This resolution will be retroactively having effect as at 1 January 2007. This will provide investors with an alternative for indirect real estate investments.

A REIT must be a corporation listed on the Stock Exchange, pursuant to the provisions in the German Stock Companies Act and the German Commercial Code. Furthermore, the following conditions must be met in order to qualify for REIT status:

  • The corporation must have its registered office and management in Germany and must be registered on the commercial trade register,
  • REITs are obliged to distribute at least 90% of distributable profits to shareholders;
  • According to "widely held stock regulation", at least 15% of shares must be permanently owned by shareholders, who, in their turn, may not hold more than 3% of shares. Direct participation for each individual shareholder has been limited to 10% of the amount of registered share capital;
  • German REITs must focus their investment mainly on real estate. The minimum levels for the share of income from real estate for REITs in the overall income and the share of the real estate assets in overall assets of the G-REIT are respectively at 75%;
  • The core business of a REIT must concern the holding and the operation of real estate, i.e. not the trade with it as such. Half of the REIT portfolio can be transacted within 5 years and the entire portfolio transacted or turned over within a time delay of 10 years; and
  • The REIT status continues to depend upon the amount of its shareholders' funds at the end of a financial year which may not be lower than 45% of the amount at which the immovable assets are applied for the individual or the consolidated financial statements.

If the requirements to qualify as REIT status are met on a sustained basis it will qualify for the following tax concessions:

  • German REITs are neither subject to corporate income tax nor to trade tax at company level;
  • Any dividends paid are subject to taxation at a personal income tax rate without applying the half-income assessment method; and
  • From the 2009 year dividends will be taxed at the flat withholding rate of 25% (plus solidarity supplement and church tax if applicable).

So far, only two German corporations have obtained REIT status (alstria First German REIT and Fair Value REIT). However, there are several "Pre-REIT's" (corporations that but for the ability to operate on capital markets would be eligible) and other additional REIT projects. Thus far it still

remains to be seen whether the introduction of G-REITs will lead to an improvement and greater competitiveness of Germany's financial centre.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.