The government has launched the amendments to the regulations governing the real estate investment trust (REIT), which include ownership and taxation requirements seen to spur additional investment in the country’s property development and infrastructure sectors.
The following documents were signed during the joint signing ceremony at the Department of Finance (DOF) office in Manila yesterday: the Revenue Regulations of the Bureau of Internal Revenue (BIR) on the REIT; the amended implementing rules and regulations (IRR) of the REIT law released by the Securities and Exchange Commission (SEC); and the amended Listing Rules for the REIT of the Philippine Stock Exchange (PSE). Finance Secretary Carlos Dominguez, along with SEC chairman Emilio Aquino and commissioner Ephyro Amatong, BIR commissioner Caesar Dulay and deputy commissioner Marissa Cabreros, and PSE president-chief executive officer Ramon Monzon were among the witnesses and signatories at the event.
Dominguez said the implementation of the 11-year-old REIT law under this new set of amended IRR will be a “big step forward” in the goal of achieving financial inclusion for all law-abiding Filipinos, as it will offer a secure opportunity for small investors to participate in the thriving property and infrastructure development sectors.
The DOF said the law was designed to enable real estate firms to place their assets in stock corporations where the public can invest in by purchasing shares in these businesses.
The shares of the company can also be traded at the PSE.
The DOF said law aims to allow both small and large investors to own real estate assets, thereby presenting an alternative and secure investment instrument for middle-income families and overseas Filipino workers (OFWs) while providing real estate companies a cheaper source of capital as they help develop the Philippine capital market.
The DOF said government has revised regulations governing REIT companies in response to concerns of stakeholders, while ensuring the gains from the implementation of the law would still redound to the benefit of the Filipino people.
“We took on this challenge but had to be sure that the tax incentives would not be prone to abuse. We had to be very clear in our revenue regulations. This is why we needed to recast the existing revenue guidelines,” Dominguez said.
“We likewise wanted to be sure that the large investment funds to be raised using this mechanism will be reinvested exclusively within the country’s real estate and infrastructure sector. The reinvestment requirement is the regulatory framework, which ensures that the funds invested by Filipinos will stay in our domestic economy and will contribute to the improvement of our country’s infrastructure, rather than the benefits being squirreled away to other markets and countries,” he added.
REITs were previously required to maintain a 40-percent public ownership in the first year of their listing. Prior to its amendment, Rule 4 of the IRR further required REITs to increase their public float to 67 percent within three years from their listing.
The revised IRR launched on Monday lowered the minimum public ownership requirement in line with the provision of the REIT Act that a REIT company must have at least 1,000 public shareholders each owning at least 50 shares of any class of shares and, in aggregate, at least one-third of the outstanding capital stock.
The SEC will also require that any proceeds from the sale of shares or other securities issued in exchange for income-generating real estate transferred to the REIT, and from the sale of any income-generating real estate to the REIT, must be reinvested by a sponsor or promoter in a real estate, redevelopment or infrastructure project in the Philippines.
To further facilitate the formation of REITs in the country, the SEC enhanced the qualification requirements of REIT fund managers and property managers under Rules 6 and 7 of the IRR, to ensure their independence and specify minimum requirements for their organization, among others.
The BIR, meanwhile, amended past revenue regulations to expressly exempt from the 12 percent VAT the transfer of property in exchange for shares for control in a REIT, in accordance with Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
The tax agency further removed the requirement for a REIT to place in escrow, in favor of the Bureau, the income tax collectible from the REIT on dividends declared and deducted from its taxable income, as well as the 50 percent documentary stamp tax given as incentive on the transfer of real property to the REIT.
