Malaysia Mulling Tax Cut On Property Trusts

by Mary Swire, Tax-News.com, Hong Kong

05 July 2006

Malaysia is considering cutting its tax on property trusts in order to become more competitive for investment with other jurisdictions in the region, particularly Singapore.

Speaking at a regional real estate investment conference last week, Kris Azman Abdullah, Director of the Issues and Investment Division at Malaysia’s Securities Commission stated that, at 28%, Malaysia's withholding tax on property trusts was a "stumbling block" to the growth of the country's market in real estate investment trusts (REITs).

"We recognise that for markets to be attractive, they have to be internationally compatible," Abdullah noted.

The official observed that Malaysia's current tax regime looked particularly unattractive when compared with nearby Singapore, which last year cut withholding tax on property trusts for foreign investors to 10% from 20% for a period of five years.

Singapore is the leading REIT market in the region outside of Japan and Australia. Currently, there are 36 REITs listed in the Asia-Pacific area excluding Japan and Australia, with a combined worth of US$17 billion. Almost half of this market is located in Singapore.

REITs are companies that own and most often actively manage income-generating commercial real estate and most are publicly traded.

In most countries where REITS are traded, the majority of a firm's income is passed onto investors without taxation at the corporate level. In Singapore, REIT dividends are tax-free, provided more than 90% of the firm's income is distributed to investors.

Nonetheless, Malaysia is still attracting potential REIT listings, and Kris explained that three, including one Islamic property trust, may list there this year.

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