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The REIT Act of 2009 and taxation

The REIT Act of 2009 and taxation by: Maria Noeli V. Francisco

The Real Estate Investment Trust Act of 2009, or REIT Act of 2009 (Republic Act No. 98501), is intended to promote the development of the capital market; democratize wealth by broadening the participation of Filipinos in the ownership of real estate in the Philippines; use capital market as an instrument to help finance and develop infrastructure projects; and protect the investing public by providing an enabling regulatory framework and environment under which real estate investment trusts through certain incentives granted under said law may assist in achieving the objectives set forth.

For taxation purposes, the law provides that REITs shall be subject to income tax under the National Internal Revenue Code (NIRC) of 1997, as amended, on its taxable net income, which is defined under the Act as “the pertinent items of gross income specified in Sec. 32 of the  NIRC of 1997, as amended, less all allowable deductions enumerated in Sec. 34 of the NIRC of 1997, as amended, less dividends distributed by an REIT out of its distributable income as of the end of the taxable year as: (a) dividends to owner of the common shares, and (b) dividends to owners of the preferred shares pursuant to their rights and limitations specified in the articles of incorporation of the REIT.”

REITs shall in no case be subject to the minimum corporate income tax under the NIRC of 1997, as amended.  In computing the taxable net income of an REIT, dividends distributed by an REIT from its distributable income after the close of the taxable year and on or before the last day of the fifth month following the close of the taxable year,  shall be considered as paid on the last day of such taxable year.  However, an REIT shall be subject to income tax under the NIRC Code upon the occurrence of the following events subject to the curing period under the Act:

         -  Failure to maintain its status as a public company as defined in the law; 

         -  Failure to maintain the listed status of the investor securities on the Philippine Stock Exchange (PSE) and the registration of the investor securities by the Securities and Exchange Commission (SEC); and/or

         - Failure to distribute at least 90 percent of its distributable income as provided in the law.

For income payments to REITs, a lower creditable withholding tax rate of 1 percent  is imposed. 

The transfer of real property to REITs shall be subject to 50 percent of the applicable documentary stamp tax (DST) under the NIRC of 1997, as amended.  This incentive, however, shall also be available to unlisted REITs provided that these REITs are listed with the PSE not later than two years from the date when they availed of the incentives.

In case of original issuance of investor securities, the DST provided under Title VII of the NIRC of 1997, as amended, applies. Any sale or transfer of disposition of listed investor securities through the PSE with prior approval of the SEC shall be subject to the stock transaction tax imposed under Sec. 127(a) of the NIRC of 1997, as amended.

But these securities shall be exempt from the DST provided under the same Code. The Act also provides exemption from tax on any initial public offering and secondary offering of investor securities.

For cash or property dividends paid by REITs, a final tax of 10 percent is imposed, except when paid to nonresident alien individuals or nonresident foreign corporations entitled to preferential tax rates provided under a tax treaty; or to domestic or resident foreign corporations, or to an overseas Filipino investor who is exempt from the dividends tax for seven years from the effectivity of the tax regulations implementing the REIT Act of 2009.

For VAT purposes, the tax imposed under Title IV of the NIRC of 1997, as amended, shall apply to the REITs’ gross sales from any disposal of real property and on their gross receipts from the rental of such real property. 

However, no VAT shall be imposed on the sale, exchange or transfer of securities forming part of the REITs’ real estate-related assets.

The passage of the law was met with skepticism and opposition, particularly with regard to the incentives that might affect the government’s revenue collection. 

But this may be outweighed by the fact that the Act is expected to increase local and foreign investments, which in turn provide capital for infrastructure development and promote employment. 

Considering the multiplier effect factor, more income will then be generated, providing the government a broader tax base.  Thus, in the long run, the law will benefit not only the investors but the government as well.

This article is not intended to be a substitute for professional advice.  For comments and inquiries, you may e-mail the author at  For other tax concerns, please check out our other tax services.