RMC No. 58-2010: Circularizes Sections 10 to 18 of RA No. 9856 entitled “An Act Providing the Legal Framework for Real Estate Investment Trust and For Other Purposes”

Key points

1. Income tax of REITs. A REIT is taxed under Chapter IV, Title II of the NIRC of 1997 on its taxable net income as defined in the Act, and never under the Minimum Corporate Income Tax. Dividends distributed after the close of the taxable year and on or before the last day of the 5th month after it count as paid on the last day of that year. Under Chapter V, Title II instead, the REIT is taxed if it fails to stay a public company, keep its listed status, or distribute at least 90% of distributable income, subject to curing periods in the IRR.
2. Withholding and transfer taxes. Income payments to a REIT bear a lower Creditable Withholding Tax of 1%. Sale or transfer of real property to REITs pays 50% of the applicable Documentary Stamp Tax and 50% of registration and annotation fees. An unlisted REIT may avail of this if it lists on an Exchange not later than 2 years from initial availment.
3. When the DST benefit is lost. The 50% DST becomes due with surcharge, penalties and interest if the REIT fails to list within the period, stay a public company, keep its listed status and registration, or distribute at least 90% of distributable income, subject to the IRR curing period.
4. Investor securities. Original issuance is subject to DST. Sale or disposition of listed investor securities through the Exchange pays the stock transaction tax under Section 127(a) and is exempt from DST, and initial and secondary public offerings are exempt from the tax under Section 127(b).
5. Dividends and VAT. Cash or property dividends paid by a REIT bear a final tax of 10%. Exceptions are non-resident alien individuals or non-resident foreign corporations entitled to a treaty rate below 10%, and domestic or resident foreign corporations or overseas Filipino investors who are exempt from income or withholding tax. Overseas Filipino investors are exempt from the dividends tax for 7 years from the effectivity of the implementing tax regulations. A REIT pays VAT on gross sales from disposal of real property and gross receipts from its rental, but not on sales of securities forming part of its real estate-related assets.
6. Delisting and revocation. On delisting, tax incentives are revoked as of the date it becomes final and executory, incentives availed after that are refunded, and the surcharge and penalty in Section 19 of the Act apply. If a REIT was set up only to seek the Act’s benefits, the Commission revokes the registration and the REIT pays applicable taxes plus interests and surcharges.

Who is affected

• Real Estate Investment Trusts (REITs)
• Investors in REIT securities
• Persons selling real property to REITs

Deadlines and effectivity

• Unlisted REIT must list not later than 2 years from initial availment of the DST incentive
• Dividends distributed on or before the last day of the 5th month after year-end count as paid on the last day of the year
• Overseas Filipino investors exempt from dividends tax for 7 years from effectivity of the implementing tax regulations
• RA No. 9856 lapsed into law December 17, 2009, published January 25, 2010