Tax Notes: Revised rules and regulations of Real Estate Investment Trust

AS published on Jan. 23, 2020, the Real Estate Investment Trust (REIT) guidelines are expected to drive up interest from property developers to tap the investment vehicle, as the government relaxed the provisions of the REIT Act (Republic Act 9856) as made into law in 2009.

This covers the adjustment of the minimum public float for REITs to 33 percent, lower than the previous requirement of 40 percent public float within one year and 67 percent within three years. The Securities and Exchange Commission (SEC) also inserted a provision on reinvestment requirement for any sponsor/promoter, which is in line with the policy to promote the development of the capital markets and Filipino participation in the real estate industry, to make access of wealth by broadening the participation of Filipinos in the ownership of real estate, and to use the capital markets as an instrument to help finance and develop infrastructure projects.

The new rules also permit the exemption from value-added tax for the transfer of property into a REIT vehicle. Minimum paid-up capital for a REIT issuance is set at P300 million.

However, proceeds from any REIT issuance are required to be invested in any real estate and infrastructure project in the Philippines within one year.

The SEC required that for related-party transactions to secure the interests of investors, there must be a related-party transactions committee, where the majority of the members are independent directors who must vote unanimously in approving such transactions. Also, the SEC requires the REITs to comply with the SEC Memorandum Circular 10, Series of 2010, specifically, the requirement for publicly-listed companies to disclose their respective policies on material related party transactions and report such dealings within three days from their execution.

The requirement in the original implementing rules and regulations to put the tax savings in escrow no longer appears in the revised IRR.

Please be guided accordingly.

Source:

P&A Grant Thornton

Certified Public Accountants