IRAS issues e-Tax Guide, “Income Tax Treatment of Real Estate Investment Trusts”

4 October 2012

On 1 October 2012, the Inland Revenue Authority of Singapore (IRAS) issued an e-Tax Guide, “Income Tax Treatment of Real Estate Investment Trusts (“REIT”)”.

The e-Tax guide explains the income tax treatment for a real estate investment trust where tax transparency treatment to a REIT will be accorded on the specified income distributed by the trustee, subject to certain conditions. The specified income will not be taxed in the hands of the trustee of the REIT, but will only be taxed in the hands of the unit holders, unless the unit holders are specifically exempted from tax.

The Income Tax (Amendment No.2) Act 2007 expanded the scope of the specified income to cover distributions from approved sub-trusts and income that is payable out of rental income or income from the management or holding of immovable property in Singapore (but not out of gains from the disposal of such immovable property).

To enhance Singapore’s tax regime for REITs, it was announced in Budget 2012 that from 1 April 2012, REIT distributions made to unit holders in the form of units in the REIT will be accorded tax transparency, subject to meeting the conditions stated below, where the trustee has to notify the CIT in writing prior to the distribution and comply with the following conditions:

  • The distribution is made on or after 1 April 2012, out of specified income and the distribution is made in the same year in which the income is derived by the trustee
  • Before making the distribution, the trustee has given to all unit holders receiving the distribution an option to receive the same, either in cash or units in the REIT, and
  • The trustee has sufficient cash available on the date of such distribution to demonstrate that it could have made the distribution fully in cash, had no option of choosing between the distributions in cash or units in the REITs  been given to the unit holders.

The e-Tax Guide was updated with the following:

  • Removing the need for application for an advance ruling in the adminstrative procedure section, and
  • Clarifying the condition that “90% of  the taxable income to be distributed to the unit holders in the same year” refers to the income that could be accorded the transparency treatment under section 43(2A) of the Income Tax Act.

Tax treatment of the trustee, withholding tax applicable to REIT distributions, tax treatment of the unit holder and relevant administrative procedures are also set out. It replaces the e-tax guide on “Income Tax Treatment of Real Estate Investment Trusts” published on 30 November 2006.

Source: This article was extracted from the Inland Revenue Authority of Singapore (IRAS) website. Visit www.iras.gov.sg for more information.