REIT laws and taxes
Governed by the Income Tax Assessment Acts of 1936 and 1997, the Tax Administration Act of 1953 and the Corporations Act 2001.
- Governed by the Investment Trust and Investment Corporation Law.
- Additionally, J-REITs must observe self-regulating rules established by the Investment Trusts Association.
- J-REITs must comply with the Japanese tax law in order to be tax qualified.
- Governed by the Monetary Authority of Singapore (MAS) and the Singapore Exchange.
- Regulated by the Property Funds Guidelines, the Securities and Futures Act, the Code of Collective Investments Scheme, the listing manual of the Singapore Exchange and the Code of Corporate Governance 2005.
Regulated by the Securities and Future Commission (SFC).
General trust law
1.No special legal or regulatory requirements to be a REIT.
2.However, to benefit from withholding tax changes, the REIT must at least be an MIT, for which the requirements are:
i. The trustee of the trust must be an Australian
resident or the central management and control of
the trust must be in Australia.
ii. The trust must be a managed investment scheme
operated by a financial services licensee whose license covers operating such an investment scheme (as defined in the Corporations Act).
iii.The trust is either widely held or deemed to be widely held by virtue of qualified investors.
iv.A substantial portion of the investment management activities are undertaken in Australia.
v. No foreign resident individual holds (directly or indirectly) 10 percent or more of the trust.
In addition, to benefit from the deemed capital rules, the following requirements must be satisfied:
i. The REIT must satisfy the relevant MIT definition. ii. The REIT must make an election within the required time limit.
1. By laws must be prepared and filed with the prime minister.
2. Registration with the prime minister is required to obtain investment corporation status.
Application to the Inland Revenue Authority of Singapore for tax transparency and tax exemption rulings.
Must comply with the REIT Code. This includes, subject to certain de minimis thresholds:
1.All connected party13 transactions to be subject to voting by unit holders, with those holding a material interest in the transactions to abstain from voting.
2. The management company and the trustee must function independently but they may be part of the same corporate group if certain requirements are fulfilled.
3.The management company has to appoint financial advisors.
4.Valuation reports are required at least annually.
1.Resident/non-resident (public) unit (fixed) trust.
2.May adopt one of two structures:
i. standalone unit trust, passively holding a real estate portfolio ii. form part of a listed stapled security where company share(s) and unit trust(s) unit(s) are stapled such that they cannot be sold separately. Usually, the company will undertake a range of activities relating to the real estate owned by the trust, such as management, rent to use (e.g. hotel, hospital), funds management, etc.
3.Managed by a corporate trustee/responsible entity/ fund manager.
4.No minimum capital requirements exist. 5.Larger listed property trusts (LPTs) now involve stapled structures.
1.Trust or corporation.
2.Minimum capital required for corporate type is Japanese Yen (JPY) 100 million.
1.Unit trust constituted by trust deed.
2.SGD20 million minimum assets to be listed on the Singapore Exchange
1.Unit trust listed in Hong Kong.
2.No formal minimum capital requirements in the REIT code but it is subject to listing rules.
3.No limits are placed on the REIT’s cash holdings.
4.Assets of the REIT are held on trust and segregated from the assets of its trustees.
1.Trusts are not separate legal entities, but are generally a set of obligations accepted by a trustee in relation to the properties held in trust for beneficiaries.
2.The initial size of a REIT should be at least MYR 100m (approximately EUR 21.17m as of 4 May 2017). The SC, however, reserves the right to review the reasonableness of the REITs size.
Certain acquisitions by non-residents may require notification/approval by the Foreign Investment Review Board (FIRB).
1.One of the following requirements must be met:
i. There is a public offering of units with a total issue price of JPY100 million.
ii. There are 50 or more unit holders at the end of the fiscal year.
iii.One hundred percent of units are held by qualified institutional investors at the end of the fiscal year.
2.More than 50 percent of the units must be issued domestically.
3.The largest unit holder and its affiliates do not collectively hold more than 50 percent of the outstanding units at the end of the fiscal year.
At least 500 public shareholders holding 25 percent of its units.
Minimum public float applies.
1.Minimum number of investors There is no minimum requirement on the number or composition of units that must be subscribed to. 2.restrictions on non-resident investors There are no restrictions on non- resident unitholders of REITs.
Optional requirement to list on the Australian Stock Exchange. There are conditions in order to be able to list, including a requirement to have 300/350/400 unit holders, each holding a parcel of units with a value of at least Australian Dollar (AUD) 2,000 and 50 percent/25 percent/nil held by unrelated parties.
Optional to list on a Japanese stock exchange. A number of requirements must be met in order to be able to list.
1.An S-REIT must be listed on the Singapore Exchange to be eligible for tax concessions.
2.In order to be able to list, an S-REIT must have assets worth Singapore Dollar (SGD) 20 million.
Mandatory to list on the Hong Kong Stock Exchange.
Only REITs registered with the SC are allowed to be listed on Bursa Malaysia.
