Published — June 10, 2021
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Read also: FIT AND PROPER RULE UNDER THE REAL ESTATE INVESTMENT TRUST (REIT) ACT OF 2009
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Income payments to a Real Estate Investment Trust (REIT) shall be subject to a lower creditable withholding tax of one percent (1%).
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A REIT shall be subject to value – added tax (VAT) on its gross sales from any disposal of real property, and on its gross receipts from the rental of such real property.
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The sale or transfer of real property to REITs, which includes the sale or transfer of any and all security interest thereto, shall be subject to fifty percent (50%) of the applicable Documentary Stamp Tax (DST).
What are the tax implications of a Real Estate Investment Trust (REIT)?
REPUBLIC ACT No. 9856 or The Real Estate Investment Trust (REIT) Act of 2009 says that:
A REIT shall be subject to income tax on its taxable net income. In no case shall a REIT be subject to the minimum corporate income tax. For purposes of computing the taxable net income of a REIT, dividends distributed by a REIT from its distributable income after the close of a taxable year and on or before the last day of the fifth (5th) month following the close of the taxable year shall be considered as paid on the last day of such taxable year.
A REIT shall be subject to the income tax on its taxable net income upon the occurrence of any of the following events subject to such curing period:
- Failure to maintain its status as a public company;
- Failure to maintain the listed status of the investor securities on the Exchange and the registration of the investor securities by the Securities and Exchange Commission (Commission); and/or
- Failure to distribute at least ninety percent (90%) of its distributable income as required.
Income payments to a REIT shall be subject to a lower creditable withholding tax of one percent (1%).
Any existing, law to the contrary notwithstanding, the sale or transfer of real property to REITs, which includes the sale or transfer of any and all security interest thereto, shall be subject to fifty percent (50%) of the applicable Documentary Stamp Tax (DST).
All applicable registration and annotation fees to be paid, related or incidental to the transfer of assets or the security interest thereto, shall be fifty percent (50%) ‘of the’ applicable registration and annotation fees.
The incentives granted can be availed of by an unlisted REIT, provided it is listed with an Exchange not later than two (2) years from the date of the initial availment of the incentives.
The fifty percent (50%) of the applicable DST shall nevertheless be due and demandable together with the applicable surcharge, penalties, and interest thereon reckoned from the date such taxes should have been paid upon the occurrence of any of the following events subject to such curing period as may be prescribed:
- Failure to list with an Exchange within the period prescribed;
- Failure to maintain its status as a public company;
- Failure to maintain the listed status of the investor securities on the Exchange and the registration of the investor securities by the Commission; and/or
- Failure to distribute at least ninety percent (90%) of its distributable income required.
Cash or property dividends paid by a REIT shall be subject to a final tax of ten percent (10%), unless: (a) the dividends are received by a nonresident alien individual or a nonresident foreign corporation entitled to claim a preferential withholding tax rate of less than ten percent (10%) pursuant to an applicable tax treaty; or (b) the dividends are received by a domestic corporation or resident foreign corporation, or an overseas Filipino investor in which case, they are exempt from income tax or any withholding tax: provided, that in the case of overseas Filipino investors, they are exempt from the dividends tax for seven (7) years from the effectivity of the tax regulations implementing the REIT Act.
A REIT shall be subject to value – added tax (VAT) on its gross sales from any disposal of real property, and on its gross receipts from the rental of such real property. A REIT shall not be considered as a dealer in securities and shall not be subject to VAT on its sale, exchange or transfer of securities forming’ part of its real estate – related assets.
In the event the REIT is delisted from the Exchange, whether voluntarily or involuntarily, for failure to comply with the provisions of the REIT Act or rules of the Exchange, the tax incentives granted under the REIT Act shall be ipso facto (by the fact itself) revoked and withdrawn as of the date the delisting becomes final and executory and any tax incentives that may have been availed f by the REIT thereafter shall immediately be refunded to the Government and the surcharge and penalty. If the delisting is for causes highly prejudicial to the’ interest of the investing public such as violation of the disclosure and related party provisions of the REIT Act or insolvency of the REIT due to mismanagement or misappropriation, conversion, wastage or dissipation of its corporate assets, the responsible persons shall refund to its investors at the time of final delisting the value of their shares.
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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