Real Estate Legal

ServicesIngrid Sumarroca

Lawyer

Balmes, 297, 3th floor+34 93 209 55 63 - + 34 657 769 812

Barcelona, 26 November 2014

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Spain Real EstateMarket Issues

• Spain’s housing market is now recovering, amidst gradually improving economic conditions. Spanish house prices dropped 3.03% during the year to end-Q2 2014, (-3.12% inflation-adjusted), the lowest annual decline since Q2 2008.

• During the latest quarter, Spanish house prices increased slightly by 0.15% (-0.78% inflation-adjusted) in Q2 2014. Residential property transactions surged 48% in Q1 2014 from a year earlier, according to the Instituto Nacional de Estadistica (INE).

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Barcelona Real EstateLegal & Political Issues

• Legal Issues: • Reasonably hospitable climate for foreign investment. Lawmakers strive to

facilitate investment to the country (i.e., Residence for buyers of properties valued 500,000 € at least, SOCIMI, residential renting).• Foreign investment up to 100% of equity is permitted. • Capital movements are completely liberalized.

• Political Issues: • Spain has been successful in making the transition from dictatorship (up to

1978) to democracy. • Prime Minister, Mr Mariano Rajoy, has recently proposed that Barcelona had

the same political attributions as Madrid has. • Barcelona Council, whose financial situation is far better than Catalonian

Government, endeavours private iniciative through the Barcelona Activa platform.

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2014 SPANISH TAX REVIEW

A. Companies

B. Individuals

C. Other direct taxes

D. Turnover taxes

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A. CompaniesResident companies

Corporate tax rates • 30%• 25% for SMEs (annual profits over EUR

300,000)• 20% for micro-enterprises (annual profits up to

EUR 300,000)• surcharge from 0.01% to 0.75% may apply

Tax base worldwide

Capital gains yes, part of business income

Unilateral double taxation relief exemption and ordinary foreign tax credit

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A. CompaniesNon-resident companies

Corporate tax rates • 25.75% generally;• rates depend on type of Spanish-source

income

Capital gains on sale of sharesin resident companies

21% (exempt if derived by residents of the EU)

Final withholding tax rates

Branch profits

• for tax years 2012-2014:• 21% (effective rate 44.7%);• otherwise, 19% (effective rate 43.3%);• 0% (PEs of EU resident companies except

Cyprus)

Dividends 21%;0% for qualifying EU companies (5% participationfor 1 year required) (EU Parent SubsidiaryDirective)

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Interest 21%;0% for associated EU companies (EU Interestand Royalties Directive);0% on bank deposits and government bonds

Royalties 24.75%;0% for associated EU companies (EU Interestand Royalties Directive)

Fees (technical) 24.75% (exempt for associated EU companies)

Fees (management) 24.75% (exempt for associated EU companies)

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3. Specific issues

Participation relief inbound dividends: yesoutbound dividends: yes

Group treatment yes

Incentives investment/reinvestment credits and deductions;R&D and technological innovation credits;personnel costs credits;environmental tax credit;holding companies (ETVEs) - participationexemption;tonnage tax regime;special regions regimes;newly created companies;film industry

Anti-avoidance general rule;transfer pricing;limitation on interest deduction;CFC

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B. Individuals1. Resident individuals

Income tax rates general income:progressive - top rate 45% (over EUR175,000.20);surcharge - top rate 7% (over EUR 300,000);savings income:progressive - top rate 27% (over EUR 24,000)

Capital gains part of savings income if assets are held for morethan 1 year;subject to progressive income tax rates if assetsare held for less than 1 year

Unilateral double taxation relief yes

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2. Non-resident individualsIncome tax rates rates depend on type of Spanish-source income;

business and employment income: 24.75%

Capital gains on sale of shares inresident companies

21% (specific exemptions for shares transferredon stock exchange and there is a tax treaty or ifderived by certain EU residents)

Final withholding tax ratesEmployment income

24.75%

Dividends 21%;0% if less than EUR 1,500 or derived by EU ortreaty-country residents)

Interest 21%;0% if paid to residents of EU Member States(except Cyprus), on bank deposits, public bonds,securities issued in Spain by certain internationalorganizations)

Royalties 24.75%

Fees (technical) 24.75%

Fees (directors) 24.75%

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C. Other direct taxes

Net wealth tax yes (for 2011 to 2014)

Inheritance and gift taxes yes

D. Other indirect taxes

VAT/GST (standard) 21%

VAT/GST (reduced) 0%, 4%, 10%

VAT/GST (increased) no

Other no

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Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Key features under Law 11/2009 amended by Law 16/2012

• Public listed companies (information issues). • Corporate purpose:

a) Leased urban assetsb) Stake in share capital of other SOCIMI or other foreign analogue vehicle o similar REIT.

