Finnish REIT Legislation Approved By the EU Commission

The Finnish Act on Real Estate Investment Funds has been in force since 1998 (1173/1997). Due to tax and regulatory reasons, no real estate investment funds as defined by this Act have so far been established. Collective real estate investing has traditionally been carried out through listed real estate investment companies (private and institutional investors), or alternatively through closedended funds (limited partnerships) open to institutional investors where fiscal transparency is combined with less regulatory constraints.

The Finnish legislation introducing specific tax benefits to certain real estate funds ("REIT") is an attempt to make residential real estate investing more attractive. The European Commission has approved the Finnish REIT legislation in May 2010 and the Finnish Parliament is currently processing amendments required by the Commission. The legislation should be applicable from fiscal year 2010 onwards (Bill 113/2010).

In the Finnish scheme, a Finnish resident limited liability company acting as the REIT is exempt from corporate income tax, providing that the following conditions inter alia are met:

At least 80 % of the REITs assets are comprised of real estates that are primarily in residential use; The activities of the REIT are limited to renting out the properties and constructing properties for its own use, and to activities closely related to the preceding; The amount of the REITs debt financing does not exceed 80 % of the balance sheet; Each shareholder's stake in the REIT is less than 10 %; The REIT distributes at least 90 % of its profits to its shareholders; The shares of the REIT are quoted...