Philippines: Measures to enhance, foster investments in REITs

Philippines: Measures to enhance, investments in REITs

Various measures are intended to enhance the attractiveness of real estate investment trusts (REITs).


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REITs are a creation of Republic (RA) No. 9856, otherwise known as “The Real Estate Investment Trust Act of 2009.” This law was enacted to encourage participation of Filipinos in the ownership of real estate in the Philippines, and to use capital markets as an instrument to help finance and develop infrastructure projects and to provide protection to investors by providing regulatory framework and fiscal incentives.

RA 9586 defines REITs as stock corporations created principally for the purpose of owning income-generating real assets, which are held for the purpose of generating a regular stream of income such as, but not limited to, rentals, toll fees, user’s fees, tickets sales, parking fees, storage fees, and the like (as may be defined and identified by the Securities and Exchange Commission (SEC)). These assets may come from a sponsor or promoter, or any person who, acting alone or in conjunction with one or more other persons, directly or indirectly, contributes cash or property in establishing REITs.

Under the SEC implementing rules and regulations (IRR) issued on 24 May 2010, a REIT must be a public company, and to be considered as such, it must maintain its status as a listed company, and upon and after listing, must have at least 1,000 public shareholders each owning at least 50 shares and who in the aggregate own at least 40% of the outstanding capital stock of the REIT at the initial year, provided that the minimum ownership shall be increased to 67% within three years from its listing.

However, REITs in the Philippines did not “take off.” In fact, news reports have stated that since RA 9586 became a law in 2009, no local REIT has been established or incorporated despite the upswing in the local property market. This is partly due to investors’ view that the minimum public ownership (MPO) rules set by the SEC are too aggressive and difficult to achieve. Another roadblock then was the value added tax (VAT) on the transfer of real properties to the REIT.

Measures to enhance attractiveness of REITs

The “Tax Reform Acceleration and Inclusion” (TRAIN) Act (RA No. 10963), effective 1 January 2018, and guidance from the SEC relaxed the MPO rules when it issued SEC Memorandum Circular (MC) No. 1-2020 (20 January 2020) or the revised IRR of RA No. 9586.

The TRAIN law, as implemented by Revenue Regulations (RR) No. 3-2020, provides that the transfer of property to a REIT in exchange for its shares is now exempt from VAT. It is an additional tax benefit for property transferors who already enjoy exemptions from documentary stamp tax, capital gains tax, and creditable withholding tax.

The TRAIN law, however, increased the documentary stamp tax rates that are applicable to REITs. The documentary stamp tax on transfers of shares representing interest in real property increased from PhP0.375 to PhP0.75 for each PhP200 of the par value of the share.

On the other hand, SEC MC No. 1-2020 brought considerable changes to the rules for REITs.

  • First, a reduction of the MPO requirement from 40% to 33.13% of the outstanding capital stock and removal of the required increase in MPO to 67% within three years from its listing.
  • Second, the SEC prescribed the submission of a reinvestment plan in order to establish a REIT. A reinvestment plan presents a firm undertaking to reinvest any proceeds realized by the sponsor or promoter from the sale of REIT shares or other securities issued in exchange for income-generating real properties transferred to the REIT in any real estate, or in any infrastructure projects in the Philippines. The reinvestment must be made one year from the date of receipt of proceeds or money by the sponsor or promoter. Submission of the reinvestment plan is important because without it, REITs may not avail themselves of the tax incentives as provided by the recently issued RR No. 3-2020.

The new rules also seek to provide enhanced protection for REIT investors beginning with the mandatory creation of a related-party transactions committee, comprised of independent directors who must vote unanimously in approving related-party transactions. Further, any contract between the REIT and related parties, including contracts involving the acquisition or lease of assets and contracts of services, is required to be fully disclosed and must be approved by at least a majority of the entire membership of the board and the related-party transactions committee.

The SEC also revised the requirements for REIT fund managers by providing standards to provide their independence. A REIT fund manager can be a:

  • Registered domestic corporation
  • Trust entity with an existing BSP license
  • Foreign corporation duly licensed to do business in the Philippines

Majority of the members of the board of the REIT fund managers must be independent directors, and at least one must have a working knowledge of the real estate industry, fund management, corporate finance or other relevant-related functions. Moreover, the directors of the REIT and its sponsors or promoters cannot jointly occupy more than 49% of the board of directors of the REIT fund managers.

Read a June 2020 report prepared by the KPMG member firm in the Philippines

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