Commercial & Industrial Property News Update

Malaysia - M-REITs Hope For Tax Break In Upcoming Budget

September 11, 2012

Malaysian real estate investment trusts (M-REITs) said that a loosening of the withholding tax structure will encourage higher foreign interest.

Foreign participation in Malaysia's REIT sector could increase after Budget 2013, if operators get their wish.

M-REITs want the government to revise the withholding tax structure so as to level the playing field with Singapore's REIT market.

CEO and executive director of Axis REIT Manager Bhd Stewart Labrooy pointed out that there was a 10% withholding tax for individuals in Malaysia whereas in Singapore there was not.

"Also, in Singapore, the corporate tax rate is lower than Malaysia and so dividends to non-resident corporate unitholders in Singapore attract a lower tax rate (17% versus 25%)," added Labrooy, who is also the chairman of the Malaysian REIT Managers Association.

A spokesperson from UOA REIT also called for a removal of withholding taxes for foreign investors so as to help increase the sector's competitiveness. "As it is, foreign participation in M-REITs remains low," they said.

Sunway REIT Management Sdn Bhd ceo Datuk Jeffery Ng wants a further relaxation of the withholding tax structure in the individual category in order to encourage the participation of retail investors.

In addition, Ng said that the government should consider incentives for sponsors involved in incubation of assets to be injected into REITs, including waiver of stamp duty for assets purchased for such a purpose.

A sponsor is the entity (usually the parent company or property developer) that injects assets into the REIT portfolio.

"This will encourage the incubation of assets by the sponsor in order to provide pipeline assets to the REITs over the medium to long-term horizon, to ensure that the REITs will continue to grow," said Ng.

He added that based on the prevailing withholding tax structure, Malaysia is equally competitive as Singapore for both resident or non-resident institutional investors.

"It is crucial to ensure the competitiveness of this category because REITs are primarily invested by institutional investors," said Ng.

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