• Requirements: • Share capital: ≥ 5,000,000 € (monetary or non monetary contributions).• ≥ 80% of its assets must be leasable urban properties or shares of other REIT.• ≥ 80% of its earnings must come from lease or dividends distributed by any

subsidiary REIT.• Property assets may be leased for a minimum 3 year term (Spanish Tax Authorities

will analyse the overall degree of compliance).

• To take into account: • SOCIMI must not comply with all the abovementioned requirements if the listed

company is not the SOCIMI itself but its parent company.• When opting for the special tax regime, some of the requirements may be met

within the following 2 years.

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• Corporate tax rate: 0%• Provided that the shareholders owning at least 5% of the SOCIMI are taxed on the

dividends received at a minimum rate of 10% (the most favorable scenario).• Where investors do not meet the above requirement, the SOCIMI will be taxed at

19% on the portion of the distributed profit corresponding to those investors (the least favoreable scenario).

• Non-Resident Investors:• With permanent establishment in Spain: • They will include the dividend in their Income Tax base without entitlement to

double taxation relief.• Without permanent establishment in Spain: • They will be subject to a withholding tax of 19% unless an exemption (parent-

subsidiary) or reduced tax treaty rate(*) is applicable.

(*) As set forth by Article 10 of the “Convention between the Kingdom of Spain and the State of Israel for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital”:

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the dividends. (…)

Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Tax Regime under Law 11/2009 amended by Law 16/2012

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• Transfer Tax: 5%

• 95% reduction on the Transfer Tax triggered on the acquisition of real estate assets if they are residential properties to be leased or land for the promotion of residential properties to be leased, to the extent that the holding period requirement of 3 year is met.

Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Tax Regime

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• The listing requirement can be fulfilled within the MAB, which has

more flexible regulation and less regulatory requirements.• Alongside other segments (SICAVS, Venture Capital Companies and

Growth Companies), there is an specific MAB segment for SOCIMI regulated under Circular of the MAB 2/2013.• Requirements:

• Registered advisor. • Liquidity agreement (the liquidity provider could be an investment services

company or a credit institution). • Valuation report drafted by an independent expert under international

valuation standards. • Minimum free float required, ≤ 5% of share capital. These shareholders must

hold a number of shares representing the lesser of the following amounts: • 2,000,000 € (estimated market value); or• 25% of the shares issued by the company.

Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Alternative Market (MAB)

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• Application (“information document for inclusion on the MAB”):

• Real estate assets: description, depreciation periods, situation and condition, policy for investment and replacement, potential costs due to a change in the lessee.• Finance:

• International Financial Reporting Standards (IFRS); or • General Accepted Accounting Principles used in the United States (US GAAP).

• Corporate & Management.

• Procedure:• It takes between 2-4 months. • Issuers of their shareholders will not be obliged to conduct an offering for the

sale or subscription of shares prior to their inclusion on the MAB in order to comply with the minimum free float requirement. • Once listed, core shareholders & key executives are obliged to maintain the

shares during the first year following their listing.

Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Application & Procedure for Admission to Trading

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Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Disclosure & Transparency requirements

Information Basis Content

Financial Half-yearly & Yearly • Key financial data related to the first 6 months each year.• Audited anual financial statements.

Material • Calling for shareholder’s meeting.• Changes in the management body.• Corporate transactions. • Bylaw amendments (Specific content for the Company

bylaws, see next slide). • Etc.

Ownership Half-yearly • Number of shareholders • List of shareholders (≥ 5%)

Side-agreements I.e., terminantion of shareholder’s agreements affecting the transfer of shares or shareholders’ voting rights.

Principles: 1. Sufficient information: investors may have available information to enable them to

make trading decisions.2. Simplicity: MAB is a more flexible market than any other regulated market.

