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Reit firms must allot 90% of earnings

by Elaine Ramos Alanguilan
[ ] July 27, 2011

The Bureau of Internal Revenue has required companies planning to list their shares through the Real Estate Investment Trust Act to distribute at least 90 percent of their respective earnings to shareholders before they could enjoy tax perks from the law.

The revenue regulation endorsed by BIR Commissioner Kim Henares said failure to distribute 90 percent of the income to Reit shareholders would bar them from availing of tax perks. Finance Secretary Cesar Purisima recently signed the revenue regulation.

The government is also maintaining its position to impose the value-added tax on gross sales or gross receipts from any disposal of real property and on gross receipts from the rental of such real property covered by Reit.

The enabling law, however, said “a Reit shall not be considered as a dealer in securities and shall not be subject to VAT on its sale, exchange or transfer of securities forming part of its real estate-related assets.”

Reits are companies that own and operate income-generating real estate assets, which include offices, apartment buildings, hotels, warehouses, shopping centers and highways.

Unlike ordinary domestic and resident foreign companies, Reits will be spared from the payment of minimum corporate income tax equivalent to 2 percent of the gross income in lieu of the payment of net income tax.

MCIT applies whenever the tax due of corporations at 2 percent of the gross income is greater than the normal income tax.

The net income tax, meanwhile, allows several deductions and only require a company to pay 30 percent of their respective income taxes.

Such guarantee will enable Reit companies to stick on the payment of net income tax and they could claim as many as possible deductions that are legally deductible on their earnings.

One expample is the payment of dividends to shareholders.

The rules also reiterated the need for Reit companies to maintain the minimum public ownership of 67 percent by the end of the third year from listing at the latest. Otherwise, the dividend payment will not be allowed as a deduction from the net income.

The Reit Act was enacted into law in December 2009 but its implementation has been put on hold as the Finance Department and corporate regulators failed to agree on the proportion of ownership between the real estate firms and the public with respect to the availment of fiscal incentives.

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