REAL ESTATE INVESTMENT TRUST ACT OF 2009
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REAL ESTATE INVESTMENT TRUST ACT OF 2009
Republic Act No. 9856
December 17, 2009
Case Overview and Summary
Summary of the Real Estate Investment Trust (REIT) Act of 2009Declaration of Policy (Section 2)
- Promote capital market development, democratize wealth ownership, finance infrastructure projects, and protect investors through an enabling regulatory framework for REITs.
Definition of Terms (Section 3)
- Defines key terms such as "Adviser", "Affiliate", "Associate", "Cash Equivalent Items", "Commission", "Constitutive Documents", "Control", "Deposited Property", "Distributable Income", "Exchange", "Fund Manager", "Income-generating Real Estate", "Independent Director", "Investible Funds", "Investor", "Investor Securities", "Managed Funds", "Material Contract", "Net Asset Value", "Net Income", "Overseas Filipino Investor", "Parent", "Principal Officer", "Principal Stockholder", "Public Shareholder", "Property Manager", "Real Estate Investment Trust", "Real Property", "REIT Plan", "Real Estate-Related Assets", "Related Corporation", "Related Party", "Securities Regulation Code", "Sponsor/Promoter", "Subsidiary", "Synthetic Investment Products", and "Taxable Net Income".
Investment in the REIT (Section 4)
- Investment in the REIT shall be by way of subscription to or purchase of shares of stock of the REIT.
Registration and Listing (Section 5)
- The shares of stock of the REIT must be registered with the SEC and listed on an Exchange.
Nationality Requirement (Section 6)
- A REIT that owns land in the Philippines must comply with foreign ownership limitations under Philippine law.
Dividend Distribution (Section 7)
- A REIT must distribute annually at least 90% of its distributable income as dividends to its shareholders not later than the last day of the fifth month following the close of the fiscal year.
- The dividends shall be payable only from the unrestricted retained earnings of the REIT.
- The percentage of dividends received by the public shareholders must not be less than their aggregate ownership of the total outstanding shares.
Requirements (Section 8)
8.1 Minimum Public Ownership
- A REIT must be a public company and maintain its listed status.
- Upon and after listing, have at least 1,000 public shareholders each owning at least 50 shares who in aggregate own at least one-third of the outstanding capital stock.
8.2 Capitalization
- A REIT must have a minimum paid-up capital of Three hundred million pesos (Php300,000,000.00).
8.3 Allowable Investments
- A REIT may invest in: (i) income-generating real estate in the Philippines (up to 40% outside the Philippines with special authority), (ii) real estate-related assets, (iii) managed funds, debt securities and listed shares, (iv) government securities, (v) cash and cash equivalent items, and (vi) other similar investment outlets allowed by the SEC.
8.4 Investment in Synthetic Investment Products
- A REIT may invest not more than 5% of its investible funds in synthetic investment products such as credit default swaps, credit-linked notes, collateralized debt obligations, total return swaps, credit spread options, and credit default options, upon special authority.
8.5 Income-generating Real Estate
- At least 75% of the deposited property of the REIT must be invested in, or consist of, income-generating real estate.
8.6 Property Development
- A REIT must not undertake property development activities unless it intends to hold the developed property upon completion.
- The total contract value of property development activities and investments in uncompleted property developments should not exceed 10% of the deposited property of the REIT.
8.7 Single Entity Limit
- Not more than 15% of investible funds of the REIT may be invested in any one issuer's securities or anyone managed fund, except for government securities where the limit is 25%.
8.8 Foreign Assets
- A REIT may invest in local or foreign assets, subject to its articles of incorporation and compliance with applicable laws in the foreign country.
8.9 Joint Venture
- When investing in real estate as a joint owner, the REIT should acquire shares or interests in an unlisted special purpose vehicle constituted to hold/own the real estate, with provisions for distributable profits and veto rights over key operational issues.
8.10 Aggregate Leverage Limit
- The total borrowings and deferred payments of a REIT should not exceed 35% of its deposited property, or up to 70% if it has a publicly disclosed investment grade credit rating.
8.11 Related Party Transactions
- Contracts between the REIT and related parties must comply with disclosure requirements, be on fair and reasonable terms, be approved by the board of directors (including unanimous vote of independent directors), accompanied by a fairness opinion for real estate transactions, and meet other requirements.
8.12 Valuation
- A full valuation of a REIT's assets must be conducted by an independent appraisal company, duly accredited by the SEC, at least once a year in accordance with the applicable rules.
8.13 Fund Manager
- A REIT must appoint a fund manager that is independent from the REIT and its sponsor(s)/promoter(s), with minimum requirements for paid-up capital, office in the Philippines, independent directors, corporate governance, conflict of interest measures, and experienced personnel.
