QuestionsQuestions (BIR REVENUE REGULATIONS NO. 13-2011)
It is issued pursuant to Sections 244 and 245 of the NIRC of 1997 (as amended), in relation to Section 22 of Republic Act No. 9856 (REIT Act of 2009). It implements the tax provisions of the REIT Act and supplements the SEC’s revised IRR for registration, DST incentives, dividend tax exemption for overseas Filipino investors, and withdrawal of incentives.
A corporation becomes a REIT and qualifies to avail of the incentives and privileges when its REIT Plan is rendered effective by the SEC and its listing as a REIT is approved by the Exchange.
A REIT (including its branches) must register once with LTRAD 3 on or before the commencement of its business, in accordance with the NIRC provisions on registration and their implementing rules.
A REIT is considered a taxpayer engaged in the real estate business. Hence, real properties owned by a REIT are considered ordinary assets for purposes of tax treatment under these regulations.
The transfer is subject to 50% of the applicable DST. If transfer occurs prior to listing, the REIT must (1) execute an undertaking to list within two (2) years from initial availment (execution of transfer documents) and (2) place in escrow with an Authorized Agent Bank acceptable to the Bureau the 50% DST given as incentive.
It is released only upon proof of listing within the two-year period identified under Section 8(3). Otherwise, it is released to the government in accordance with the regulations (and becomes subject to the withdrawal consequences under the Act/NIRC framework).
Failure to list within two (2) years; failure to maintain public company status; failure to maintain listed status/SEC registration of investor securities; and/or failure to distribute at least 90% of distributable income as required under the REIT Act.
No. Section 6 provides that the sale, exchange, or other disposition of real property to a REIT (including security interest) is subject to income tax/capital gains tax and VAT if applicable, depending on whether the property is a capital asset or an ordinary asset, unless otherwise exempt.
Income tax: no gain or loss is recognized by the transferor (no capital gains tax, income tax, or creditable withholding tax; no loss recognized). VAT: VAT applies if the transferred property is an ordinary asset, based on fair market value. DST: transfer of property to the REIT in exchange for shares is exempt from DST under Section 199 of the NIRC.
Parties must submit to the RDO issuing the CAR/TCL: (1) two copies of a notarized Application for DST Incentive (Annexes A-D), (2) two certified true copies of REIT constitutive documents, and (3) either a certificate that the REIT is listed with the Exchange (for listed REITs) or an undertaking plus the escrow agreement (for unlisted REITs). The CAR/TCL must also specify qualification for the DST incentive.
The acquisition must be annotated to reflect it is pursuant to the REIT Act (and the specific deed date and applicable NIRC section in tax-free exchange cases). For real property, the Registrar of Deeds annotates; for shares, the Corporate Secretary (or equivalent) of the investee annotates.
A REIT is taxed on taxable net income at 30% under Section 27(A) of the NIRC, and it is not subject to minimum corporate income tax under Section 27(E). Taxable net income is computed as Gross Income (Section 32) minus allowable deductions (Section 34) minus dividends paid (as defined) for the taxable year.
Dividends actually distributed out of distributable income at any time after the close of the taxable year but not later than the last day of the fifth (5th) month from the close are considered paid on the last day of the REIT’s taxable year.
A REIT must maintain its status as a public company; distribute at least 90% of distributable income; maintain investor securities listed with the Exchange and SEC registration (where applicable); and adhere to minimum ownership levels: 40% for the first two (2) years and 67% by the end of the third year and thereafter (as referenced in Section 10 and Section 11’s conditions).
Dividends are generally subject to 10% final tax. They are exempt if received by certain non-residents under treaty (preferential rate), domestic/resident foreign corporations under NIRC exemptions, and for an overseas Filipino investor where the dividends tax exemption applies for seven (7) years from the effectivity of these regulations.
A REIT is subject to VAT on gross sales/disposal of real property and gross receipts from rental of such real property. It is not considered a dealer in securities and therefore is not subject to VAT on the sale, exchange, or transfer of securities forming part of its real estate-related assets.
Upon failure to comply with conditions (public company status, listed status/SEC registration, 90% distribution, timely listing for DST incentives), taxes plus interest and surcharges under the NIRC may be imposed as incentives are withdrawn. The failure is subject to a 30-day curing period from occurrence of the event; SEC determines appropriate compliance within the period and communicates results to BIR.
Delisting causes the tax incentives to be ipso facto revoked and withdrawn as of the date the delisting becomes final and executory. Any tax incentives availed thereafter must be immediately refunded to the Government with applicable interest and surcharges.