BIR issues guidelines for REIT transactions

MANILA, Philippines —The Bureau of Internal Revenue (BIR) has released new guidelines which laid out the tax treatment for transactions involving real estate investment trust (REIT) companies.

Internal Commissioner Caesar Dulay issued Revenue Regulations 3-2020, dated Jan. 29, 2020, amending certain provisions of RR 13-2011, which contained the tax provisions of Republic Act 9856 or the REIT Act of 2009.

“After 11 long years, we finally released the set of regulations that will allow the country’s real estate investment trust or REIT market to finally take off,” Finance Secretary Carlos Dominguez said.

“This is a powerful financial instrument that will boost investments in property development in the country, as well as democratize wealth by opening access to thousands of small investors wanting to be shareholders in secure and profitable real estate projects. This is a big step forward for greater inclusiveness in the financial system,” he said.

Under the new rules, the transfer of properties to a REIT in exchange for its shares is exempt from the value-added tax, as provided under Section 109 of the Tax Code.

The BIR further removed the escrow requirement for REITs.

In addition, the minimum public ownership requirement of REITs was lowered from 40 percent to one-third of the outstanding capital stock of the REIT, according to the BIR.

The BIR is also requiring REITs to submit a reinvestment plan, together with a certificate of compliance with the REIT Law from the Securities and Exchange Commission.

The bureau said failure comply with the REIT Law and the BIR’s reportorial requirements would result in the withdrawal of tax incentives.

According to the DOF, the amendments to REIT rules were introduced in response to concerns of stakeholders, while ensuring that the gains from the implementation of the law will redound to the benefit of Filipinos.

Dominguez said the new rules ensure that funds raised from the sale of shares or from the sale of real estate to REITs are reinvested within the Philippines’ real estate and infrastructure sector.

“The large investment funds to be raised using this mechanism will be reinvested exclusively within the country’s real estate and infrastructure sectors, thereby ensuring that the money invested by Filipinos will stay in our domestic economy,” he said.