BIR comes out with REIT rules

[ ] July 27, 2011

Real estate investment trust (REIT) will be subject to 30 percent income tax, 12 percent value-added tax, and a 50 percent discount on documentary stamp tax (DST), the Bureau of Internal Revenue has ruled.

The decision is embodied in the revenue regulation covering REIT which the BIR yesterday issued after a lengthy debate and lobbying from the private sector.

The BIR said income tax for REITs will be computed after the deduction of allowable deductions and dividends paid. The regular tax rules require companies to pay 35 percent on income, less the allowable deductions.

REITs, however, are required to have their public ownership set at 40 percent in the first two year, and increase this to 67 percent in the third year to continuously avail of the incentive.

"Provided however, the REIT shall place in escrow in favor of the Bureau with an Authorized Agent Bank acceptable to the Bureau the income tax collectible from the REIT on the dividend it declared and deducted from its taxable income for the first and second year of the REIT prior to its attaining the minimum ownership of 67 percent had it been disallowed," the BIR said.

"The escrowed income tax amount shall be released to the REIT only upon showing of proof of compliance to the increase of minimum ownership to 67 percent within three years from its listing, otherwise, it shall be released in favor of the government…. By the end of the third year from its listing, at the latest and thereafter, the REIT shall maintain the minimum public ownership of 67 percent. Otherwise, dividend payment shall not be allowed as a deduction from its taxable income," the bureau added.

REITs will be subjected to 50 percent of the applicable documentary stamp tax for all the transfer of real property to REITS.

The "transfer" refers to real property, the BIR said, with the DST imposed on the document transferring the real property NIRC at P7.50 for every P1,000.

In transactions involving shares of stocks representing interest in the real property, the DST shall be at P0.375 for every P200 and fractional part thereof of the par value of the stock.

"In case the stock transferred is without par value, the amount of the DST prescribed shall be equivalent to 12.5 percent of the DST paid upon original issuance of said stock," the BIR said.

DST on the assignment of mortgage or pledge meanwhile shall be based on the outstanding balance of the original loan at the time of the transfer particularly: P10 for the first P5,000; and P5 for the fractional excess of the initial P5,000.

In transferring properties to REIT, the transaction shall be subject to income tax/ capital gains tax and value-added tax, the BIR said.

Disposal of assets shall likewise be subject to VAT.

"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," the BIR said.
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