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FREE: REITs in the Philippines may no longer be a suitable option

The Philippines has finally issued the much-delayed revenue regulations governing the tax incentives granted to real estate investment trusts (REITs).

The Bureau of Internal Revenue released the information at the end of July. The regulations had been delayed until the government agreed to increase the minimum percentage listing on the stock exchange.

The law to introduce REITs was enacted in 2009. Since then, investors were able to take shares in a REIT, established as a company with a minimum share capital of PHP300 million ($7.1 million), which would have, a public float of at least 33% of its outstanding shares.

Since the introduction of REITs, several companies had made plans to float REITs on the Philippines Stock Exchange. But, now that the tax benefits have been released and are less favourable than expected, time will tell if the regulations will damage these floats.

However, it has now been agreed that, to continue to receive tax incentives, a REIT will be required to maintain a 40% minimum public float on the stock exchange for the first two years from its initial listing, rising to at least 67% by the end of the third year.

The regulations confirm that the REITs will be taxed at 30%, subject to a stipulation that, for its first two tax years, each REIT will have to place the tax that would have been payable on the amounts declared and paid as dividends in escrow. However, this is only when the 67% listing threshold is not attained.

Also, all property transferred to the REIT will be subject to a favourable documentary stamp tax (DST) of 0.75%, while transfers of shares in property companies will pay a DST of only 0.375%. However, income tax, capital gains tax, and value added tax, will be payable on the transfer of properties to a REIT.

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