Real Estate Investment and Management Companies “SIGI”04 April, 2019
Aiming to enhance and promote the real estate market investment, the Portuguese Government recently approved the legal regime of the Real Estate Investment and Management Companies (“SIGI“), regulating its incorporation and activity in Portugal.
The regime of the real estate investment companies, which entered into force on 1 February 2019, follows the European “market trend” of the Real Estate Investment Trusts (REIT), and the Spanish – Sociedad Cotizada Anónima de Inversión en el Mercado Inmobiliario (“SOCIMI”).
SIGIs are a new type of real estate investment companies, whose main activity is the acquisition of property ownership rights, surface rights or other equivalent rights concerning properties for leasing purposes or other forms of commercial operations, the acquisition of equity interests in equivalent companies with requirements, and the acquisition of equity interests corresponding to shares or to investment units in real estate investment funds, whose income distribution policy is similar. Its shares shall mandatorily be admitted to trading in regulated or unregulated market.
1. Main features of SIGI
In order to benefit from this regime, it is necessary that the company is a joint stock company “Sociedade Anónima”, with its registered office and effective management in Portugal.
The share capital must be subscribed and paid-up in the minimum amount of € 5,000,000.00, represented by ordinary shares, and include in the company name “Sociedade de Investimento e Gestão Imobiliária, S.A” or “SIGI, S.A“.
SIGIs should have the following corporate purposes:
a) Acquisition of property ownership rights, surface rights or other equivalent rights concerning properties for leasing purposes or other forms of commercial operations;
b) The acquisition of shares in other SIGI or companies with head office in another Member State of the European Union or the European Economic Area, bound by the administrative cooperation in the field of taxation, equivalent to the one established in the framework of the European Union, fulfilling cumulatively certain requirements: (i) have a corporate purpose equivalent to SIGI; (ii) the asset composition is in line with the indebtedness limit foreseen in the Decree-Law, (iii) the share capital entirely represented by nominative shares and (iv) are subject to an income distribution framework similar to that foreseen in the Decree-Law.
c) The acquisition of participation units or shares of: i) Property Collective investment undertakings (OII´s) established and governed under the specific regime for OII´s, whose income distribution policy is similar to that established for SIGI; ii) Real estate investment funds for in residential lease, governed by Article 102 of Law no. 64-A/2008 of 31 December, with an income distribution policy similar to the one required for the SIGI.
In the pursuit of their business, SIGIs may directly manage or exploit the properties in relation to which some of the rights referred in (a) above have been acquired or enter into service agreements with third parties for the management or economic exploitation of such properties.
SIGIs shall adopt the supervisory model corresponding to a supervisory board (Conselho Fiscal) and a statutory auditor (Revisor Oficial de Contas) or an audit firm which is not part of the supervisory board.
SIGIs may be incorporated with or without public subscription. In case of public subscription, the constitution of the SIGI is governed by the provisions of articles 279 to 283 of the Commercial Companies Code, with the specificities set forth in the in the Decree-Law.
Obligation of admission to trading
Another essential requirement for the incorporation of s SIGI is that, within a one-year period from the commercial registry of the incorporation, the shares representing the total share capital shall mandatorily be admitted to trading in a regulated market or a Multilateral Trading System located or operating in Portugal or in another Member State of the European Union or the European Economic Area.
Without prejudice to the rules applicable to each platform, at least 20% of the shares representing SIGI’s share capital must be held by investors which hold shareholdings corresponding to less than 2% of the voting rights.
In relation to the asset’s composition, the SIGI shall be mainly composed by property rights, surface rights or other equivalent rights on real estate, lease or other forms of economic exploitation, subject to the following cumulative limits:
° The value of the said rights over properties and shareholdings must represent at least 80% of SIGI’s asset value; and
° The value of the rights over properties subject to lease agreements or other forms of economic exploitation must represent at least 75% of the total value of SIGI’s assets.
The asset composition requirements referred to must be met at all times as from the second year after the incorporation of the SIGI, and the rights and shareholdings must be held for at least three years following their acquisition.
SIGIs indebtedness cannot, at all times, correspond to more than 60% of SIGIs total asset value.