8.14 REIT Property Manager
- The REIT must appoint an independent REIT property manager responsible for managing the real estate assets, with requirements for independent directors, corporate governance, and conflict of interest measures.
8.15 Independent Directors
- At least one-third of the board of directors of a REIT must be independent directors.
8.16 Fit and Proper Rule
- The SEC or concerned regulatory agency shall prescribe or review the qualifications and disqualifications of individuals elected or appointed as directors, officers, fund managers, property managers, distributors, and other REIT participants, and disqualify those found unfit.
- Specific disqualifications are listed, including convictions for crimes involving securities or financial products, fraud, embezzlement, or violations of relevant laws.
8.17 Executive Compensation
- The total annual compensation of all executive officers of the REIT shall not exceed a percentage of the net income before regular corporate income tax during the immediately preceding taxable year, as provided in the IRR.
8.18 Fund Manager and Property Manager Fees
- Fees received by the REIT fund manager and the REIT property manager from the REIT shall not exceed 1% of the net asset value of the assets under management.
Reportorial and Disclosure Requirements (Section 9)
9.1 Requirements
- The REIT shall disclose: (i) material contracts, (ii) allowable investments, (iii) related party transactions, (iv) contracts with fund manager or property manager, (v) valuation of real estate properties, (vi) material changes in income stream, (vii) fees related to real estate acquisition or disposition, (viii) mergers, consolidations, joint ventures, takeovers or spin-offs, (ix) modifications of security holders' rights, (x) dividend declarations, (xi) appointment of receiver or liquidator, (xii) change in control, (xiii) losses or potential losses of at least 5% of deposited property, (xiv) events of dissolution, (xv) acts that may impair business activities, (xvi) creation of mortgages, pledges or liens, (xvii) development activities, (xviii) ownership of directors and principal officers, (xix) amendments to articles of incorporation and bylaws, and (xx) planned acquisition or disposition of treasury shares.
9.2 Special Quarterly and Annual Reports
- The REIT shall report and disclose: (i) summary of all real estate transactions, (ii) summary of all real estate assets, and (iii) comparative summary of financial performance.
9.3 REIT Plan
- The REIT plan or prospectus shall comply with the Securities Regulation Code and disclose risks specific to investing in REITs.
9.4 Failure of Compliance
- Failure to comply with reportorial and disclosure requirements shall subject the REIT to applicable penalties under the Securities Regulation Code and the rules of the Exchange, without prejudice to other administrative, civil or criminal actions.
Income Taxation of REITs (Section 10)
- A REIT shall be subject to income tax on its taxable net income as defined in the Act, but not to the minimum corporate income tax.
- A REIT shall be subject to income tax on its taxable net income as defined in the National Internal Revenue Code instead, upon failure to maintain public company status, listed status, or distribute at least 90% of distributable income, subject to a curing period.
Creditable Withholding Tax (Section 11)
- Income payments to a REIT shall be subject to a lower creditable withholding tax of 1%.
Transfer of Real Property (Section 12)
- The sale or transfer of real property to REITs, including security interests, shall be subject to 50% of the applicable Documentary Stamp Tax (DST) and registration/annotation fees.
- The 50% DST incentive can be availed of by an unlisted REIT, provided it is listed within two years.
- The 50% DST shall nevertheless be due, together with surcharges, penalties, and interest, upon failure to list within the prescribed period, maintain public company status, maintain listed status, or distribute at least 90% of distributable income, subject to a curing period.
Issuance and Transfer of Investor Securities (Section 13)
- The original issuance of investor securities shall be subject to DST.
- Any sale, barter, exchange or other disposition of listed investor securities through the Exchange shall be subject to the stock transaction tax.
- Any sale, barter or exchange or other disposition of listed investor securities through the Exchange shall be exempt from DST.
- Any initial public offering and secondary offering of investor securities shall be exempt from the tax imposed under Section 127(b) of the National Internal Revenue Code.
Dividends Paid by REITs (Section 14)
- Cash or property dividends paid by a REIT shall be subject to a final tax of 10%, unless received by a non-resident alien individual or foreign corporation entitled to a preferential withholding tax rate pursuant to a tax treaty, or received by a domestic corporation, resident foreign corporation, or overseas Filipino investor (exempt for 7 years from the effectivity of the tax regulations).
VAT on Gross Sales or Gross Receipts of REITs (Section 15)
- A REIT shall be subject to value-added tax (VAT) on its gross sales from any disposal of real property, and on its gross receipts from the rental of such real property.
