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Govt bares tax-exempt Reit deals

by Elaine R. Alanguilan
[ ] May 14-15, 2011
The Bureau of Internal Revenue is exempting transactions involving initial transfers of assets into real estate investment trust companies from payment of the value-added tax, depending on the nature of the property.
BIR Commissioner Kim Henares told reporters that taxpayers holding real properties as capital assets would be exempt from the 12-percent VAT if they were sold as such properties under Reit.
“It all depends on what kind of property would be transferred into Reits. If these have never been used and the owner has not made money on it beforehand, then no VAT would be collected,” she said. “But if it forms part of the firm’s capital inventory, then we would have to collect VAT.”
The private sector has been urging government to exempt property transfers into Reits from VAT to reduce cost.
“If such real property is a capital asset, then the seller need not be liable for the payment of VAT in the event that it would form part of Reits,” Henares said.
A capital asset under the tax code is defined as property held by the taxpayer (other than a corporation) that is not primarily for sale to customers in the ordinary course of his trade or business.
Henares said only landowners that hold properties that form part of their inventory are liable to pay VAT, despite the tax incentives and other perks that they may avail of under the Reit Law.
She assured the investing community the revenue regulations for Reits would be ready in a month’s time.
She said the revenue regulations would be based on the rules that the Securities and Exchange Commission issued last week despite initial opposition of both the government and private sectors to some of the provisions.
The SEC-issued rules set new requirements for the public ownership of Reits, stock corporations that use a pool of investor funds to purchase and manage real estate assets. Reit firms are required to have a 40-percent minimum public float, which will be increased to 67 percent within three years from its listing.
Reit firms are required to pay shareholders 90 percent of their distributable income as dividends, which means only 10 percent of the income would be subject to the 30-percent corporate income tax.
Other perks include the exemption from the initial public offering tax and the documentary stamp tax when raising funds through the sale of shares at the stock market.

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