1. Unit trusts are able to invest offshore.
2.Public unit trusts (generally, unit trusts that are listed, have at least 50 unit holders or 20 percent of the units are held by superannuation funds and certain exempt entities) can only undertake development activity to primarily derive rental income and/or certain other eligible activities. Otherwise, the development activity will be deemed a trading business such that the trust will not be eligible for flow through tax treatment but will be treated as a company for tax purposes. Hence, the adoption of stapled security structures to undertake associated but ineligible activities.
3.Safe harbor rules: i. Twenty-five percent safe-harbor allowance for non-rental, non-trading income from investments in land. ii. Two percent safe-harbor allowance at the whole of trust level for non-trading income that is incidental and relevant to the eligible investment business applies. iii.Property trusts can hold investment properties indirectly through special purpose vehicles (SPVs).
1. Investments only in qualified assets. These include real estate and leasehold rights in real estate.
2.J-REITs are no longer prohibited from investing in foreign assets.
3.Cannot hold 50 percent or more of the total issued shares of another company excluding certain offshore companies for the limited purposes of acquiring, leasing and disposing of offshore real estate.
1.At least 70 percent of the funds deposited should be invested in real estate and real estate-related assets.
2. May also invest in immovable property-related assets, such as listed or unlisted debt securities, listed shares of property companies, mortgage- backed securities, other property funds and assets incidental to the ownership of immovable property, listed shares of non-property corporations and government securities.
3. Cannot undertake development activities, whether directly or indirectly, the value of which is beyond 10% of its total portfolio value, including investment in unlisted property development companies. Not allowed to invest in vacant land and mortgages.
4. In principle, can invest in overseas real estate.
1.Can invest in real estate anywhere in the world.
2.Limited investment in financial instruments is also allowed.
3.Investing in hotels and recreation parks is permitted.
4.Property development activities cannot represent more than 10 percent of the gross asset value.
5.Real estate must generally be income generating, with exceptions allowed for buildings in the course of substantial redevelopment or refurbishment.
6.Some restrictions when investing through special purpose vehicles (SPVs).
7.Minimum real estate holding period of 2 years (may sell earlier subject to unit holders’ approval).
1.A REIT may only invest in the following assets:
• Real estate;
• Single-purpose companies;
• Real estate-related assets;
• Non-real estate-related assets; and
• Cash, deposits and money market instruments. 2.At least 50% of the REITs total asset value must be invested in real estate and/or single-purpose companies at all times. Investment in non-real estate- related assets and/or cash, deposits and money market instruments must not exceed 25% of the REITs total asset value. REITs are not permitted to extend loans or any other credit facilities; or develop properties; or acquire vacant land.
3.All real estate acquired by REITs must be insured for full replacement value, including loss of rental, where appropriate, with insurance companies approved by the trustee.
4. There are no restrictions on the acquistion of foreign assets
1.No requirement. However, trustee of trust is taxable if unit holders are not presently entitled to 100 percent of the income of the trust at year-end.
2.Where stapled structure is adopted, there are no minimum dividend requirements for the company.
At least 90 percent of accounting income or distributable profit.
1.Ninety percent of taxable income arising from the letting of properties in Singapore.
2.No requirements with respect to the income from investment in overseas properties, as tax transparency are not applicable.
At least 90 percent of its audited annual net income after tax. Trustee can exclude certain revaluation gains and capital profits.
Distribution of income should only be made from realised gains or realised income. There is no minimum requirement on how much REITs have to distribute to unitholders.
No requirement. However, trustee of trust is taxable if unit holders are not presently entitled at year-end to 100 percent of capital gains realized on disposal of property.
At least 90 percent of accounting income or distributable profit.
No requirement, subject to trust deed.
1.Trustee is not taxable provided that unit holders are presently entitled to income of the trust at year-end.
2.Net income for tax purposes that unit holders are not presently entitled to at year-end is taxed in the hands of the trustee at the current rate of 46.5 percent.
J-REITs are subject to tax at an effective rate of approximately 37 percent. However, distributions are deductible if certain requirements are met.
1.Not taxable if the S-REIT’s taxable income from Singapore properties is distributed within the financial year.
2. Any taxable income not distributed within the financial year is subject to tax at the prevailing tax rate, currently 17 percent.
1.Hong Kong property held directly by the REIT is subject to property tax of 15 percent.
2.Hong Kong property held by SPVs is subject to a profits tax of 16.5 percent.
3.Dividend income from SPVs is tax exempt.
4.No Hong Kong tax on income from foreign properties.
The taxation of a REIT depends on the amount of income that is distributed to unitholders. If a REIT distributes 90% of its taxable income, tax transparency rules will apply, and the REIT would not be subject to corporate income tax. If this 90% condition is not met, the REIT would be subject to tax at the prevailing corporate income tax rate of 24%. General deductibility rules would apply to the REIT.
1.Net capital gain (if any) included in taxable income of trust.
2.A 50 percent capital gains tax discount may be available to individuals and trusts.
