Indirect taxation advantages of REITs

In previous blog posts, we have dealt with important aspects of Real Estate Investment Trusts (REITs), such as REITs in family business planning, liquidity management in REITs or the tax advantages, possible disadvantages, stock market listing and future expectations of SOCIMIs. In this new entry, we are going to refer to the indirect taxation of SOCIMIs. The main tax benefit applicable to this type of company in indirect taxation and which is very attractive for this type of company is the 95% rebate on the Tax on Transfer Tax and Stamp Duty (hereinafter, ITPAJD).

Before getting into the subject, let us remember that REITs are a type of company whose main activity is to invest, directly or indirectly, in urban real estate assets for rental purposes.

These assets can be of a wide variety of types, including housing, commercial premises and centres, hotels, residences, offices, garages, etc.

What is the rebate on Transfer Tax and Stamp Duty for REITs?

The second final provision of Law 11/2009, of 26 October, which regulates Real Estate Investment Trusts (REITs) introduced the following measures applicable to REITs in the field of the ITPAJD:

• On the one hand, the extension of the effects of the exemption applicable in the Corporate Transactions (OS) category to the incorporation and capital increase operations of REITs and non-monetary contributions made in favour of them.

• On the other hand, the introduction of a rebate of 95% of the ITPAJD quota applicable to the acquisition of housing intended for renting and to the acquisition of land for the development of housing intended for renting.

The aforementioned exemption in OS is equivalent to that applicable to other commercial companies, which is provided for in Article 45.I.B.11 of Royal Legislative Decree 1/1993, of 24 September, approving the Consolidated Text of the Law on Transfer Tax and Stamp Duty (LITPAJD) or to collective investment institutions (CIIs) in section 20 of the aforementioned article.

For this reason, in this blog post we will focus on the 95% ITPAJD rebate applicable to the acquisition of residential assets by a REIT to be used for leasing, which is specific to this type of entity.

What are the requirements to be able to apply the ITPADJ tax rebate?

i.- That the acquiring entity is a REIT, or any other entity in the group of a REIT.

This follows from the doctrine of the General Directorate of Taxes (DGT), which has interpreted that the tax benefits regulated in the aforementioned provision will be applicable to all these types of companies regulated in the REITs Law.

For this purpose, the replies to binding consultation numbers V4908-16 and V0508-17 can serve as an example.

ii.- That a dwelling or land is acquired for the development of dwellings to be used for rental purposes.

In this section, it is very important to highlight that the concept of dwelling would also include garages and storage rooms to the extent that they all constitute the same registered property or are located in the same building, as stated by the DGT in its reply to the binding consultation V2800-15.

iii.- That they comply with the specific maintenance requirement established in section 3.3 of Article 3 of the REITs Law.

It must be taken into account that the real estate assets of REITs must be leased for at least three years. This same period applies to real estate that has been developed by the company.

For the purposes of this calculation, the time during which the properties have been offered for lease is added up to a maximum of one year.

Furthermore, it seems that the application of this rebate can be partial. This criterion has been defended by the SCJ of the Community of Madrid in its recent Judgment no. 10967/2024 of 17 September 2024.

iv.- That the acquisition is subject to and not exempt from any of the modalities of the ITPAJD.

In this case, we must point out that, from our point of view, this rebate would apply to both the Transfer of Onerous Property Tax (TPO) and the Stamp Duty Tax (AJD).

In addition, it should be borne in mind that this relief will be very important in the case of home purchases, the acquisition of which is highly likely to be subject to and not exempt from TPO.

However, we would also like to point out that this rebate would be more limited in the case of the acquisition of land for the development of rental housing, since it is very likely that this type of asset is subject to and not exempt from Value Added Tax (VAT).

v.- That the acquiring entity has opted for the application of this special tax regime.

For these purposes, according to the DGT’s reply to the binding consultation V4908-16, it would also be included when the company is within the transitional period of two years from the option to apply this regime.

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