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Singapore Updates REIT e-Tax Guide

Tuesday, June 23, 2015

The Inland Revenue Authority of Singapore (IRAS) has issued a revision to its e-Tax Guide explaining income tax rules on real estate investment trusts (REITs) and, in particular, the "tax transparency treatment" permitted for certain income distributions to unitholders.

For income tax purposes, a REIT refers to a trust that is constituted as a collective investment scheme authorized under section 286 of the Securities and Futures Act (Cap. 289) that is listed on the Singapore Exchange and that invests or proposes to invest in immovable property and immovable property-related assets.

Under Singaporean law, special rules allow for so-called "tax transparency treatment" for certain types of income earned by the REIT. Tax transparency treatment allows for the income to not be taxed in the hands of its trustee and instead be taxed in the hands of the unitholders, as long as the trustee distributes at least 90 percent of the taxable income to the unitholders in the same year in which the income is derived.

Among the numerous changes in the updated guide is a new section that defines what types of REIT income qualify for tax transparency treatment under section 43(2A)(a) of the Income Tax Act, namely:

  • Rental income or income from the management or holding of immovable property but not including gains from the disposal of immovable property;
  • Income that is ancillary to the management or holding of immovable property but not including gains from the disposal of immovable property and Singapore dividends;
  • Income (excluding Singapore dividends) that is payable out of rental income or income from the management or holding of immovable property in Singapore, but not out of gains from the disposal of such immovable property; and
  • Distribution from an approved sub-trust of the REIT in cash, out of the following types of income: rental income or income from the management or holding of immovable property but not including gains from the disposal of immovable property; and/or income that is ancillary to the management or holding of immovable property but not including gains from the disposal of immovable property and Singapore dividends.

The updated Guide removes the previous administrative procedure that required that an advance ruling had to be obtained from the IRAS before the trustee of a REIT could benefit from tax transparency treatment.

In addition, changes have been made to clarify that distributions made on or after January 1, 2015, by a trustee of a REIT to a branch in Singapore of a company incorporated outside Singapore need not be subject to withholding tax.

The guide confirms also the removal of the requirement that the trustee has to notify the Comptroller of Income Tax in writing that the conditions for making distributions in units are met prior to the distributions. The trustee can now provide the confirmation at the time of submitting a tax return.

Further changes have been made to the guidance:

  • Concerning Rollover Income Adjustments (RIAs);
  • On the extension to the period, to March 31, 2020, during which gross REIT distribution made to a qualifying non-resident non-individual unitholder is subject to a final rate of 10 percent. This refers to a non-resident non-individual unitholder which does not have any permanent establishment in Singapore, or who does carry on an operation through a permanent establishment in Singapore, where the funds used to acquire the units in a REIT were not obtained from that operation;
  • To remove the condition that a REIT distribution treated as a return of capital for tax purposes cannot be onward distributed as income by the unitholders and each subsequent level of unitholders;
  • Clarify that all unitholders, and not just traders, should reduce the cost of units by the amount of return of capital;
  • To delete the requirement (in Annex 2 paragraph (f)(ii)) for Singapore branches of companies incorporated outside Singapore to obtain the Comptroller's approval for distributions to be made to them without deduction of tax; and
  • To update the format of Annex 4 (Claim for Refund of Tax Over Deducted from Distributions) so that it can be used by both individuals and non-individuals.