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REITs should not be taxed: CA-CSE webinar 

17 Dec 2020

HEAD: The recently-introduced Real Estate Investment Trusts (REITs) should not be subjected to tax, or only to a very low-tax situation, said KPMG Sri Lanka Principal for Tax and Regulation Suresh R. I. Perera during a recent webinar.  Perera shared this view at the recently-conducted webinar titled “REITs: The Way Forward and Opportunities”, organised by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and the Colombo Stock Exchange (CSE). He stated that most countries have introduced specific REIT-related tax provisions into their tax statutes, and explained the complications that might arise to stakeholders, sponsors, and investors, in the context of the current tax provisions. Commenting on the reliefs provided for REITs in the recently-announced Budget, Perera stated that the Budget proposals have addressed capital gains tax on investors, stamp duty, and dividends to investors in REIT units.   “As dividends from quoted company shares at present attract tax, the tax-free status provided for dividends from REITs to investors would provide a competitive advantage for attracting investment into REITS,” he added.  The webinar featured capital market and financial services experts, including CA Sri Lanka Chairman Manil Jayesinghe, CSE CEO Rajeeva Bandaranaike, Securities and Exchange Commission of Sri Lanka (SEC) Director of Corporate Affairs Dr. Harshana Suriyapperuma, CSE Chief Regulatory Officer Renuke Wijayawardhane, and Candor Holdings Group Director Ravi Abeysuriya. Dr. Suriyapperuma stated that upon the SEC issuing the gazette notification, the Sri Lankan capital market can now formally accept applications for creating REITs, not only for commercial and residential properties meeting the criteria, but also for infrastructure projects.  “It's important to note that Sri Lankan REITs are allowed only as a listed security, mainly to promote transparency and facilitate retail investor participation. In Sri Lanka, the attractiveness of REITs is expected to be further enhanced, owing to the tax incentives included in the National Budget. Checks and Balances are included within the regulation framework to safeguard the interests of our investors, while facilitating flexibility for the business case of REITs as an investment vehicle,” Suriyapperuma added.  It has been made mandatory within the Framework that a REIT be managed by a managing company licensed by the SEC, and that it meet the basic criterions stipulated within the Listing Rules to qualify for a listing on the CSE. The real estate assets owned by the REIT would be required to meet the minimum threshold of Rs. 500 million at the point of listing, and it is mandatory that all units issued pursuant to a REIT be listed. Additionally, a 30% stake to be held by the sponsor or strategic investor – which will be locked in for a period of six months – and 20% of the units issued be held by a minimum of 100 shareholders are among the basic requirements that need to be met at the point of Listing a REIT. Meanwhile, Renuke Wijayawardhane stated that, similar to a listed company, REITs would be subject to compliance requirements in the best interest of all stakeholders involved, and with focus on investor protection and maintaining a fair and orderly market. Commenting on the timeline for issuing a REIT and the approval process, Renuke noted that initial approval for the REIT would have to be obtained through the SEC, and the listing application should be forwarded to the CSE within a month of obtaining approval.  Renuke also explained the process of listing a REIT on the CSE, and noted that it would only take around 50 days from the point CSE grants approval for the listing application, up to the point of Listing the units and being made available for trading on the CSE. During the webinar, Manil Jayesinghe noted the importance of the independence of the property valuation that needs to be produced, and the appointment of a specialised panel of advisors to safeguard the interest of unit holders. Meanwhile, Ravi Abeysuriya noted seven specific benefits for an investor through the introduction of REITs on the CSE. The seven benefits highlighted were that an investor could invest in real estate with a small sum, diversify their investment portfolio, gain access to a liquid investment vehicle, secure a stable and recurrent income stream, the reduced risk associated with a REIT investment due to the transparency demanded through the listing rules, the easy understandability of the investment, and that it also serves as a hedge against inflation rates in the country. 


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