Real estate investment trusts for non-US investors

A Real Estate Investment Trust (REIT) is a single company REIT (or a group REIT) that owns and manages property on behalf of shareholders.

Real estate investment trusts were first established in 1960 under new legislation in the US. The new law allowed small investors to access investment in real estate without the need for large capital outlays or the responsibility and burden of property maintenance and upkeep required with direct real estate investments.

REITs have now been widely established across the developed world as an alternative investment asset class.

Introduction
Over 40 countries world wide now have similar REIT legislation in place.

Over the last 20 years in Europe 14 countries have put in place the legislation to establish real estate investment trusts.

Key features of REITs include an exemption of corporation tax on rental profits and gains from their property rental business. As a result, REITs must distribute 90% of their net property rental income to investors.

Purpose of REITs in a portfolio
The inclusion of REITs in a Boglehead portfolio, can be regarded as part of asset diversification and can assist with tax planning, see Real estate investment trust.

Typically an index fund of equities will already include the appropriate proportion of REITs for the market that the index is following.

France
Article 11 of the Finance Act for 2003 (Law n° 2002-1575 of December 30, 2002) introduced a specific corporate income tax exemption regime applicable to listed real estate investment companies (sociétés d’investissements immobiliers cotées, SIICs) available upon election and subject to conditions.

Germany
Germany implemented the German Real Estate Investment Trust (G-REIT) in 2007

Italy
The Italian REIT regime was introduced in Italy by the Law No. 296/2006, which provides for a special civil law and tax regime applicable to Italian listed real estate investment companies.

Ireland
The Irish REIT tax legislation was introduced in the Finance Act 2013.

Netherlands
The Netherlands introduced the Fiscal Investment Institution regime (fiscale beleggingsinstelling: FBI) in 1969. An FBI is in principle subject to Dutch Corporate Income Tax, albeit at a rate of zero per cent (0%) (a de facto full exemption).

Spain
Act 11/2009 governing the ‘Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario’ (known as ‘SOCIMI’) introduced the REIT vehicle to the Spanish real estate market.

United Kingdom
The legislation setting out the rules for REITs in the United Kingdom came into effect in January 2007.

Australia
Fixed trusts have traditionally been the preferred vehicle for holding real estate investments in Australia. They are typically set up as a listed (public) or unlisted fixed unit trust (i.e. investors subscribe for units). Listed property trust legislation was enacted in 1985.

Hong Kong
The Code on Real Estate Investment Trusts (Code on REITs) was first introduced in July 2003 and revised on June 2005.

Singapore
The REIT regime in Singapore is principally regulated by the Securities and Futures Act (Cap. 289), the Code on Collective Investment Schemes (the ‘Code’) issued by the Monetary Authority of Singapore (MAS), the Property Fund Guidelines appended to the Code and the Income Tax Act. The first set of regulatory guidelines for property funds was issued by the Monetary Authority of Singapore in May 1999.

Canada
Canadian REITs were established in 1993. They are required to be configured as trusts and are not taxed if they distribute their net taxable income to shareholders.

Brasil
The investment fund for real estate endeavours is called a ’Fundo de Investimento Imobiliário’ (FII) and was introduced in Brasil in 1993.