INDIA Law and Practice Contributed by: Vivek Chandy, Archana Tewary, Kumarmanglam Vijay and Brijita Prakash, JSA
Please see 5.2 Main Features and Tax Implica- tions of the Constitution of Each Type of Entity regarding tax implications for REITs. 5.4 Minimum Capital Requirement There are no minimum capital requirements for companies, LLPs or partnerships. REITs are required to comply with regulations relating to Private limited companies need to have at least two directors on their board, while public limited companies need at least three directors. Public companies also have additional compliances, such as having independent directors on their board. Companies with paid-up capital over a prescribed threshold are also required to appoint a company secretary. One-person companies can be incorporated by Indian citizens resident in India. It has been proposed that non-resident Indians should be allowed to incorporate one-person companies. LLPs and partnerships are required to have at least two designated partners. asset size and minimum offer. 5.5 Applicable Governance Requirements There has been increased attention to compli - ance with environmental, social and govern - ance norms in India; thus, although not legally mandated, investors may require companies to undertake certain compliances in this regard. Directors of companies now need to pay heed to environmental issues, and some decisions of courts in recent years throw light on such obli - gations.
not been accorded a pass-through status would be subject to tax in the hands of the REIT and be exempt in the hands of the investors. 5.3 REITs REITs can invest in land and any permanent improvements, leasehold or freehold, including any other assets incidental to the ownership of real estate. However, there have been a limited number of REITs since introduction of the SEBI (REIT) Regulations in 2014. REITs in India are only permitted to be publicly owned, ie, units of the REIT must be listed on stock exchanges. REITs can raise funds through an initial offer to the public and not private placements and sub - sequently through follow-on offers, rights issues and qualified institutional placements. REITs are mandated to distribute at least 90% of the net distributable cash flows to investors on a half- yearly basis and conduct full-fledged valuation of all REIT assets on a yearly basis through a registered valuer. The SEBI (REIT) Regulations do not prohibit investment in units by domestic or foreign investors. Investment in REIT units is exempted from the ambit of restrictions for FDI as well as foreign portfolio investment entities. The benefits of using a REIT include: • unlocking invested capital for developers, especially in the commercial space; • net worth and deposit requirements pre - scribed for sponsor and managers ensure that these platforms have sound and stable financial health; • being regulated, these platforms provide more confidence to investors; • limitations on number of investors and crea - tion of SPVs applicable to private limited companies are not applicable to REITs; and • mandatory listing of units provides for exit opportunity for investors.
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