DIRECT MARKET REPORT GERMAN RETAIL - Europe Real Estate

Opening hours Germany
On 30 June 2006, as part of the Föderalismusreform ("Federalism Reform"), the
regulatory responsibility for the well-known opening hours restriction was
devolved to the German states. Berlin was the first state to deregulate closure
times to a 24/6 scheme on November 9, 2006. In the meantime North Rhine-
Westphalia, Rhineland-Palatinate, Hesse, Thuringia, Brandenburg, Schleswig-
Holstein, Hamburg, Bremen, Baden-Württemberg, Lower Saxony/Saxony passed
the law. In these states, the maximum allowed opening times are Monday 00:00
to Saturday 24:00 with individual regulations on Sunday opening times during
select Sundays. As of May 2007, Bavaria and the Saarland have expressed no
intent to modify the opening times at all. The state government of Mecklenburg-
Western Pomern has expressed its intent to pass legislation allowing 24 hour
opening Mondays to Fridays, with opening times up to 22:00 on Saturdays. The
law is effective since July 2007. It remains to be seen whether the long demanded
liberalisation of trading hours will actually generate additional sales in the retail
sector. Longer opening times will foremost accommodate changing consumer
behaviour and have the effect of a supporting measure, the fundamental impulses
are however provided by an improved job market situation and a higher level of
purchase power. Altogether, a nominal increase in turnover of 0.5% is expected
for 2007 but the retail sector is only going to benefit from this positive momentum
as of 2008.
G-REIT
The German REIT legislation will be retro-active as of 1 January 2007 and will
allow transfer of commercial properties and office buildings into a REIT whereas
residential properties can only be transferred to the REIT provided they are built
after 31 December 2006. The REIT will not be subject to corporate income tax and
local business/trade tax. When selling properties to a G-REIT only half the profit
generated is liable to taxation. The main features of the German REIT are:
1. Corporate Structure; it should be a listed stock corporation, at least 15% of all
shares need to be held by shareholders each holder holding less than 3%;
2. Free float; at the time of floatation, 25% must be free floating. No individual
shareholder must own 10% or more in the REIT;
3. Revenues; at least 75% of total assets must be real estate and 75% of gross
revenue must be generated from renting out real estate or from the disposal of
individual assets;
4. Dividend; at least 90% of net profits must be distributed to investors (the
equivalent of the depreciation of the real estate assets cannot be distributed);
5. Exit tax; only half of the capital gains realized upon the transfer of real
property will be subject to income tax subject to certain conditions (e.g. property
has been held for at least 5 years as business asset and not disposed by the REIT
within 4 years after acquisition)
6. Corporate tax; the REIT will be tax exempt after floatation;
7. Taxation at shareholder level; resident and non-resident investors will be
subject to a 26.38% withholding tax. Non-resident investors may not claim
protection under the European Parent Subsidiary directive and double taxation
treaty protection is restricted. This ruling however will change as of 1 January
2009. We refer to our section at the end of this page.
Many companies will wait with selling their properties or with the foundation of a
REIT, because the tax burden will be substantially lower as of January 1, 2008.
German retail update - 28/11/2007 18