Finnish REITs Become Reality

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Following the approval in May this year by the European Commission, the Finnish Council of State has today, at long last, enacted the final version of the Finnish Real Estate Investment Trust (REIT) scheme.

However, despite intensive lobbying efforts by commercial real estate investors, the Finnish REIT scheme remains limited to residential housing only. The introduction of REITs in Finland is accordingly intended to encourage investment in affordable rental accommodation.

Under the Finnish REIT scheme, to benefit from corporate tax exemption, REITs (i.e. Finnish limited liability companies) must be listed on a public stock exchange or an MTF within the EEA with no single shareholder owning, directly or indirectly, more than 9.99% of the share capital.  At least 80% of the value of the assets of a REIT must also consist of real estates that are used primarily for residential purposes and the activities of the REIT must be limited to the letting of properties (or activities closely related thereto). The capital structure of a REIT must furthermore be such that its potential debt financing does not exceed 80% of its balance sheet total. Moreover, the REIT must distribute at least 90% of its annual profits to shareholders as dividends.

Any profits made by the REITS will be subject to tax at shareholders’ level. Dividend withholding tax issues may thus still arise for non-resident investors (in particular certain types of investment funds).

(By NIKLAS THIBBLINWaselius & Wist, Helsinki)

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