Real Estate Investment and Management Companies (SIGI)
Decree-Law no. 19/2019 approved on January 28th of 2019, entering into force on February 1st of 2019, creates the Real Estate Investment and Management Companies (hereinafter referred to as “SIGI”), thus accompanying other international markets in the implementation of Real Estate Investment Trusts.
With this new type of Companies, the Portuguese Government aims to attract foreign investors to the real estate market, with the purpose of boosting the Portuguese economy in a general way, and the rental market in particular.
This Diploma aims at diversifying sources of revenue for companies, with the use of its own funds (or reinvestment of profits) and to reduce dependence on finance by banking institutions, thus contributing to the soundness of the Portuguese financial sector.
1 – Characterization
SIGIs are required to have its head office and place of business in Portugal; SIGIs must also comply, cumulatively, with the following requirements:
a) To be a joint stock company, whose audit model corresponds to a fiscal board and a statutory auditor (or an audit company);
b) To have as main corporate purpose:
i. The acquisition of property ownership rights, surface rights or other equivalent rights concerning properties for commercial purposes (namely, for rental purposes);
ii. The acquisition of shares in other SIGI or in companies with registered office in other Member States of the European Union (EU) that: (1) have an equivalent corporate purpose to SIGI; (2) the asset composition is in line with the indebtedness limits foreseen in the Portuguese legal framework (as mentioned in point 3, below); (3) the share capital is entirely represented by nominative shares; (4) are subject to an income distribution framework similar to that foreseen in this Diploma;
iii. The acquisition of shares or other corporate participation units of: (1) other companies with an income distribution policy similar to the one required for the SIGIs; (2) Collective Investment Organisms or Real Estate Investment Funds for residential leases;
c) To have a paid-up share capital of EUR 5,000,000.00, represented in ordinary shares;
d) To comply with the indebtedness limits (below mentioned);
e) To make reference to “Sociedade de Investimento e Gestão Imobiliária, S.A.” or “SIGI, S.A.” in the company name;
f) Its shares are admitted be negotiated in a regulated market or selected to be negotiated in a multilateral negotiation system, functioning in Portugal or in other Member State of the EU of the European Economic Area (in a period of 1 year counted from its commercial registration).
2 – Incorporation
SIGIs may be incorporated with or without public subscription, the provisions of the Portuguese Commercial Companies Code regarding joint stock companies being applicable to the first case.
Deferral of payments of contributions is not permitted. Likewise, the attribution of special categories to certain shares is not permitted, as such, the promotors are not granted any advantage (the shares are, therefore, immediately transferable).
Joint stock companies may be converted into SIGIs (to this end, the limits set forth by Decree-Law no. 19/209 of January 28th must be complied with).
Additionally, Real Estate Investment Organisms with corporate structure, incorporated under the General Regime for Collective Investment Organisms may also be converted into SIGIs (to this end, the limits set forth by Decree-Law no. 19/209 of January 28th must be complied with).
3 – Indebtness Limits
One of the major differences of SIGIs in relation to other types of companies is its legal framework concerning indebtness limits. Thus, SIGI must comply, cumulatively, with the following limits:
i. The value of property, surface or equivalent rights over real estate properties must represent at least 80% of the SIGI’s asset value;
ii. The value of rights over properties subject to lease agreements or other forms of economic exploitation must represent at least 75% of the total value of SIGIs assets.
Each one of the above-mentioned rights or shares (that form the SIGI’s assets) must be held for at least three years following their acquisition.
The global indebtness value may not exceed 60% of SIGI’s total asset value.
4 – Income Distribution
SIGIs shall distribute income in a period of 9 months after the end of every fiscal year, in the following way:
a) 90% of the profits relating to such fiscal year arising from the payment of dividends and income distribution arising respectively from shares or other corporate participation units (for the cases where SIGIs hold shares in other companies, as mentioned in 1.b).ii);
b) 75% of the remaining distributable profits related to such fiscal year are to be distributed according to the Portuguese Commercial Companies Code.
Additionally, this Decree-Law also imposes policies for reinvestment, by stating that at least 75% of the net income resulting from the sale of assets should be reinvested in other assets within the period of 3 years counted from the referred sale.
Finally, the legal reserve of the SIGI cannot exceed 20% of the SIGI’s share capital.
5 – Sanctions Framework
In case the legal provisions of Decree-Law no. 19/2019 are not complied with, companies may be subject to losing the qualification as SIGI (in this event, companies are not permitted to acquire such quality again during a period of 3 years).
Notwithstanding, in the event a company loses its qualification as SIGI, such company remains a public traded company.
6 – Tax Regime
SIGIs benefit from a neutral tax regime, which is applicable to the real estate investment companies (described in article 22 of the Tax Benefits Code).
SIGIs are subject to payment of Corporate Income Tax, to be calculated in reference to the taxable income, that corresponds to the net income of that fiscal year (which is calculated according to the accounting regulations applicable to the Collective Investment Organisms).