One of the recent measures taken by the Belgian federal government to attract foreign investors to the Belgian real estate market is the creation of a new type of real estate investment fund, the Specialized Real Estate Investment Fund (or FIIS/GVBF – "fonds d'investissement immobilier spécialisé/gespecialiseerd vastgoedbeleggingsfonds"), herein referred to as the "SREIF". The detailed rules for the new investment vehicle are set forth in the Royal Decree of 9 November 2016 in relation to the specialized real estate investment funds (published in the Belgian State Gazette on 18 November 2016) based upon the Law of 19 April 2014 relating to the alternative investment funds and their managers. The SREIFs will co-exist with the Belgian REITs (or GVV/SIR – "Gereglementeerde Vastgoedvennootschappen"/ "Sociétés Immobilières Réglementées – SIR").
The SREIF aims at international investors and asset managers looking for a platform to pool their real estate investments, be it European or Belgian, by offering a flexible regulatory framework from a corporate, tax and financial law perspective. The Belgian federal government wants the SREIF to divert some of the interest for structures in Luxembourg and The Netherlands to Belgium. It will also allow Belgian asset managers to offer a flexible platform to attract (international) financial means to create such pan-European funds in Belgium. The SREIF is a closed, non-quoted real estate investment fund with a limited term.
The main characteristics of the SREIF are as follows:
a) There is no specific approval or direct supervision by the FSMA (Belgian Financial Services and Markets Authority). Each SREIF will have to be registered on a list kept with the Belgian Ministry of Finance and will exist as of the moment that the Ministry of Finance has confirmed such registration in writing (at the latest on the 30th day following the date upon which the registration request was validly made).The Ministry of Finance cannot exercise any discretionary power in the registration process once the file has been validly and correctly submitted.
The documents to be submitted to the Ministry of Finance for registration include a copy of: (i) the articles of association, (ii) the publications in the Belgian State Gazette, (iii) a statement that the conditions of the Royal Decree and the Law of 19 April 2014 have been fulfilled, (iv) the nomination of the custodian insofar as its appointment is required under the Law of 19 April 2014.
The approval process for SREIFs is thus light and straightforward.
b) Contrary to the SIR/GVV regime, the SREIF can be incorporated by one (1) single eligible shareholder, mainly corporate institutional investors (to the exclusion of private individuals).
The eligible shareholder can be one or more of the following entities:
- Credit institutions, pension funds or insurance companies (and some other entities which are required to be authorized or are regulated in order to operate in the relevant financial market), governments, international and supranational institutions which are automatically qualified.
- Large entities which meet at least two of the following requirements:
- Balance sheet total of at least € 20 million;
- Net turnover of at least € 40 million; and/or
- Net equity of at least € 2 million.
- Companies accredited as a professional investor by the Belgian FSMA.
The SREIF needs to be established in one of the following corporate legal forms: a limited liability company ("naamloze vennootschap"/société anonyme"), a limited partnership by shares ("commanditaire vennootschap op aandelen"/société en commandite par actions") or an ordinary limited partnership ("gewone commanditaire vennootschap"/société en commandite simple").
c) The articles of the SREIF determine the type of real estate in which the SREIF can invest and its investment policy. "Real estate" is defined in the Royal Decree as follows:
- Belgian or foreign real estate assets, as well as rights in rem on such assets;
- Shares or parts issued by foreign real estate companies holding foreign real estate;
- Shares of Belgian REITs or Belgian institutional REITs;
- Shares or parts of a Belgian SREIF;
- Shares or rights in Belgian or foreign AIF investing in real estate;
- Shares of REITs in the EEA;
- Option rights on real estate;
- Real estate certificates;
- Rights under a real estate leasing agreement;
- Concession rights; and/or
- Loans and guarantees issued to the benefit of subsidiaries of the SREIF.
The SREIF can also hold Belgian real estate indirectly via a daughter company (of which it directly or indirectly owns all shares) insofar as within two years the SREIF merges with the daughter company or the daughter is transformed into a SREIF or a Belgian REIT.
The Royal Decree clearly excludes promotional activities, be it even ancillary. Promotional activities are to be understood as the activity of constructing real estate with an intention of a forward sale or a sale within five years after construction; also a partial sale is prohibited.
The articles of the SREIF also need to determine whether it can act as a lessee or lessor under real estate leasing agreements. Entering into real estate leasing agreements with a purchase option as a lessor can only be carried out as an ancillary activity of the SREIF, except if the real estate concerned is destined for general public welfare (including social housing or education).
d) There is no obligation to diversify the SREIF's real estate nor are there leverage limits, be it that these limitations can be inserted in the SREIF's investment policy. This makes the SREIF a very flexible platform. A SREIF can thus exist by investing in one considerable real estate asset. At the end of the second financial year after its registration, the SREIF needs to have a minimum investment volume of € 10 million, as assessed based upon the total acquisition value or the appraisal value used to calculate the exit tax. A yearly assessment of the net value of the real estate needs to be carried out and specific rules apply in case of sale or purchase of real estate.
e) The SREIF will have to distribute annually at least 80% of its net income, i.e. the difference between the net profit (as set forth in the annexes to the Royal Decree) and the net reduction of the SREIF's indebtedness of that year. This is similar to the requirement for Belgian REITs.
f) The SREIF needs to submit its (consolidated) yearly financial statements in accordance with IFRS and has to appoint an auditor recognized by the FSMA in order to perform a yearly audit.
g) The SREIF is created for a term of ten (10) years, be it that the articles of the SREIF can provide for successive extensions with a maximum term of five (5) years. Such extension requires unanimity of votes at an extraordinary shareholders' meeting representing at least 50%.
At the end of the (extended) term, the SREIF is liquidated, which implies the realization of its real estate at that point in time.
h) The SREIF also benefits from a favorable tax regime which includes (i) an "exit tax" of 16.995% applied on the latent capital gains and the tax-free reserves for real estate transferred to the SREIF (when opting for this regime as at conversion or when the SREIF acquires real estate at a later stage by merger, demerger, or a similar transaction), (ii) corporate income tax on a reduced taxable base (excluding all of its "investment/operational" income), (iii) a 0.01% annual subscription tax, (iv) a VAT exemption on most management services received by the SREIF, and (v) an annual property withholding tax which in practice will be borne by the tenants on the basis of their lease agreements (except in case of residential leases where there is a legal prohibition to do so).
The tax regime of the distributions can also benefit from exemption regimes (under the relevant tax treaty).
So both the structure and the tax regime of the SREIF make it an attractive platform for pan-European real estate pooling. The Belgian professional real estate investment sector welcomed this new tool and 2017 will show how successful the SREIF will be.