Law Summary

I. General Provisions

• Legal Framework: This Act provides a regulatory framework for the establishment and operation of Real Estate Investment Trusts (REITs) in the Philippines.
• Short Title: Known as "The Real Estate Investment Trust (REIT) Act of 2009".
• Declaration of Policy: The State aims to:
  • Develop the capital market.
  • Broaden Filipino ownership of real estate.
  • Utilize capital markets to finance infrastructure projects.
  • Protect investors through an enabling regulatory environment.

II. Definitions of Key Terms

• Important Definitions:
  • Adviser: Includes professionals providing advisory services to REITs.
  • Affiliate: A corporation controlled by another.
  • Distributable Income: Net income adjusted for unrealized gains/losses, exclusive of reinvested asset sale proceeds.
  • Commission/SEC: Refers to the Securities and Exchange Commission of the Philippines.
  • Real Estate Investment Trust (REIT): A stock corporation established primarily for owning income-generating real estate assets.

III. Investment in the REIT

• Share Subscription: Investments are made through the purchase of shares of stock, following the REIT plan and SEC regulations.
• Registration Requirement: Shares must be registered with the SEC and listed on an exchange.
• Nationality Requirement: REITs owning land must comply with foreign ownership limitations.

IV. Dividend Distribution

• Annual Distribution: REITs must distribute at least 90% of their distributable income as dividends within five months after the fiscal year ends.
• Public Shareholder Rights: Public shareholders must receive dividends proportional to their ownership share.
• Penalties for Non-Compliance: Structures that diminish dividend entitlements are void.

V. Requirements for REITs

• Minimum Public Ownership:
  • Must have at least 1,000 public shareholders.
  • Public shareholders must own at least one-third of the outstanding capital stock.
• Minimum Paid-Up Capital: Php 300 million.
• Investment Restrictions:
  • 75% of deposited property must be in income-generating real estate.
  • Limits on investments in synthetic products and property development.

VI. Reporting and Disclosure Requirements

• Reportorial Compliance: REITs must adhere to reporting obligations under the Corporation Code, SRC, and Exchange rules.
• Special Reports: Additional disclosures on real estate transactions and financial performance are mandated.

VII. Taxation of REITs

• Income Tax: REITs are taxed on their taxable net income but are exempt from minimum corporate income tax.
• Tax Incentives: Certain tax incentives apply to REITs that meet specific requirements, including a 1% creditable withholding tax on income payments.
• Dividends Tax: Dividends are subject to a 10% final tax unless exempt under specific conditions.

VIII. Penalties and Revocation of Registration

• Registration Revocation: The SEC may revoke a REIT's registration if established without genuine intent to comply with the Act.
• Penalties: Violations can result in fines between Php 200,000 and Php 5 million or imprisonment of six years to twenty-one years.

IX. Miscellaneous Provisions

• Corporate Governance: REIT managers must adhere to corporate governance principles.
• Implementation: The SEC, in coordination with other agencies, will issue implementing rules and regulations within 90 days of effectivity.

Key Takeaways

• The REIT Act aims to create a structured environment for real estate investment, promoting participation and safeguarding investors.
• Key definitions and stringent requirements for public ownership, investment limits, and transparency are emphasized to ensure effective management and investor protection.
• Tax incentives are aligned with compliance to encourage the growth of REITs, while severe penalties deter fraudulent practices.