Direct investments in real assets (real estate and renewable energy infrastructure) are different from investments in listed equities and bonds. A real asset transaction can take months from first discussions to completion. Purchase contracts, joint venture agreements when the investment is made with a joint venture partner, asset management and property management agreements, and operation and maintenance and contracts for sale of power, must be negotiated individually in line with local laws and market practice. Due diligence investigations and analyses of various risk factors have to be performed ahead of each investment.
The mandate from the Ministry of Finance has rules for the investments in real assets. The rules permit Norges Bank Investment Management to invest in real estate and renewable energy infrastructure through Norwegian and foreign entities. Foreign entities must be established and registered in countries that Norway has tax treaties with or countries that give Norway the right to obtain tax information under other international agreements.
The investment risk associated with real assets is not necessarily limited to the sum invested. Norges Bank Investment Management has considered the suitable holding and operating platforms for the implementation of investments in real assets to protect against these risks. Investments through company structures are in line with market practice. .
The tax position for the direct investments depends on local law and on bilateral tax treaties that Norway is party to. The aim is always to pay the correct amount of tax as required by the relevant tax laws. Expected tax costs are therefore a relevant factor when assessing the best investment structure for a direct investment.
Investments in continental Europe
Since 2011, the fund has invested in real estate in continental Europe, France, Germany and Switzerland, through a holding and management platform based in Luxembourg. Logistics investments in the UK are now held through a separate REIT structure set up in the UK.
All real estate investment in France and most of the investments in Germany are now held directly through Norwegian holding companies. The logistic investments in Europe, and two other investments in Germany and Switzerland are still held through the Luxembourg platform but the plan is to migrate the Luxembourg platform to Norway once Norway has implemented the EU directive on company migration (to be implemented in the EU in January 2023).
The subsidiaries in continental Europe are financed with equity and intercompany loans. The use of intercompany loans is efficient cash management, including the repatriation of income back to the fund. These loans also reduce the tax base in the country where the real asset is located. All our structures, including the use of intercompany loans, comply with relevant laws and regulations on tax allowances, capitalisation and transfer pricing.
The joint venture with Prologis Europe for the continental European logistics portfolio is held through a Luxembourg joint venture company with more than 190 underlying property companies in Luxembourg and the continental European markets we invest in. The UK logistics portfolio is now owned through a REIT structure owned together with Prologis.
Investments in the UK
In English law, foreign sovereign investors are exempt from income tax and capital gains tax on property sales. The holding structures in the UK have been set up to qualify for this exemption, using tax-transparent English limited partnerships for real estate investments.
Investments in the US
In the US, the fund benefits from a similar sovereign exception as in UK because the fund is owned by a foreign government. The US real estate holding structures take the form of local tax-transparent entities with limited liability. The US investments are held thorough private real estate investment trusts where the fund ownership stake is less than 50 percent, so called D-REITs (domestically controlled real estate investment trusts).
The US subsidiaries are registered in Delaware in line with market practice. Since the subsidiaries are transparent for tax pruposes and the fund is exempt from US taxation as the owner is a state, the choice of establishment state for the subsidiaries has no tax implications whatsoever Delaware has well developed company laws and an efficient and respected court system for dealing with company law disputes. It is therefore widely used in the US as a preferred state for forming and registering companies.
Investments in Asia
Investments in Japan are made through two Norwegian holding companies in Japanese regulated securitisation vehicles, which in turn own the real estate assets. This structure is the common way of owning real estate in Japan.
Last saved: 20/03/2023