Brussels, 12/05/2010 (Agence Europe) - On Wednesday 12 March, the European Commission authorised the introduction of Real Estate Investment Trusts (REITs) in Finland, that will be exempted from corporate income tax to encourage investment in affordable rental housing. According to the Commission, this scheme does not involve state aid as any profits made by the trusts will be subject to tax at shareholder level, very much like the profits made by individual investors investing directly in the real estate market.
The objective of the above measure is to encourage investment in the Finnish rental housing market, so as to increase the supply of affordable rental accommodation. According to the scheme notified by the Finnish authorities, to benefit from corporate tax exemption, REITs will be publicly-listed, and no single shareholder will own - either directly or indirectly - more than 9.99% of the capital. REITs will only operate in the field of rental accommodation with at least 80% of their gross income coming from rents. Moreover, REITS will distribute at least 90% of their annual profits to shareholders as dividends.
The Commission's investigation found that the scheme contained no state aid, because the exemption from the corporate income tax is linked to the requirement of immediate distribution of annual profits to shareholders, at the hands of which taxation then takes place. However, the Commission considered that a provision allowing REITs to use up to 30% of their annual profits to create tax exempt re-investment reserves would constitute aid that is incompatible with the internal market. The Finnish authorities have undertaken not to put this provision in force. (F.G./transl.jl)