Law Summary
Declaration of Policy
- Promote capital market development.
- Democratize wealth via Filipino participation in Philippine real estate ownership.
- Use the capital market for infrastructure financing.
- Protect investing public through regulatory framework.
- Incentivize REITs to support policy objectives.
Definitions and Key Terms
- Adviser: Professionals rendering advisory services to the REIT.
- Affiliate: Corporation controlled by or under common control with another.
- Associate: Relatives within the 4th degree or companies with 25%+ interest.
- Cash Equivalent Items: Highly liquid, marketable assets akin to cash.
- Commission/SEC: Securities and Exchange Commission of the Philippines.
- Constitutive Documents: Articles of incorporation and bylaws of the REIT.
- Control: Power to govern financial and operating policies, usually via majority voting rights.
- Corporation Code: Batas Pambansa Bilang 68.
- Deposited Property: REIT asset value per latest valuation.
- Distributable Income: Adjusted net income excluding re-invested asset sale proceeds.
- Exchange: Registered stock exchange.
- Fund Manager: Independent party managing REIT asset allocation and operations.
- Income-generating Real Estate: Property generating regular income streams.
- Independent Director: Director meeting independence criteria under Securities Regulation Code.
- IRR: Implementing Rules and Regulations.
- Investible Funds: REIT funds investable outside income-generating real estate.
- Investor and Investor Securities: Owners and shares within the REIT.
- Managed Funds: Publicly pooled funds for securities investment.
- Material Contract: Significant or non-ordinary contracts, including related party dealings.
- Net Asset Value (NAV): Assets less liabilities per Commission rules.
- Net Income: Defined by Philippine Financial Reporting Standards.
- Overseas Filipino Investor: Filipino citizen working abroad, including reacquired citizens.
- Parent and Subsidiary: Corporations with control relationships.
- Principal Officer and Stockholder: Key management and significant equity holders.
- Public Shareholder: Shareholder excluding promoters, insiders, or related entities.
- Property Manager: Independent professional managing real estate assets.
- REIT: Stock corporation owning income-generating real estate.
- Real Property: Defined by Civil Code Article 415.
- REIT Plan: Registered investment plan.
- Real Estate-Related Assets: Debt securities and property incidental assets.
- Related Party and Corporation: Entities/persons with specified affiliations.
- Securities Regulation Code (SRC): Relevant securities law.
- Sponsor/Promoter: Person(s) contributing capital to form REIT.
- Synthetic Investment Products: Derivatives simulating underlying instruments.
- Taxable Net Income: Defined by NIRC Code less distributed dividends.
Investment and Securities
- Investment via subscribing or purchasing REIT shares subject to REIT plan compliance.
- Shares must be registered with the SEC and listed on an exchange.
- Foreign ownership of REIT-owned land subject to Philippine limits.
Dividend Distribution
- REITs must distribute at least 90% of distributable income annually within five months of fiscal year end.
- Dividends payable from unrestricted retained earnings.
- Public shareholders must receive dividends proportionate to their ownership.
- Reinvestment of asset sale proceeds excluded from distributable income.
Operational and Structural Requirements
- REIT must be a public company with at least 1,000 public shareholders holding minimum 50 shares each.
- Minimum paid-up capital of Php300,000,000.
- Investment limits:
- At least 75% in income-generating real estate.
- Foreign real estate investment max 40% with SEC approval.
- Others include real estate-related assets, managed funds, government securities.
- Max 5% in synthetic investment products, subject to authority.
- Property development limited to 10% of deposited property unless held for income.
- Single issuer limit of 15% investible funds (25% for government securities).
- Leverage capped at 35% of deposited property; up to 70% if investment-grade rated.
- Related party transactions require disclosure, fairness opinion, independent director approval.
- Annual independent appraisal of assets mandatory.
- Appointment of independent fund and property managers with specified qualifications.
- Board must include at least one-third independent directors.
- Fit and proper rule enforcing integrity and competence for key persons.
- Executive compensation and managerial fees capped and governed by related party rules.
Reporting and Disclosure
- Compliance with SRC, Corporation Code, and Exchange rules.
- Disclosure of material contracts, investments, related party transactions, valuations, dividends, changes affecting business or securities.
- Quarterly and annual disclosures including real estate transactions, asset summaries, performance metrics.
- REIT plan must disclose risks and comply with SRC requirements.
- Penalties for non-compliance per SRC and Exchange rules.
Taxation
- REITs taxed on taxable net income under National Internal Revenue Code, exempt from minimum corporate income tax.
- Lower withholding tax rate of 1% on income payments.
- 50% reduction on documentary stamp tax and registration fees for real property transfers to REITs.
- Rules on issuance and transfer taxes for investor securities defined.
- Dividends subject to 10% final tax with exemptions for qualified recipients.
- VAT applies on gross sales or rentals of real property; REITs not considered dealers in securities for VAT purposes.
- Compliance with general tax code, unless otherwise provided.
- Tax incentives revoked upon REIT delisting; refunds and penalties apply.
Penalties and Enforcement
- Registration revocation if REIT lacks genuine intent to comply.
- Fines from Php200,000 to Php5,000,000 or imprisonment 6 years 1 day to 21 years, or both, for offenses like financial misstatement, asset misappropriation, circumvention of public ownership rules, false certification, or any violations.
- Penalties may extend to corporations and responsible officers.
- Alien offenders subject to deportation post-conviction.
- Penalties do not preclude administrative, civil or criminal liabilities under other laws.
Corporate Governance
- Fund and property managers subject to corporate governance principles as adopted by regulatory bodies.
Use of Fees
- Securities and Exchange Commission retains 50% of fees collected related to REIT establishment and registration.
Implementing Rules and Regulations
- IRR to be promulgated within 90 days in coordination with BSP, DOF, and stakeholders.
- Separate rules may apply to institutions under specific regulatory agencies.
Separability Clause
- Invalidity of any part does not affect the rest of the Act.
Repealing Clause
- Conflicting laws, orders, rules repealed or amended accordingly.
Effectivity
- Law takes effect 15 days after publication in Official Gazette or two newspapers of general circulation.