BIR Approves Philippines' REIT Tax Incentives
Thursday, June 24, 2010
The Philippines’ Bureau of Internal Revenue (BIR) has approved draft
rules and regulations, including tax provisions, for the establishment of real
estate investment trusts (REITs).
The new regulations will allow companies to obtain capital by listing their
Philippines income-producing property assets on the Philippine Stock Exchange
(PSE) within a REIT. It is required to maintain that listing and to distribute
annually at least 90% of its income to its shareholders.
Investors would take shares in the REIT which would have a minimum share capital
of PHP300m (USD6.6m) and, at all times after listing, have at least 1,000 shareholders
with at least 30% in total of its outstanding shares.
At least 75% of the REIT must be invested in, or consist of, property located
in the Philippines. The total borrowings and deferred payments of a REIT must
not exceed 35% of the value of its deposited property, unless it has an investment-grade
rating, in which case it may borrow not more than 70% of the value of its deposited property.
To encourage the establishment of REITs, the regulations provide tax incentives
to a REIT and its shareholders. For example, its 30% company income tax rate
will be based on the REIT's net taxable income, but only after deducting the
90% dividend distribution to its shareholders.
Transfers of property to the REIT will be subject to only 50% of the applicable
documentary stamp tax (DST). Nor will the transferor of such property be subject
to income tax or capital gains tax. Value added tax (VAT) will be payable, unless
the transferor is a taxpayer engaged in real estate business.
Sale of shares of the REIT through the stock exchange will be exempt from
DST, and the REIT will also be exempt from the initial public offering tax
when it offers its shares to the public through a local stock exchange.
In general, dividends paid by the REIT will be subject to a final tax of 10%,
unless paid to a domestic or resident foreign corporation or an overseas Filipino
investor (OFW). In the case of OFWs, the exemption will remain for a period
of seven years from the implementation date of the regulations.
A REIT will be subject to VAT on sales arising from any disposal of property,
and on its gross receipts from the rental of property, but it will not be considered
as a dealer in securities and will not be subject to VAT on the sale, exchange,
or transfer of securities forming part of its property-related assets.
The BIR will now accept comments on the rules and regulations, before issuing
a final version.