conditions. These concern:
- Share capital: min. PLN 100M
- Seat and management: Poland
- Trading: stock exchange in Poland
- Type of shares: no preferred shares / stocks
- Article of Association: to cover information on investment policy, similar to prospects of the investment funds
- Management: qualified and experienced Asset Manager
Article written based on the content disclosed by the Polish REIT Association.