Besides being disclosed to the market, the abovementioned information must be posted on the website which the company will have to have available.

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Spanish REIT- SOCIMI (Sociedades Anónimas Cotizadas en el Mercado Inmobiliario)Specific content for SOCIMI bylaws

Provisions to include in SOCIMI bylaws:• Obligation for shareholders to notify the Company of the acquisition or sale of

shares where it causes their ownership interest to reach, go above, or fall bellow, 5% of the capital stock and successive multiples of 5%; the same obligation applies at a lower 1% to directors and senior managers.• Obligations for shareholders to notify the issuing Company of the signing,

extension or termination of any agreements that restrict the transferability of shares or affect the right to vote. • Obligation for the issuing company, if it resolves to stop trading on the MAB

without the unanimous vote of the shareholders, to offer the shareholders who did not vote in favour, to acquire their shares at a justified price in accordance with the criteria set out in the legislation on tender offers.• Obligation for any shareholder who receives a purchase offer from another

shareholder or from a third party, which implies that the transferee is going to own a controlling interest (above 50%), not to be able to transfer their interest unless the potential transferee makes an offer to all the shareholders to buy their shares on the same terms.

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Individual Income TaxPrivate

Company Limited

Individual SICAV SOCIMI

InvestmentTransfer Tax

INCOME

5,000,000 €8 %

4,600,000 €

5,000,000 €8%

4,600,000 €

5,000,000 €0%

5,000,000 €

5,000,000 €0,35%(*)

4,982,500

Return Rent IncomeExtraordinary IncomeEXPENSES

12%552,000 €

12%552,000 €

12% 600,000 €

12%597,900€

Managemnt Management feeRESULT

1%50,000 €

3%150,000 €

3%150.000 €

EBITDA – Operating Margin% Corporate Income TaxIndividual Income TaxBENEFIT AFTER TAXES

502,000 €30 %

351,400 €

552,000 €0%

52%264,960 €

450,000 €1%

445,500 €

447,900 €0%

447,900 €

SOCIMI Comparison 26.46% 69.04% 0.54%

(*) Transfer Tax for SOCIMI is 0.35%. It results from 5% (95% reduction) • 7%.Transfer Tax for Private Company Limited and Individuals is 8%. It results from 7% (Transfer Tax) + 1%.

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Dividends Taxation for Individuals

DIVIDENDS DISTRIBUTED 351,400 € 264,960 € 445,000 € 447,900 €

Dividends Withholding (21%)Shareholding ≥ 5%Shareholding ≤ 5%

73,794 €-

55,642 €-

93,555 €-

94,059 €19% (*)

Less than 1.500 € (0%)1.500,01- 7.500 € (21%)7.500,01 € - 25.500 € (25%)More than 25.500,01 € (27%)

1,500 €1,260 €4,500 €

87,993 €

1,500 €1,260 €4,500 €

64,654.20 €

Less than 6.000 € (21%)6.000,01 € - 24.000 € (25%)More than 24.000,01 €

1,260 €4,500 €

113,805 €

1,260 €4,500 €

114,453 €

RESULT 19,959 € 14,772.60 € 26,010 € 26,154 €

SOCIMI Comparison 31.04% 77.04% 0.55%

(*) SOCIMI’s dividends are taxed at 19%. At any other cases, they will be taxed up to 27% within ranges.

Private Company Limited

Individual SICAV SOCIMI

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REAL ESTATE LEGAL SERVICES

Property selection

Corporate Formation

Day-to-Day Legal: handling rentals,

and any other issues.

Barcelona Corporate Address

Tax optimization

Contact to Barcelona Local Council

Bureaucracy issues intermediation

Rehab control

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INGRID SUMARROCAPractice AreasFinance & RestructuringsMergers & AcquisitionsCommercial law

ExperienceDeloitte Touche Tohmatsu - Uría MenéndezEducationLaw Degree (UAB, 2007)Administration and Management Degree (UAB, 2007)Corporate Finance & Law Master (ESADE, 2012)

Languages SP - CAT- EN

Professional AssociationsBarcelona Bar Association (N. 32482)International Bar Association (N. 1043778)

Contact: ish@sumarrocalegal.com+34 93 209 55 63 / +34 657 769 812

297, Balmes08006 Barcelona

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Thanks

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