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Philippine REIT Law Expected To Encourage Investment

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

23 December 2009


The bill providing a real estate investment trust (REIT) regulatory and tax framework for the Philippines, not having been signed or vetoed by the president, lapsed into law on December 17.

In the Philippines, a bill that has been passed by the country’s parliament, but has not been vetoed or signed by the president within 30 days, automatically becomes law. In this instance, President Gloria Macapagal-Arroyo did not sign the bill following the contrary indication of the Department of Finance (DoF).

Given the tax incentives provided under the new REIT law, the DoF had estimated that the resultant annual tax reduction would be PHP2.7bn (USD58m), funds which it did not want to concede while other budgetary revenues were under pressure in the current economic climate.

The new law will allow for companies to obtain capital by listing their Philippine income-producing property assets on the Philippine Stock Exchange (PSE) within a REIT. It is required to maintain that listing and to distribute annually at least 90% of its income to its shareholders.

To encourage the establishment of REITs, the law provides tax incentives to a REIT and its shareholders. For example, its 30% company income tax rate will be based on the REIT's net taxable income, but only after deducting the 90% dividend distribution to its shareholders.

The possibility for the establishment of REITs was welcomed by the PSE. Its president and chief executive, Francis Lim, said that the new opportunities for investors represented by future REITs would aid the development of the country’s stock market and attract foreign investment into the Philippines.

A comprehensive report in our Intelligence Report series giving a country-by-country analysis of offshore investment funds, stock exchanges and trusts, with an analysis of the US QI regime, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report9.asp

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