Italy moves closer to approving 'REIT' legislation

Italy's Senate is to approve REIT legislation through the Finanziaria, the state annual budget, before the end of the week, Italian newspaper IlSole24Ore has reported. In November, the lower chamber 'Camera dei Deputati' drafted the 2007 budget law, containing an amendment over the SIIQs, the real estate investment trusts.

As the government has not been able to agree on the Finanziaria, the premier Romano Prodi has requested the so-called 'fiducia' in order to speed up the approval process. This means that the government could fall if the budget is not approved by either the senate or the Camera; therefore the ministers are forced to approve the law as they do not want a government crisis. Justice minister Clemente Mastella has announced that the council of ministers has authorized the 'fiducia' on the 2007 budget-law.

However, the legislation has still a long way to go before the final approval. The Senate still has to back the budget as presented by the lower chamber. The amended law will then be sent for final approval by the Camera, probably on December 18. However, this could be delayed as handling in the Camera is at very short notice following the approval of the Senate. Following the approval of both the Camera and the Senate, amendments to the budget law can still be carried out until the end of April 2007.

The key elements of the SIIQ legislation includes an obligation to distribute 85% of the profit; a maximum shareholder stake of 51%; a minimum of 80% of the assets to be property; the Italian newspaper IlSole24ore reported. Profits will be subject to a withholding tax increasing from 12% to 20%, whose impact is still unclear on foreign entities.

The most interesting details of the proposed Italian SIIQs - roughly equivalent to the impending UK and German REIT and the French SIIC - is the tax-break regime. SIIQ societies will be exempt from IRES and IRAP property taxes, while the stock will be exempt from Pex participation, against a tax of 20% of the capital gain, payable within a maximum of five years. In case of acquisitions, a transfer tax reduction from 4% to 2% is envisaged, in line with the recently introduced decree 223/2006 on tax breaks for property funds.

The law is set to come into force in Italy in July 2007, seven months after the UK and Germany are set to introduce their own real estate investment trust.