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Purisima Climbs Down Over Philippine REITs Rules

Monday, February 21, 2011

Cesar Purisima, the Philippines Finance Secretary, has disclosed that the government is now willing to accept that the proposed tax incentives for real estate investment trusts (REITs) will be available even if a majority of their shares are not listed on the stock exchange.

Under the current proposed regulations, investors could take shares in a REIT, established as a company with a minimum share capital of PHP300m (USD6.9m), which should have, at all times after listing, not less than 1,000 shareholders holding at least 33% in total of its outstanding shares.

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 deduction of a minimum 90% dividend to their shareholders, while there would also, for example, be an exemption from the initial public offering tax when listing their shares.

Purisima has previously insisted on amendments to the legislation approving the establishment of REITs, in order to ensure that they are not used purely for their tax incentives, and to minimize their tax-eroding effect. Above all, he has reiterated that a REIT should be constrained to list at least 51% of its shares on the stock exchange, rather than the 33% required under the current rules.

The Board of Internal Revenue has been insisting that it could not approve the REIT tax guidelines without the approval of the Finance Department, to which it reports.

However, during a meeting of the Philippines’ Financial Executives Institute, Purisima has now disclosed that it will be acceptable if a REIT has an initial listing below the 51% level, as long as that level is subsequently achieved within a period to be negotiated.

He also confirmed that, even if majority ownership of a REIT is listed on the stock exchange, the Finance Department would still want the management of the sponsoring property company to be retained. Further details are unavailable while discussions are on-going between the Philippine Stock Exchange and the Department.