Philippines Issues REIT Revenue Regulations
Monday, August 1, 2011
The Bureau of Internal Revenue (BIR) has issued its much-delayed revenue regulation
governing the tax incentives to be granted to real estate investment trusts
(REITs) in the Philippines.
The Finance Secretary, Cesar V. Purisima, had said, earlier this month, that
he had signed off on the REITS regulations, which had been delayed by his stipulation
that the government would not be able to consider their approval unless it was
agreed to increase the minimum percentage listing on the stock exchange.
When the law to introduce REITs was enacted in 2009, investors were able to
take shares in a REIT, established as a company with a minimum share capital
of PHP300m (USD7.1m), which would have, at all times after listing, a public
float of at least 33% of its outstanding shares. However, it has now been agreed
that, to continue to receive tax incentives, a REIT will be required to maintain
a 40% minimum public float on the stock exchange for the first two years from
its initial listing, rising to at least 67% by the end of the third year.
It has been confirmed that the new vehicles will be subject to a 30% company
income tax rate on their net taxable income, but only after the distribution
of a minimum 90% dividend to their shareholders, subject to a stipulation that,
for its first two tax years, each REIT will have to place in escrow the corporate
income tax that would have been payable on the amounts declared and paid as
dividends, in case the minimum 67% listing threshold is not attained thereafter.
The funds will be released from escrow only after a REIT has shown proof that
it has attained the 67% listing threshold by the end of its third tax year,
or the money will be forfeited to the BIR.
In addition, for example, all property transferred to the REIT will be subject
to a favourable documentary stamp tax (DST) of 0.75%, while transfers of
shares in property companies will pay a DST of only 0.375%. However, income
tax, capital gains tax, and value added tax (VAT), will be payable on the transfer
of properties to a REIT.
It has been reported that several companies have made plans previously to float
REITs on the Philippines Stock Exchange, but, now that the published tax benefits
are less favourable than had been expected, particularly on the minimum float
and payment of VAT, it will remain to be seen how many plans actually reach