Odd-sounding names such as SICAFIs, KAGG Funds and FBIs jump out from a list of foreign REIT or REIT-type structures compiled from the field by the New York City and Washington, D.C. offices of Ernst & Young. The firm detailed the attributes of indigenous REIT forms it found operating in 17 countries and two tax jurisdictions (see accompanying map). To view detailed analysis of all the various international tax treatments, visit www.realestateporfolio.com.
Similarities and differences in structures vary from country to country. Consider the rules on distribution of a company’s income.
"In most of the jurisdictions, if the company distributes the earnings, then the entity will not pay an entity level tax," says Les Loffman, national director of REIT service for Ernst & Young in New York City. "But shareholders will pay tax on the dividends."
The proportion of a firm’s income that is distributed varies between countries. For example, in the U.S., Japan, Singapore and Korea, at least 90 percent of a company’s taxable income must be paid out to shareholders. In contrast, no limit is mandated in Australia, and the new French structure establishes separate thresholds dependent upon the source of the income.
Since 1999, France, Singapore, Japan and Korea have enacted legislation creating REITs, according to Ernst & Young, and more countries are considering tax-transparent structures. With the implementation of REIT structures spreading, U.S. firms may find they can better mine foreign equity markets for capital.
"Investors in the Australian market are looking for new investments," says Laure Duhot, a London-based principal with Macquarie Capital Partners Ltd. "Some U.S. companies have already taken the opportunity to tap that market."
In June 2002, the initial public offering of Macquarie ProLogis Trust in Australia raised $200 million. The proceeds were used to capitalize ProLogis North American Properties Fund V, which will purchase industrial properties in North America for the benefit of Australian shareholders. An additional $116 million was raised in a secondary offering in February 2003.