1.3. Income distribution
Within a period of nine months after the end of each fiscal year, the SIGI shall distribute in the form of dividends, at least:
i. 90% of the profits relating to such fiscal year arising from the payment of dividends and income distribution arising respectively from shares or from investment units held by the SIGI, and;
ii. 75% of the remaining distributable profits relating to such fiscal year under the terms of the Commercial Companies Code.
It should be noted that the legal reserve of SIGI cannot exceed 20% of the share capital, and it is not allowed to establish other unavailable reserves.
At least 75% of the net proceeds from the disposal of assets allocated to the business of the SIGI, shall be reinvested in other assets allocated to the SIGI business within the period of three years counted from the referred disposal.
1.4. Loss of qualification of SIGI
It is expressly referred to in Decree-Law no. 19/2019 that, that companies lose the qualification as SIGI, and therefore are no longer subject to the present regime, if:
i. Cease to comply with the requirements concerning the type of company, supervisory model, corporate purpose or minimum share capital;
ii. Cease to comply, for a period of over six months, with the abovementioned free float requirements;
iii. Do not fulfil, for two consecutive exercises, at least one of the abovementioned asset composition requirements;
iv. Default on the abovementioned indebtedness limit;
v. Default on their obligation to request the admission to trading of their shares under the terms described above with the necessary advance (one year after registration);
vi. No longer meet the admission requirement.
The loss of the qualification as SIGI prevents such company from obtaining the SIGI qualification for the next three following years.
1.5. Conversion of Existing Companies into SIGI
A. The conversion of joint stock companies (“SA”) into investment and real estate management companies “SIGI”
As long as they comply with the requirements foreseen in the Decree-Law no. 19/2019, the “S.A” already incorporated may be converted into SIGI, by resolution of the shareholders general meeting, taken by the majority of votes required to resolve on the amendment of the articles of association.
By the same majority of votes, the shareholders general meeting shall also approve the amendments to the articles of association required to comply with the remaining requirements for commercial companies to be set up as SIGI.
B. The conversion of real estate investment undertakings (“OII”) into investment and real estate management companies “SIGI”
The real estate investment undertakings (“OII”) under a corporate form, established under the General Regime for Collective Investment Undertakings (“RGOIC”), may be converted into SIGI provided that they comply with the requirements of the Decree-Law no. 19/2019.
The conversion into SIGI is made by a resolution of the shareholder general meeting, approved by the majority of votes corresponding to 90% of the share capital, and produces effect on the date established in the respective resolution.
- Tax regime
Even though only expressly mentioned in the preamble of the Decree-Law, the legislator in its considerations indicates that SIGI, as a new type of real estate investment company (“SII”), shall benefit from the same neutral tax regime applicable to other “SII”, mainly due to the application of the same tax regime applicable to Collective Investment Undertakings (“OIC”) already in force.
The SIGIs are subject to the general tax regime of the Portuguese Corporate Income Tax (IRC), and subject to a 21% tax rate (exempt from municipal and state surtaxes).
Nevertheless, income arising from the SIGI’s real estate activity, such as investment income, rental income and capital gains on immovable property will be exempt from Corporate Income Tax. However, expenses related to exempted income (although expressly provided for under the general terms of the Portuguese Income Corporate Tax Code) will not be deductible for the determination of the SIGI taxable income.
By applying the same tax rules already applicable to Collective Investment Vehicles, SIGIs however, are subject to a 0.0125% stamp duty on their net value, on a quarterly basis.
A. Dividends distributed by the SIGI:
» Portuguese investors (individuals): dividends are subject to a withholding tax rate of 28%.
» Portuguese corporate investor: withholding tax is made at the rate of 25% (the withholding tax has the nature of tax payment on account).
» Non-resident investors: reduced withholding tax at a 10% rate.
B. Capital gains from the sale of shares:
» Resident investors: taxed at 28% (individuals) or taxed under CIT at 21% on the annual taxable profit, plus applicable municipal and state surcharge (companies).
» Non-resident investors: In the case of non-resident investors without a permanent establishment in Portugal, capital gains should, in principle, be taxed at a rate of 10%.
However, some essential issues of the taxation rules and benefits not covered by the regime described above, remain to be clarified (for example the Portuguese participation exemption regime application).