Bicam okays consolidated REIT bill

Written by Butch Fernandez Reporter
Wednesday, 23 September 2009 19:25

THE Real Estate Investment Trust (REIT), described as a sustainable economic driver in countries where it has long been used as an investment and financing tool, inched closer to realization in the Philippines, with a congressional conference committee consolidating the Senate and House versions of the REIT bill. The members agreed to impose the standard 30-percent tax on corporate income only on 10 percent of the earnings of a REIT.

Under the bill, REITs are listed stock corporations that will provide small and large investors with options to participate directly in the ownership, financing and management of large-scale real-estate projects at affordable rates of investment.

Sen. Edgardo Angara, the bill’s principal author, confirmed that the provision limiting the 30-percent corporate income tax on only 10 percent of REIT’s earnings is provided in the final version adopted by the bicameral panel, as part of the incentives in the bill.

“It required a REIT company to distribute annually at least 90 percent of its distributable income as dividends to its shareholders, and so, the remaining 10 percent will be the tax base,” Angara explained.

He added that the consolidated bill on stock corporations that will pool investors’ funds and investments in these in real-estate ventures is expected to be ratified by both chambers on Monday.

During the bicameral panel meeting on Tuesday, Department of Finance (DOF) officials argued for limiting the tax perks in the bill, voicing serious concerns over their negative impact on the tax base amid government efforts to raise revenues to cover the ballooning deficit.

But while lawmakers agreed to withdraw the proposed preferential income-tax rate of 25 percent for REITs in the first three years, they insisted on a compromise to instead impose the existing 30-percent corporate income tax on 10 percent of REITs income.

At the same time, the consolidated version provides for a creditable withholding tax on income payments to a REIT of 1 percent; plus half of the applicable documentary stamp tax to the sale or transfer of real properties to REITs.

Heeding the DOF’s plea, the lawmakers also agreed that the REITs will not be exempted from paying the value-added tax for the sale, exchange, or transfer of securities that are part of a REIT’s real estate-related assets.