3.A 33 percent capital gains tax discount may be available to complying superannuation funds.
4.Non-residents are exempt from tax for capital gains and losses in relation to non-taxable Australian assets. No discount applies to taxable capital gains.
5.Under the deemed capital rules, if the trust makes a valid election, certain assets (including real estate, shares in companies and units in unit trusts) are deemed to be held on capital account and therefore, disposal of these assets may be eligible for the capital gains tax discount for residents and exemption for non-residents (where assets are non- taxable Australian assets). If no election is made, the assets will be deemed to be held on revenue account (with the exception of real estate, which will be taxed according to the ordinary capital/revenue distinction).
Treated the same as ordinary income.
No capital gains tax.
There is no capital gains tax regime in Malaysia for the sale of shares or marketable securities. Normally, gains received by investors from disposal of REIT units will be treated as capital gains and not subject to income tax. The exception would be financial institutions and investment dealing companies where such gains are treated to be revenue in nature and subject to normal income tax.
1.The trustee must withhold tax in relation to the Australian source income distributions to foreign unit holders.
2.A 30 percent withholding tax for unfranked (sourced from untaxed profits) dividend income and 10 percent on interest income distributed to non-resident unit holders. May be reduced by double tax treaty.
3.Dividend distributions to an Australian branch of a foreign resident individual are not subject to withholding tax. Such dividends will be taxed on an assessment basis (i.e. an Australian income tax return must be lodged). Unfranked dividends may be exempt from dividend withholding tax under conduit foreign income rules.
4.For other types of Australian source income (with the exception of a capital gains in respect of a non- taxable Australian asset, which will be exempt), the rate of withholding tax depends on whether the trust is an MIT.
5.For a non-MIT, a tax of 30 percent is withheld by the trustee from distributions to non-resident companies. Non-resident marginal tax rates apply to non-resident individuals. However, this is not the final tax. Foreign unit holders may lodge an Australian income tax return and receive a credit for tax paid by trustee. If tax assessed on lodgment of the Australian tax return is less than tax withheld, unit holders can obtain a refund of tax withheld by trustee.
6.For an MIT, foreign investors in a country with which Australia has an effective exchange of information (EOI) on tax matters16 are subject to the following withholding tax rates: i. a 7.5 percent final withholding tax for distributions in the 2009-10 income year. ii. a 15 percent final withholding tax for distributions in the 2010-11 income year and beyond.
7. A 10 percent final withholding tax applies for distributions made by MITs holding only eligible green commercial buildings constructed after 30 June 2012. The rate applies to distributions to foreign investors in EOI countries.
8. For foreign investors in a country with which Australia does not have an effective EOI, the trustee of an MIT is required to withhold final tax at the rate of 30 percent.
1.For corporate unit holders and foreign individual unit holders of listed J-REITs, 15.315 percent until 31 December 2037 (and 15 percent thereafter). For foreign individual unit holders, an applicable treaty may reduce the tax rate.
2. For domestic individual unit holders of listed J-REITs who own less than 3 percent of issued units, 20.315 percent until 31 December 2037 (and 20 percent thereafter). From 1 January 2014 until 31 December 2023, domestic individuals will be allowed to contribute up to JPY1 million per year of certain listed stock into a non-taxable individual savings account (ISA). Dividends received on stock held in the ISA are not subject to withholding tax for a period of 5 years from 1 January of the year in which the account is established.
3. For individual unit holders of listed J-REITs who own 3 percent or more of issued units, 20.42 percent until 31 Dec 2037 and 20 percent thereafter.
4. For unit holders of unlisted J-REITs (excluding the open-end, unlisted J-REITs incorporated by way of the public offering which is applicable to the same withholding tax rate as listed J-REITs), 20.42 percent until 31 Dec 2037 and 20 percent thereafter.
Withholding tax at the prevailing corporate tax rate is applicable on distributions made by S-REITs, except where the distributions are made to:
1.Individuals who will receive the distributions free of withholding tax, unless these are received through a Singapore partnership.
2. Qualifying unit holders (such as Singapore resident corporate unit holders, Singapore branches of foreign companies, bodies of persons, etc.) who will receive the distributions free of withholding tax.
3.Qualifying foreign non-individual unit holders who will receive distributions at the reduced rate of 10 percent for distributions made until 31 March 2015.15
Where a REIT has been taxed for a year of assessment (i.e. failed to meet the 90% distribution requirement for tax transparency), the income distributed to investors would have tax credits attached to them. Resident investors can set off such tax credits against their own tax payable on such distributions received. Non-resident investors will not be subject to any further tax or withholding tax. Where tax transparency has been achieved, the REIT does not pay income tax. Distributions made to investors will instead (except for resident companies) be subjected to a withholding tax mechanism which is a final tax. The rates of withholding tax are: WHT rates Category Individuals and all other non-corporate investors such as institutional investors (resident and non-resident) Non-resident corporate investors Resident corporate investors WHT rate 10% 24% No withholding tax deducted for resident companies which pay corporate tax