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Philippines To Announce REIT Tax Exemptions

Thursday, May 19, 2011

It is expected that the much-delayed approval by the Bureau of Internal Revenue (BIR) of the proposed tax incentives for real estate investment trusts (REITs) in the Philippines will be available shortly.

The latest delay was caused by a stipulation that the government would not be able to consider approving the proposed regulations for the operation of REITs, unless it was agreed to increase their minimum percentage listing on the stock exchange.

Under the previous regulations, investors would take shares in a REIT, established as a company with a minimum share capital of PHP300m (USD6.9m), which would have, at all times after listing, a public float of at least 33% of its outstanding shares. It now appears to have been agreed by the BIR that a REIT will be required to maintain a 40% minimum public float on the stock exchange, to be raised to at least 67% within three years from the REIT’s initial listing.

The new vehicles have been allocated certain tax benefits, including the basing of the 30% company income tax rate on their net taxable income, but only after the distribution of a minimum 90% dividend to their shareholders. There would also be, for example, an exemption from the initial public offering tax when listing their shares.

A further discussion has recently arisen around the applicability, or not, of value added tax (VAT) on properties transferred into a REIT. It is now believed that VAT will not be charged as long as the properties can be classified as capital assets – that is, they could never have been considered part of the property owner’s trading assets. This could mean that such assets as shopping malls and offices may not be eligible for insertion into a REIT.

Kim Henares, its Commissioner, has said that the BIR would issue the relevant REIT revenue regulations next month.