In order to encourage investment in affordable rental housing in Finland, the European Commission has authorised the introduction of REITS that will be exempted from corporate income tax, a move which according to Competition Commissioner Joaquín Almunia, will not unduly distort competition.

According to the Finnish authorities, to benefit from the corporate tax exemption REITs will be publically listed and no single shareholder will own, directly or indirectly more than 9.99% of the REIT. The REITs will only operate in the field of rental accommodation and at least 80% of the REITs gross income will come from rents. In addition the REITs will distribute at least 90% of their annual profits to shareholders as dividends.

After investigating the proposal the Commission found that the scheme contained no state aid, because the exemption from corporate income tax is linked to the requirement of immediate distribution of annual profits to shareholders and taxation takes place in their hands. Accordingly the proposal puts the tax treatment of an investment in a REIT on a par with the taxation of direct investments by individuals in real estate.

The original proposal did have a provision allowing REITs to use up to 30% of their annual profits to create tax exempt re-investment reserves; however the Commission considered that this would constitute incompatible aid. Accordingly the Finnish authorities made a commitment not to put this provision in force.

The non-confidential version of the decision will be made available under the case number N 131/2009 in the State Aid Register http://ec.europa.eu/competition/state_aid/register/ on the DG Competition website http://ec.europa.eu/competition/index_en.html once any confidentiality issues have been resolved. Further details are available at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/559&format=HTML&aged=0&language=en&guiLanguage=en