No easing of tax exemption rules for REITs

The government has decided against relaxing tax exemption rules for real estate investment trusts or REITs.

Senior Minister of State for Finance Lim Hwee Hua said the minimum payout ratio for REITs will not be cut.

To qualify for the tax incentives, REITs are curently required to distribute at least 90 per cent of their taxable income to unit holders. If they do so, they are exempted from paying corporate tax on the proportion of income they give out.

Reducing the qualifying ratio would have helped REITs to conserve cash, which could have been useful in the current tight credit environment.

But Mrs Lim said the Finance Ministry and the Monetary Authority of Singapore deliberated the issue and decided against this. That is because the key attraction to REITs for investors is the fact they are stable and typically offer high payouts.

Furthermore, Mrs Lim said there is no strong grounds to justify a special tax treatment for REITs that is not made available to other entities.

She noted that REITs may be facing re-financing difficulties in the current environment. Nonetheless, Mrs Lim pointed out that some have managed to secure refinancing through bank loans or recapitalisation.

She was speaking at the Asian Public Real Estate Association of Singapore’s REIT Summit.

Source : Channel NewsAsia – 20 Feb 2009