FINLAND - The Finnish pension industry has welcomed proposed changes to real estate laws but vowed not to give up on the establishment of a Finnish Real Estate Investment Trust (REIT) model.
The ministry of finance claimed the August proposals would increase real estate investment options, and while Matti Leppälä, director, international and legal affairs at The Finnish Pension Alliance (TELA) described the move as “a step in the right direction,” he said the double tax regime that had blighted the success of REITs in the past remained.
“Tax remains an issue,” he said. “The Finnish REIT model would be a public limited company that would not be taxed provided it gave out returns as dividends to actual investors. It’s something we are aiming for in the future, and hoping will be the next step.”
He added: “Even though the model does differ slightly from country to country, the basic idea is that there is a need for a public limited company that could invest in real estate and would not pay tax, while the investor would, and that has not happened. It has not been proposed within this piece of legislation.”
Ilkka Harju, councillor of legislation, ministry of finance, and chairman of the Working Group on Real Estate Investment Funds admitted parts of the industry would have preferred changes to taxation.
“As a result, many industry representatives have expressed their disappointment in this reform,” he said.
Under current Finnish tax law, partnerships and funds are tax transparent in that the taxation only takes place at the level of the investor, although for a limited company this does not apply as they are also subject to tax.
The proposed changes would update the Act on Real Estate Investment Funds and the Investments Funds Act, and allow for the creation of real estate mutual funds.
But as Leppälä explained, such mutual funds would not be as liquid as limited companies, which are publicly listed, would be.
And while limited partnerships alleviate the double taxation problem, he added: “The problem with the limited partnership is that, while it is beneficial for pension funds because they are big enough to be limited partners in real estate funds, it does not fulfil the goal of having a form of indirect real estate investment that would be open for a great number of domestic and international real estate investors.”
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