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V0320-14 10 February 2014 · SG de Impuestos sobre las Personas Jurídicas Criterion in force
IS · sociedad de inversión inmobiliaria

Potential application of 1% Corporate Tax rate following conversion into a real estate investment company

A company queried whether it could benefit from a 1% tax rate after converting into a real estate investment company, and whether income from the transfer of shares would allow for reinvestment relief. The DGT ruled that this is possible provided the requirements of Law 35/2003 and the regulations for collective investment schemes are met.

The question raised

1. Whether entity B, following the transformation, will be taxed under Corporate Income Tax at the 1% rate provided for in Article 28.5.c) of the TRLIS.

The DGT's ruling

Real estate investment companies may be taxed at 1% if they comply with the requirements of Law 35/2003, have the exclusive purpose of investing in urban real estate for lease, hold the real estate for at least three years, and their bylaws prohibit the distribution of dividends. The legal transformation implies the conclusion of the tax period and the commencement of a new one under the special regime. Likewise, holdings in said company may generate income for the reinvestment deduction under Article 42 of the TRLIS, provided that the leasing activity is considered economic and the assets are used for business purposes.

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