Thursday, October 14, 2010

REIT managers seek waiver of withholding tax

Source: StarBiz

PETALING JAYA: Real estate investment trust (REIT) managers are hoping that the Government will waive the 10% withholding tax for resident and non-resident individuals.

This was to raise the competitiveness of Malaysian REITs (M-REITs) and ensure the successful future launching of a national REIT which would require large foreign participation, they said.

Malaysian REIT Managers Association (MRMA) chairman Stewart LaBrooy said the proposed reduction to nil in withholding tax for resident individuals would enable individual retail investors to partake in the growing REITs industry and create liquidity in the market.

This is in line with the tax exemption accorded to REITs retail investors in Singapore.

Currently, retail investors only form a small component of the unitholders’ spread and MRMA has done roadshows nationwide to create awareness of this new asset class.

LaBrooy said the proposed reduction to nil in withholding tax for non-resident individuals would enable foreign individuals to invest in M-REITs as opposed to investing in other REIT jurisdiction such as Singapore which pays tax-exempt income distribution to foreign individuals.

“For many years, the tax regime for M-REITs has lagged behind our neighbours in Singapore, making the latter a more attractive destination for listings,” he added.

He said the fact that REITs behaved like bonds but traded like equities had placed them unfairly in the equity space rather than the bond space.

“REITs mainly compete with bonds for investors who are typically long in the market but the Government has mandated that only bond dividends are completely exempted from any withholding tax, giving them an unfair advantage over the M-REITs.

“A more attractive withholding tax regime will most definitely spur the industry in the future,” he added.

LaBrooy said resident companies were the only group of investors with no imputed withholding tax. These investors will declare it in their respective books as “investment income”, hence they are subject to the prevailing tax rate of 25%.

He said a reduction in tax rate by 15% would give this segment of investors a big boost and encourage them to “recycle” their capital by injecting their existing assets into REITs and continue to hold their investments in the form of REIT units.

This will further expand the M-REIT industry.

MRMA has also proposed that withholding tax for non-resident companies, which is currently at 25%, be lowered to 10% to be at par with Singapore REITs in order to compete for foreign funds.

This is also to harmonise with the withholding tax applicable for non-resident institutional investors who are enjoying only a 10% withholding tax.

Real Estate and Housing Developers Association Malaysia (Rehda) has urged the Government to launch a National Home Ownership Campaign together with the association as the accredited agent.

This is to promote affordable home ownership among the people.

The incentives can include stamp duty waiver, reduced home loan rates by financing institutions, discounted legal fees by Bar Council and mortgage-reducing term-assurance insurance premium.

Rehda president Datuk Michael Yam said the campaign would help promote affordable home ownership to the bottom 40% households and advocate a “one family one house” concept for this target group.

He said a first-time home buyers’ grant should be introduced on a percentage basis of 5% with a grant cap or ceiling price of RM25,000.

On the real-property gains tax, which was re-introduced in January at a flat rate of 5% for all property sales within five years of purchase, Rehda appealed to the Government to not make any further changes in the coming budget “as it would only otherwise serve to reaffirm the perception of the Government’s flip-flop policies lacking in consistency and certainty.”