The so-called "Unlock Italy" Decree - Decreto Legge 133/2014 (the Decree), published on the Italian Official Journal on 12 September 2014, has introduced, along with other measures aimed at revitalising the real estate sector (including the ability to derogate, for the so-called «large leases", from the strict provisions otherwise applicable under Italian lease law), significant changes to the regime applicable to Italian listed real estate investment companies, known as SIIQ.
The above measures, introduced by Article 20 of the Decree, are immediately applicable; however, they will need to be ratified by the Parliament within 60 days from their entry into force, failing which they will be automatically revoked. With such measures the Italian Government intends to incentivise the adoption of SIIQs as instruments for real estate investments, which so far have given poor results compared to similar instruments available in other European jurisdictions (including, of late, the Spanish SOCIMI that played an important role in revitalising the Spanish real estate market).
The intention of the Italian Government is not only to align the tax regime applicable to SIIQ to that applicable to most successful REITs in other European jurisdictions (United Kingdom, France, Germany and the Netherlands) but also to increase the flexibility of this instrument, regarding both requirements to be satisfied to qualify for the preferential tax regime and rules applicable to management of the investments.
The new requirements to qualify for SIIQ tax regime
The new provisions introduced by the Decree modify the requirements to qualify (at the option of the SIIQ) for application of the legal and tax regime applicable to:
- SIIQ, i.e. Italian companies limited by shares whose main business consists of letting of real estate properties and which are tax residents in Italy and listed on the stock exchange in Italy or in other EU member states or white-listed EAA jurisdictions, as well as
- companies with similar characteristics, resident in EU member states or white-listed EAA jurisdictions, with regard to the operations of their permanent establishments in Italy.
The maximum portion of the share capital of a SIIQ that may be held by controlling shareholder(s) has been raised from 51% to 60. In parallel the minimum portion of share capital in free float (i.e. the portion of shares placed on the market and held by shareholders whose voting rights and rights to dividend do not exceed 2%) has been reduced from 35% to 25%.
Similarly, it was also reduced from 85% to 70% the portion of net profits deriving from real estate leases (and assimilated income, including now that deriving from participations held in qualifying real estate funds) that must be distributed to shareholders, thus increasing the possibility for SIIQs to allocate greater resources to improve the quality of the owned real estate properties (with further potential benefits for the construction sector).
Changes to tax regime
The Decree has introduced several, material changes to the tax regime applicable to SIIQs, providing for an exemption from IRES, the Italian corporate income tax, for:
- capital gains and losses made on real estate properties leased (or intended to be leased) and on participations held in SIIQs or SIINQs (i.e. real estate investment companies not listed on the stock exchange) and
- revenues deriving from as well as capital gains or losses made on participations held in qualifying real estate funds.
Another material innovation is the recognition that, subject to relevant requirements being satisfied, international treaties for the avoidance of double taxation will apply to distribution of dividends deriving from leases to non-residents.
Finally, significant innovations were also made on the tax regime applicable to the transformation and liquidation of real estate funds in favour of SIIQs, which may make SIIQs a valuable instrument to address the difficulties arising from liquidation of real estate funds in a still struggling real estate market.
Under the new regime, contribution and transfers of a portfolio of real estate properties (let for their majority) by a real estate fund to a SIIQ shall qualify as a contribution of a business (unit) as going concern and as such shall be subject to fixed registration, mortgage and cadastral taxes.