Viewpoint: Mehdi Megzari and Omar Sayarh
Real estate investment trusts (REITs) are an innovative investment vehicle which benefits from a strong appeal in numerous markets around the world. REITs have proven their suitability for individual investors, partnerships and the general public due to them being subject to a strict regulatory framework and operated by licensed management companies. The legal framework governing REITs was established in Morocco in 2016 by Law No. 70-14, which was enacted by Dahir (royal decree) No. 1-16-130 of August 25, 2016.
REITs can be unlisted or listed on the Casablanca Stock Exchange. Their main purpose should be the development and/or acquisition of real estate properties – including off-plan properties – in order to rent them. They can also carry out any kind of building work on such properties as renovations, and can, as a secondary purpose, manage financial instruments. They can be established either in the form of an unincorporated fund, which does not have a legal personality, or an investment company which has a distinct legal personality. Following the passing of Dahir No. 2-17-420 of April 26, 2018, the share capital or initial contribution of the REIT must be at least Dh50m (€405,000). These vehicles can be composed of registered real estate properties, real estate rights, shares or sukuk (Islamic bonds), enabling the direct or indirect holding of a stake in the share capital of a real estate company. They can also be composed of shares of other REITs, liquidities, financial instruments, shareholders’ loans or debt instruments which do not enable the holding of a stake in the share capital of companies. A REIT may contain several sub-funds, which result in the issuance of specific securities representing the assets of the REIT to which they are attached.
The incorporation of a REIT or the creation of a subfund within an REIT must be approved by the Moroccan Capital Markets Authority, which validates its draft management regulations. It should be noted that it is possible to create a REIT with light functioning rules. In this case, the subscription to or the acquisition of the shares of the REIT is only reserved for qualified investors, such as banks, insurance companies, pension funds, investment funds and so forth. The tax regime related to REITs was initially established by the Finance Law of 2017 and rests on the principle of tax transparency, according to which the revenues generated by REITs are not subject to tax.
This was reaffirmed by the Finance Law of 2018 and the provisions of Article 6-I-A-31 of the General Tax Code of Morocco, which granted a full and permanent exemption from corporation tax to the transactions carried out by REITs. When it comes to the taxation of the dividends distributed by REITs, the Finance Law of 2018 establishes the following rules: if the shareholders are individuals the dividends are subject to a withholding income tax of 15%; if the shareholders are companies subject to corporation tax, the dividends are incorporated to the taxable income of the company and subject to the common corporation tax rates of 10% for an annual taxable income equal to or less than Dh300,000 (€27,000), or 17.5% for an annual taxable income ranging from Dh300,001 (€27,001) to Dh1m (€89,900), and 31% for an annual taxable income of more than Dh1m (€89,900).
It is worth noting that the Finance Law of 2019 brought about a major amendment in the tax regime applicable to REITs, through the implementation of Article 6-I-C-1 of the General Tax Code of Morocco. This grants companies a corporation tax reduction of 60% on the dividends distributed to them in their capacity as shareholders of REITs. This major tax incentive – which came into force as of January 1, 2019 – is aimed at boosting the sector, by mobilising domestic savings and enhancing the financing of real estate investments through REITs. Furthermore, according to a survey undertaken by the Ministry of Economy and Finance, REITs have the potential to raise investment in to around Dh200bn (€18bn) over the medium term.