Source: https://www.duanemorris.com/alerts/in_brexit_wake_belgium_devises_competitive_real_estate_investment_vehicle_0317.html
Timestamp: 2019-02-18 14:30:44
Document Index: 625637251

Matched Legal Cases: ['Art. 4', 'Art. 4', '§7', '§26', 'art. 185', '§ 1']

Duane Morris LLP - In Brexit Wake, Belgium Devises Competitive Real Estate Investment Vehicle
Generally, the FIIS/GVBF provides a closed-end, non-publicly traded fund, without prohibiting investor redemption prior to the end of the fund’s duration or liquidation, or upon transfer of shares to other qualifying investors.
The prospect of Brexit has instigated a great deal of uncertainty in a number of market sectors, but one country is attempting to capitalize upon the possibility that London will no longer be the leading European financial center. The Belgian legislature has created a new real estate investment vehicle that is intended to provide a model platform for asset managers serving investors with real estate investments throughout Europe. The new investment vehicle’s hallmarks include a flexible “light touch” regulatory framework and a competitive tax regime inviting international investment in physical and liquid real estate assets. Ultimately, it affords institutional and professional investors access to a real estate investment platform unburdened by stringent regulatory requirements, intended to promote portfolio risk-return customization.
The new FIIS/GVBF (“Fonds D’Investissement Immobilier Spécialisé”/“Gespecialiseerd Vastgoedbeleggingsfonds”) is outlined in the Royal Decree of November 9, 2016 in relation to specialized real estate investment funds, published in the Belgian Official Gazette on November 18, 2016 (“Royal Decree”). As of December 2016, investors became eligible to register a FIIS/GVBF.
Generally, the FIIS/GVBF provides a closed-end, non-publicly traded fund, without prohibiting investor redemption prior to the end of the fund’s duration or liquidation, or upon transfer of shares to other qualifying investors. The FIIS/GVBF is subject to Alternative Investment Fund Managers Directive (“AIFMD”) regulations; however, it may qualify for an AIFMD exemption (i.e., if its assets are lower than either €100 MM, or €500 MM unlevered).
Agility and Asset Specific Investing. The FIIS/GVBF affords institutional and professional investors a real estate investment platform for transnational investments that the legislation’s sponsors expect to be conducive to asset-specific risk and return considerations, with a favorable tax regime. The FIIS/GVBF’s characteristics also remove practical constraints typically found in other institutional investment vehicles and many REITs, such as unfixed or lengthy hold periods prohibiting active or frequent “trading” in assets, mandatory listing on a public exchange, asset and income tests requiring investment diversification and prohibiting certain business activities, minimum or maximum debt ratios and higher distribution percentages.
“Passporting” and AIF Managers. Brexit has cast uncertainty over the European Union’s (EU) fund industry, in particular, the custom of “passporting.” “Passporting” is the practice of permitting managers of asset investment funds (“AIF”) who are recognized in one EU Member State to manage AIFs established in one or more other Member States. If AIF managers based in the UK are no longer recognized by a Member State, the question is whether they will lose access to management of AIFs across the EU. Without knowing whether “passporting” for U.K.-based AIF managers will survive Brexit, several other Member States (e.g., Belgium, Netherlands, Luxemburg, and Ireland) are competing to be the new hub for AIF managers with investments across continental Europe. With the backdrop of Brexit uncertainty, the FIIS/GVBF may be a competitive edge to draw AIF managers, and funds, to Belgium as a means to retain “passporting” access to real estate investments (and investors) throughout Europe.
The FIIS/GVBF allows business entities formed under Belgian or foreign law to apply for FIIS/GVBF status so long as such entities are organized in conformity with the Royal Decree. Procedurally, an entity must register with the Belgian Ministry of Finance (“MF”). The MF does not wield discretionary powers; only incomplete submissions will be rejected. Likewise, there is not any ongoing prudential supervision by the Financial Services and Market Authority. The FIIS/GVBF is established upon receipt of a confirmation letter from the MF, typically delivered within 30 calendar days following receipt of an application.
Minimum asset value of €10 MM, after two accounting years;
The FIIS/GVBF’s tax structure is the same as other indexed Belgian REITs (i.e., the SIR/GVV and SICAFI/ Vastgoedbevak) to make an investment’s entry into the FIIS/GVBF as tax neutral as possible. Similar to “pass-through” vehicles familiar to US investors, the effect is a virtually transparent tax regime—shifting the taxation from the fund level to the shareholder—and benefiting from VAT exemption, withholding exemptions, double tax treaties and a minimized corporate tax on generated income and capital gains:
ATAD is a directive prescribed to EU members, adopted July 12, 2016 by the (EU) Economic and Financial Affairs Council (ECOFIN), that sets out EU-wide anti-abuse measures against tax avoidance, among which is restricting taxable interest and equivalents minus deductible borrowing costs to 30% of the taxpayer’s earnings before interest, tax, depreciation and amortization (EBITDA). (Art. 4 ATAD). However, Member States, such as Belgium here, may forgo applying the limitation to standalone entities. (Art. 4, §7 ATAD);
Income Tax: Only paid on, (i) received abnormal or gratuitous benefits (as defined in §26 of Belgian Income Tax Code 1992 (Code des Impôts sur les revenus 1992 or “CIR92" / Wetboek van Inkomstenbelastingen 1992 or "WIB92"), and (ii) certain disallowed expenses (art. 185bis § 1 CIR92/WIB92), but no income tax assessed upon rental income, capital gains, dividends or earned interest from real estate;
Subscription Tax: Subject to an annual “subscription tax” of 0.01% of the FIIS/GVBF’s total net assets in the preceding year.