Reits hail extension of tax concessions

Real estate investment trusts (Reits) had much to cheer about after Budget measures for the industry were announced on Monday.

This was despite the introduction of an end date for a tax exemption on certain foreign-sourced income.

Reflecting positive sentiments, the FTSE ST Reits Index climbed 1.3 per cent or 7.44 points to 591.84 yesterday – the highest level in almost a month. All but one of the Reits listed in Singapore posted gains.

Reits particularly welcomed the renewal of income tax, stamp duty and GST concessions. They will apply till March 31, 2015.

The benefits – which include a concessionary income tax rate of 10 per cent for non-resident non-individual investors, and stamp duty remission on transferring a Singapore immovable property to a Reit – had expired on Feb 17.

‘We welcome this extension as it removes the uncertainty over the availability of these tax concessions post Feb 17,’ said Mapletree Logistics Trust Management deputy CEO and chief financial officer Richard Lai. ‘We feel that the S-Reit sector is still at a nascent stage and therefore, removal of such concessions today may be premature.’

CapitaCommercial Trust Management CEO Lynette Leong also praised the move, adding that the government’s gesture of support will give investors confidence to stay with Singapore Reits.

In the industry’s good books was another change making it easier for Reits going public to qualify for stamp duty remissions. An unlisted Reit would have six months from the date of completion of sale agreements to get listed and qualify, whereas it only had a month in the past.

The extension would give unlisted Reits and property sellers more time to close deals. A spokesman in Ascendas Reit noted that there there will be ‘greater flexibility for Reits preparing to list’, and the move ‘is positive for the development of the S-Reit market’.

There was however, a third Budget measure which initially raised some eyebrows. Currently, listed Reits and their wholly-owned Singapore subsidiaries enjoy income tax exemption on qualifying foreign-sourced income (FSIE), subject to conditions.

The government on Monday introduced a sunset clause of March 31, 2015 – the qualifying foreign-sourced income has to be remitted on or before this date for FSIE to apply.

Industry reaction to this move was mixed as the termination of FSIE would affect Reits with large foreign-sourced incomes more.

Furthermore, sunset clauses are common for most tax incentives here, said Ernst & Young tax partner Kang Choon Pin. He suggests that the government may simply be aligning the expiry of the FSIE with the end of stamp duty and withholding tax concessions for Reits, such that they all occur in March 2015.

‘We are hopeful that when the FSIE expires in five years’ time, all the concessions will be renewed together,’ he said.

The FSIE is important to Reits growing through foreign acquisitions. ‘If we want to position ourselves as an exchange not only for Singapore Reits, but also pan-Asian Reits, we need the FSIE,’ Mr Kang stressed.

SIAS Research lead analyst Moh Tze Yang believes that the Budget measures for Reits are significant. ‘Reit operators can continue to enjoy the benefits of tax subsidies that have traditionally been a big ’selling point’ of setting up a property investment trust,’ he said.

Source: Straits Times, 24 Feb 2010