Tax Update: Property REIT Structures

Since April 2013 most listed property companies converted to internationally recognised REIT structures from property loan stocks and unit trusts. This move brought South African listed property companies in line with global standards which also offered certain tax benefits to the structures.

How does this affect the shareholder?

Historically income distributions from property shares were primarily declared as interest and shown as such on tax statements. We have noticed that some stockbrokers are reluctant to form a formal tax opinion on the distributions from REIT structures. Tax statements therefore exclude distributions from REIT structures under interest and dividends earned.

To clarify this we summarise an article written by KPMG:

Interest distributions by a REIT should be seen as a dividend, but Dividend Withholding Tax does not apply. Therefore the full amount is included under your income and taxed at your marginal tax rate.

Below extract from the article:

“Interest distributions by a REIT (or a controlled property company) payable to South African resident investors are recharacterised as taxable dividends (ie the normal tax exemption for dividends does not apply), but dividends withholding taxes will not apply. However, where the recipient is a non-resident investor, the dividend will remain exempt from income tax. As from 1 January 2014, foreign investors will be subject to the dividends withholding tax (subject to any DTA reductions, if applicable).
REIT


Thus, the tax on the net income of the REIT is ultimately borne by the investor, in line with the principle. However, the detailed legislation was not as simple as it sounds and a number of technical issues have been identified.”

Link to full article for those interested:
http://www.kpmg.com/za/en/issuesandinsights/articlespublications/tax-and-legal-publications/pages/south-african-reits-tax-implications.aspx

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