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Singapore – Key Issues For Your Business In 2015: REITs.

10 March, 2015

 

Legal News & Analysis – Asia Pacific – Singapore –  Construction & Real Estate

 

MAS Consultation Paper On Enhancements To The Regulatory Regime Governing REITs

 
MAS issued a consultation paper on 9 October 2014 containing proposals to strengthen Singapore’s real estate investment trust (“REIT”) market, which are geared towards enhancing the transparency and corporate governance of the REIT market and improving REITs’ attractiveness.

 
The proposals include (i) imposing a statutory duty on the REIT manager and its individual directors to prioritise the interests of unitholders over those of the REIT manager and its shareholders in the event of a conflict of interest, (ii) enhancing Board independence requirements, (iii) enhanced disclosure requirements in REITs’ annual reports, (iv) requiring the performance fee payable to the REIT manager to be computed taking into account unitholders’ long-term interest and payment of acquisition and divestment fees to be on a cost-recovery basis, and (v) adopting a single-tier leverage limit of 45% without requiring a credit rating and allowing a REIT to undertake development activities up to 25% of its deposited properties.

 
The consultation closed in November 2014. Whilst the MAS has yet to issue its responses to the feedback, REIT managers should be cognisant of these proposals and in time, will need to assess whether their REIT operations, fee arrangements and organisational structure may need to be re-looked in light of the upcoming changes.

 

 
Extension Of Certain Tax Concessions, And Expiration Of Stamp Duty Remission, For REITs

 
Pursuant to Singapore’s Budget 2015 statement, certain tax concessions for REITs listed on the Singapore Exchange Securities Trading Limited have been extended until 31 March 2020. These include the tax exemption on qualifying foreignsourced income, which will continue to apply so long as the overseas property is acquired by the REIT or its wholly-owned Singapore tax resident subsidiary company on or before 31 March 2020. The concessionary income tax rate of 10% for qualifying non-tax-resident non-individual investors will also continue until 31 March 2020. The existing goods and services (“GST”) concession will also be extended to 31 March 2020.

 
In addition, to facilitate fundraising by REITs through special purpose vehicles, the GST concession will be enhanced to allow REITs to claim GST on expenses incurred to set up special purposes vehicles that are used solely to raise funds for the REITs, and the special purpose vehicles do not hold qualifying assets of the REITs, directly or indirectly. These REITs will also be allowed to claim GST on the business expenses of such special purpose vehicles.

 

However, the stamp duty remission on the transfer of Singapore immovable properties and transfer of the issued share capital of Singapore-incorporated companies holding immovable properties outside Singapore will lapse after 31 March 2015. Such concessions were introduced with the intention of enabling the industry to acquire a critical mass of local assets as a base from which the REITs can expand abroad, which the Minister for Finance, Mr Tharman Shanmugaratnam, in the Budget 2015 statement indicates has been achieved.

 
MAS will release further details on the tax treatment of REITs by May 2015.

 

Rajah & Tann

 

For further information, please contact:

 

Evelyn Wee, Partner, Rajah & Tann
evelyn.wee@rajahtann.com

 

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