A trustee of a real estate investment trust that is constituted as a collective investment scheme authorised under Section 286 of the Securities and Futures Act (Cap. 289) and listed on the Singapore Exchange (S-REIT), and that invests or proposes to invest in immovable property and immovable property-related assets in Singapore, would not be assessed to tax on its taxable income (e.g. income from the holding of Singapore immovable properties after deduction of allowable expenses and capital allowances, if any) provided at least 90% of this taxable income is distributed to its unit holders in the same financial year in which the income is derived and such distribution must be made fully in cash (the tax transparency treatment).
Instead, the trustee of the S-REIT would deduct tax from the distributions made to the unit holders, where applicable. Broadly, individual unit holders would be exempt from tax (except for those derived by the individual through a partnership in Singapore or from the carrying on of a trade, business or profession), non-resident non-individual unit holders would be subject to final tax at a concessionary rate of 10% and resident non-individual unit holders (including permanent establishments in Singapore) would be subject to tax at the prevailing tax rate, currently at 17%.
If part of the distribution is not made in cash but in units and this results in an annual cash distribution of less than 90% of the S-REIT's taxable income for the year, the tax transparency treatment described above would not apply. In this connection, the trustee of the S-REIT would instead be subject to tax at the prevailing tax rate.
A trustee of a S-REIT that makes distributions to its unit holders in the form of units instead of cash can continue to enjoy the tax transparency treatment, subject to the following conditions:-
i. Before the distribution, the trustee grants the unit holders the option to receive the distributions either in cash or units; and
ii. On the date of distribution, the trustee must have sufficient cash to make the entire distribution fully in cash as if no option had been given to those unit holders to receive the distribution in units.
Unit holders of the S-REIT that elect to receive distributions in units would continue to be taxed in the same manner as if they had received the distribution in cash.
For distributions made by trustees of S-REITs on or after 1 April 2012.
The proposed change is a welcome move as it would enable trustees of S-REITs to retain cash, reduce borrowing costs and be more nimble in the current market environment.
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