Sunday, May 25, 2008 [ philstar.com ]
The Department of Finance (DOF) is backing a bill that seeks to provide the regulatory framework for real estate investment companies but expressed some reservations on some provisions of the proposed measure.
In a position paper, the Finance department said real estate investment companies (REIC) should be subject to the income taxes under the National Internal Revenue Code wherein all incomes emanating from the conduct of business should be subject to tax.
A measure pending in Congress — the Real Estate Investment Company Act of 2007 — seeks to provide the legal and regulatory framework for the development of REIC in the country in order to contribute to the growth and development of a stronger capital market.
The proposed measure gives small and large investors the opportunity to participate directly in the ownership and financing of large-scale real estate projects at affordable rates of investment through low-risk but generally higher-yielding instruments.
For a company to be considered a real estate investment company, it must be a stock corporation listed in the stock market.
It must have a policy of distributing 90 percent of its distributable income to its investors as dividends.
The DOF said it is amenable to the imposition of the regular income tax rate of 35 percent on all the remaining 10 percent of the REIC income retained by the corporation.
“The 90 percent distributed to investors should be subject to the 10 percent final tax on dividends. This is considered reasonable and is based on best practice in other jurisdictions,” the DOF said.
As such, it expressed reservations on the proposed application of a reduced income tax rate of 25 percent on that portion of the corporate income of the REIC that shall be subject to tax, for seven years if the REIC registers within three years from the effectivity of the law.
The DOF also expressed reservations on granting special tax treatment to Filipinos abroad who would be investing in REICs.
“We also express some reservation on the proposal to exempt overseas Filipino investors who invest in REIC from the payment of the dividends tax,” the DOF said, adding that everyone who earns interest or dividends or capital gains is subject to income tax.
Overall, the DOF said that the proposed measure should stand on its own merits as seen by the prospective investors rather than on the incremental income resulting from tax savings.
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