Tax Services

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Real Estate Investment Trusts
(REITs)
Real Estate Investment Trusts
(REITs)
Presented by:
Lim Gek Khim
Presented by:
Lim Gek Khim
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What is a REIT?
What is a REIT?
A vehicle for investment in a portfolio of real
property assets that generate rental income
Typically distributes a substantial portion of its
taxable income to investors at regular intervals
Most of these vehicles are tax transparent
Usually pay attractive, stable cash yields
In Spore, listed REITs are collective investment
schemes (CIS) regulated by SFA and subject to
Property Funds Guidelines issued by MAS under
the code of CIS
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Typical structure of a S-REIT
Typical structure of a S-REIT
Properties
Trust
Trust
Investors
Trustee
Asset
Manager
Property
Manager
Property
management
services
Property
management fee
Asset
management fees
Asset management
services
Ownership of
assets
Rental
income
Trustees fees
Acts on behalf
of Unitholders
Distributions
Investment
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Development of SporeREIT market
Development of SporeREIT market
Key milestones:
1999 MAS issued Property Funds Guidelines
2001 Break-through in tax
2002 Listing of first S-REIT, CMT, on SGX
2004 Exemption of Spore investment income
derived by individuals, including distributions from
S-REITs
2005 Proposed tax changes in recent Budget
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1999 -Property Funds Guidelines
1999 -Property Funds Guidelines
A set of guidelines that regulate property funds
targeted at the general public
To safeguard investors interest
Lays down:
Qualifying criteria for managers
Permissible investments
Borrowing limits
Diversification and valuation requirements
Disclosure requirements
MAS also issued a separate statement
Property funds will be accorded normal tax treatment
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2001 Break-through in tax
2001 Break-through in tax
Ernst & Young was engaged as tax advisor by
CapitaLand, which was looking at pioneering the
listing of first S-REIT
Our main task to secure tax transparency
treatment
A daunting task the main challenges:
How to secure tax transparency treatment without
asking for concession from the Government?
How to address IRAS concerns of administrative
complexity and tax revenue leakage?
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What is tax transparency treatment?
What is tax transparency treatment?
Normal tax treatment of trusts
Unitholders
Distributions
Trust
Assets
Income
Trustee is assessed to tax on
income of the trust
Unitholders taxed on their
respective shares of trust income
Entitled to credit for tax paid by
trustee on share of trust income
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What is tax transparency treatment?
What is tax transparency treatment?
Unitholders
Distributions
S-REIT
Properties
Rental
income
Tax transparencytreatment - trustee
not taxed on trust income
Unitholders recd pre-tax distribution
except for foreign investors tax
deducted from distribution at
corporate tax rate
Tax assessed on, and collected
from, unitholders
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Terms & conditions
Terms & conditions
Tax transparency treatment is granted by way of
a tax ruling issued by IRAS
Subject to various terms and conditions and
undertakings by trustee and manager
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2002 Listing of CMT on SGX
2002 Listing of CMT on SGX
CMT was launched successfully on 16 J uly 2002
Asset size of about $920m
About 5 times oversubscribed
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2004 Exemption for individuals
2004 Exemption for individuals
S-REITs given a boost in 2004 Budget
Distributions by REITs authorised under s286 of
SFA included in the list of Sinapore-sourced
income exempted from tax for individuals
Individuals are now generally not taxed on S-REITs
distributions
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2005 Proposed tax changes
2005 Proposed tax changes
Stamp duty waiver for transfer of Singapore
immovable properties into REITs to be listed, or
already listed, on the SGX
Reduction in withholding tax rate on distributions
to foreign non-individual investors from 20% to
10%
Removal of most of the qualifying conditions for
tax transparency
Effective date and incentive period: 18 February
2005, for a 5-year period
MAS will release details by 28 February 2005
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Significance of the proposed tax
changes
Significance of the proposed tax
changes
Sharpen Singapores competitive edge as a
REITs centre
Propel Singapore back to pole position in the race
to stay ahead of other REITs markets in the
region
Lower the entry barrier - we expect private
landlords who have yet to enter the REITs market
to look or re-look at REITs
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The future of Singapore REIT market?
The future of Singapore REIT market?
Today
5 REITs listed on SGX
Aggregate property portfolio of about $9b (MV)
Market capitalisation of about $8b
2
nd
largest REITs market in Asia
Over the next 5-years
More listing of S-REITs expected UBS study about
$13b of property could potentially be structured into
REITs
More cross-border REITs listings on SGX
Emergence of innovative REIT-based products
Stronger competition from other REIT markets in the
region
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The development of REITsglobally
The development of REITsglobally
More countries in Asia, Europe and Latin America
will introduce REIT type of vehicles
REITs recognised and accepted as an asset class
globally
Infrastructure needed to support a global listed
property sector will evolve
Types of vehicles
Investment benchmarks
Analysts and rating agencies
Etc.