- A REIT shall not be considered as a dealer in securities and shall not be subject to VAT on its sale, exchange or transfer of securities forming part of its real estate-related assets.
General Application of the National Internal Revenue Code (Section 16)
- Unless otherwise provided under this Act, the internal revenue taxes under the National Internal Revenue Code shall apply.
Delisting of REITs (Section 17)
- In the event the REIT is delisted from the Exchange, whether voluntarily or involuntarily, for failure to comply with the provisions of this Act or rules of the Exchange, the tax incentives granted shall be revoked, and any tax incentives availed of shall be refunded to the Government, with surcharge and penalty.
- If the delisting is for causes highly prejudicial to the interest of the investing public, the responsible persons shall refund to investors the value of their shares at the time of final delisting.
Revocation of Registration (Section 18)
- If the SEC finds that the REIT was established without a true intention to carry out the provisions of this Act and/or the IRR, the SEC shall revoke or cancel the registration of the securities of the REIT, and the REIT shall pay the applicable taxes plus interests and surcharges.
Penalties (Section 19)
- A fine of not less than Two hundred thousand pesos (Php200,000.00) nor more than Five million pesos (Php5,000,000.00) or imprisonment of not less than six years and one day nor more than twenty-one years, or both, shall be imposed upon any person, association, partnership or corporation, its officer, employee or agent, who commits certain violations specified in the Act, such as understating or overstating financial statements, causing loss or misappropriation of assets or income, circumventing the minimum public ownership requirement, submitting false or misleading certification, or violating any provision of the Act or its rules and regulations.
- If the offender is a corporation, partnership or association, the penalty may be imposed upon the juridical entity and/or the responsible officer(s).
- Prosecution and conviction under this Act shall be without prejudice to administrative, civil and criminal liabilities under the Securities Regulation Code.
Corporate Governance (Section 20)
- The REIT property manager and the REIT fund manager shall be subject to the principles of corporate governance adopted by the proper regulatory body.
Use of Registration Fees (Section 21)
- To carry out the purposes of this Act, the SEC shall retain and use 50% of all fees paid to it relative to the establishment of REITs and the registration of their securities, in addition to its annual budget.
Implementing Rules and Regulations (Section 22)
- Within 90 days from the effectivity of this Act, the SEC, in coordination with the Bangko Sentral ng Pilipinas (BSP) and the Department of Finance (DOF) and in consultation with other stakeholders, shall promulgate the implementing rules and regulations of the provisions of this Act.
- The SEC, BSP and DOF may continue to issue separate regulations for institutions under their respective jurisdiction, consistent with the implementing rules and regulations.
- The Commissioner of the Bureau of Internal Revenue shall issue the IRR regarding all tax provisions of this Act, subject to the review of the Secretary of Finance, after full and complete consultation with all concerned.
Separability Clause (Section 23)
- If any article, provision or portion of this Act is declared invalid or unconstitutional, the remainder of this Act shall not be affected.
Repealing Clause (Section 24)
- All laws, executive orders, rules and regulations and parts thereof which are inconsistent with this Act are hereby repealed or amended accordingly.
Effectivity Clause (Section 25)
- This Act shall take effect 15 days after its complete publication in the Official Gazette or in at least two newspapers of general circulation in the Philippines.
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Tags
Statutes
Republic Acts
Real Estate Investment Trust (REIT)
Securities and Exchange Commission (SEC)
Income-generating real estate
Minimum public ownership
Dividend distribution
Investment requirements
Related party transactions
Valuation
Fund manager
Property manager
Independent directors
Fit and proper rule
Reportorial and disclosure requirements
Income taxation
Creditable withholding tax
Transfer of real property
Issuance and transfer of investor securities
Dividends paid by REITs
Value-added tax (VAT)
Delisting of REITs
Penal provisions
Corporate governance
Implementing rules and regulations
Law
REAL ESTATE INVESTMENT TRUST ACT OF 2009
Republic Act No. 9856
•December 17, 2009
Republic of the Philippines
CONGRESS OF THE PHILIPPINES
Metro Manila
Fourteenth Congress
Third Regular Session
Begun and held in Metro Manila, on Monday, the twenty-seventh day of July, two thousand nine.
Republic Act No. 9856
AN ACT PROVIDING THE LEGAL FRAMEWORK FOR REAL ESTATE INVESTMENT TRUST AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Philippines in Congress assembled:
ARTICLE I
GENERAL PROVISIONS
Section 1. Short Title. - This Act shall be known as "The Real Estate Investment Trust (REIT) Act of 2009".
Section 2. Declaration of Policy. - It IS the policy of the State 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 the2 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 herein, may assist in achieving the objectives of this policy....
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