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The new REIT in town
Ireland's second REIT was listed in December 2013 raising €365 million: the Hibernia REIT. Taxand Ireland explains what a REIT is and who benefits from them.
REITs are corporate entities that buy, develop, manage and sell real property. Qualifying income and gains of a REIT are exempt from corporation tax at the level of the REIT company. The REIT is required to distribute profits annually. Therefore, they allow participants to invest in a professionally managed portfolio of real property providing an after tax return for investors similar to that of direct investment in property.
The REIT model is attractive to large scale institutional investors worldwide. It is seen as a lower risk property investment model for the following reasons:
- Diversification of investment into a pool of properties
- Reduced exposure to negative equity risk and protection of income stream to investors due to limits placed on borrowings by REITs
Liquidity for investors arising from the ability to sell shares in a listed REIT at any timeThey are also attractive for small investors given that they can participate in the property market for the price of a single share with access to returns from high quality investments which may have previously only been an option for large investors.
Also published in Thomson Reuters' Taxnet Pro, 14 February 2014
Corporations seeking to function as a REIT should investigate how they opertate to be fully aware of the rules and regulations. For example if a company cannot distribute 90% of its taxable income to its shareholders each year, it will not qualify as a REIT.