a primer to understanding the p-reit_part 1

5/10/2018 A Primer to Understanding the P-REIT_part 1 - slidepdf.com

http://slidepdf.com/reader/full/a-primer-to-understanding-the-p-reitpart-1 1/3

Published in KPMG Corner, the Philippine StarSeptember 14, 2010

A Primer to Understanding the P-REIT

By: Evelyn Garcia-Cantre

(Part 1 of 5)

On December 17, 2009, Republic Act 9856 otherwise known as AN ACT PROVIDING THE LEGAL

FRAMEWORK FOR REAL ESTATE INVESTMENT TRUST AND FOR OTHER PURPOSES or The

Real Estate Investment Trust (REIT) Act of 2009 lapsed into law without the signature of President

Arroyo. Its implementing rules and regulations were approved by the Securities and Exchange

Commission (SEC) on May 13, 2010, while the Listing Rules for REITs were approved by the PhilippineStock Exchange on June 23, 2010. The last step in making the long awaited Philippine REIT (P-REIT)

an actuality is the issuance of the REIT tax regulation by the Bureau of Internal Revenue (BIR) which, as

of press time, is still being drafted by said agency.

The intent of the passage of R.A. 9856 is to level the playing field in the Philippine property sector by

giving small and medium scale investors an opportunity to invest in real estate property. Through the

introduction of the P-REIT, individuals and small companies can pool together their individual funds and

directly buy prime real estate that were previously afforded only by big property companies with large

cash balances. In addition, because of the special tax circumstances of the P-REIT, its small investors are

placed at par with the large investors that enjoy the financial advantages of doing business through large

conglomerates.

History of the REIT

It was with this same purpose that the REIT was first introduced as an investment vehicle for small

investors in the U.S. during the 1960’s. Traditionally, the only way of investing in real estate is to invest

in the physical brick and mortar of the property. As such, only wealthy individuals and corporations, who

had the required financial resources, can invest in significant real estate projects like shopping malls,

industrial parks and healthcare facilities. To change this, the US Congress therefore passed a law creating

the Real Estate Investment Trust or the REIT. This law exempted the REIT from the income taxes

regularly imposed on companies provided certain criterions were met. The law’s objective was to provide

financial incentives for the people to pool their resources and form companies which will own significant

real estate thereby providing the average man the same investing opportunities only available to the rich.

(Kennon, J, Real Estate Investing through REITs, The Benefits of Property Ownership without the Hassle

[internet] U.S: About.com. Available at: http://beginnersinvest.about.com/od/reit/a/aa101404_5.htm.

[Accessed: 26 August 2010])

Today, the original concept of the REIT still remains. The REIT can now be a company, trust or

arrangement that is widely-owned, which invests in real estate on a long-term basis with its revenue

http://beginnersinvest.about.com/od/reit/a/aa101404_5.htm






derived principally from rental income. It distributes most of its income yearly, and in general, does not

pay income tax on income derived from its real estate investment and distributed to its unitholders. It

normally operates in a specific area of expertise such as residential, retail, office, industrial, hotel and

resort REITs, etc. In Europe it is generally organized as a corporation. In Asia, it is a trust and in U.S.

and Japan, it can either be trust or corporation. ( Nouel, Luis: The Tax Treaty Treatment of REITs – The

Alternative Provisions Included in the Commentaries on the 2008 OECD Model, European Taxation2008, S.477-483)

(To be continued)

( Evelyn Garcia-Cantre is a Senior Manager of Tax of Manabat Sanagustin & Co., CPAs, a member firm

of the KPMG network of independent member firms affiliated with KPMG International Cooperative

(“KPMG International”), a Swiss entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the

views and opinions of KPMG in the Philippines. For comments or inquiries, please email

[email protected] or [email protected] )

mailto:[email protected]







a primer to understanding the p-reit_part 1

Documents