Until recently the Belgian equivalent of the REIT, the "sicafi" or "vastgoedbevak", seemed doomed to be automatically characterised as an "alternative investment fund" under the legislation implementing the Alternative Investment Fund Managers Directive ("AIFMD") into Belgian law. As such, it will be subjected to various additional administrative and legal requirements. The Belgian legislature felt that these additional requirements did not add any value and even put these vehicles at a disadvantage compared to similar vehicles in neighbouring countries.
The Act of 12 May 2014 on the Regulated Real Estate Company (the "Act") and its implementing Royal Decree of 13 July 2014 (the "Royal Decree") address this issue by introducing a new option: the société immobilière réglementée /gereglementeerd vastgoed vennootschap) ("RECC"). By converting into a RREC, the sicafi does not only avoid the application of the AIFM legislation, but also adopt a statutory regime which may be more suited to its actual economic activities.
Given that the AIFM legislation required the sicafi to apply with the Financial Services and Markets Authority (FSMA) by 22 July for an authorisation to operate, the adoption of the Royal Decree and the subsequent entry into force on 16 July of the Act came right in time.
Notable differences between the RREC and the sicafi are:
- The RREC is an ordinary operational company and as such, it acts in accordance with its corporate interest which is broader than the sole interest of shareholders at the centre of the sicafi's strategy;
- The RREC has a general commercial purpose consisting in holding real estate for a long term with a view to making it available to users while a sicafi pools funds to invest in accordance with an investment policy;
- The RREC pursues a business strategy, which means that funds raised (possibly on capital markets) are used for business ends, in accordance with needs arising out of this strategy; In contrast, the sicafi raises capital in order to invest it according to an investment strategy and generate a pooled return for investors.
However, similarly to the sicafi, the RREC remains subject to tight regulatory overview by the FSMA and must apply for a specific authorisation.
The tax regime remains very similar to that applicable to the sicafi: they are subject to corporate income tax, but on an alternative basis, i.e. not on the regular accounting results (such as rents or capital gains), but on the non-deductible expenses and abnormal advantages received (if any). Considering the advantageous tax base, they are excluded from certain tax deductions. Corporate reorganisations (e.g. merger or conversion into RREC) trigger an exit taxation on the hidden capital gains. Dividends distributed by RREC to foreign shareholders will generally not be exempt from withholding tax. In addition, RREC will also be subject to the annual collective investment fund tax.
Existing sicafi wishing to convert into a RREC must submit an application with the FSMA before 16 November 2014.