PR No.7/2012: Taxation of Unit Holders of Real Estate Investment Trusts / Property Trust Funds

Please be informed that the Inland Revenue Board (IRB) has uploaded Public Rulings No.7/2012 and No.8/2012 on 29 October 2012 and 2 November 2012 respectively. Both the Public Rulings (PR) have taken into account the comments submitted by CTIM earlier. Members may view the Public Rulings on the website of the Institute and the website of the IRB.

PR No.7/2012: Taxation of Unit Holders of Real Estate Investment Trusts / Property Trust Funds

The Public Ruling (PR) illustrates, with examples, the tax treatment of income from Real Estate Investment Trusts (REITs) or Property Trust Funds (PTFs) by the unit holders, and the circumstances for filing of the relevant Income Tax Return Form.

PR No.8/2012: Real Estate Investment Trusts / Property Trust Funds – An Overview

The objective of this PR is to provide an overview of REITs, PTFs and Islamic REITs.

· Paragraph 4 explains what a REIT is, its purposes and functions and the types of income it receives.

· Paragraph 5 of the PR sets out the regulatory framework governing REITs / PTFs in Malaysia, and the relevant Guidelines issued by the Securities Commission (SC).

· Paragraph 6 explains that Islamic REITs are similar to conventional REITs/ PTFs except that the Islamic REITs invest through Syariah-compliant capital market instruments. For the establishment of Islamic REITs, a person must observe and comply with both the requirements under the Guidelines for Islamic REITs and the Guidelines on REITs.

· Paragraph 7 sets out the key features and structure of Conventional REITs/PTFs and Islamic REITs. It illustrates the types of authorized investment activities as follows:

	Type of authorised investment activities
	Conventional REITs/PTFs		Islamic REITs
	a	Real estate	a	Acquiring real estate with existing client
	b	Single purpose companies	b	Investment, deposit and financing for Islamic REITs
	c	Real estate-related assets	c	Insurance
	d	Non-real estate-related assests	d	Forward sales or purchases of currency for risk   management
	e	Cash, deposits, and money market instrument
	f	Investment in foreign real estates and markets

          

It also set out non-permissible activities of Conventional and Islamic REITs

· Paragraphs 8 and 10 explain the difference in the tax treatment of rental income for a REIT/PTF and rental income from a unit trust. Rental income received by the REIT/PTF would be treated as a business income, subject to certain restrictions. Details on the restriction are further discussed in the forthcoming Public Ruling on Taxation of Real Estate Investment Trust/Property Trust Fund. Rental income of other property trusts is treated as Section 4(d) income with special deductions available under Sections 63A and 63。


· Paragraph 11 illustrates, with an example, the determination of the basis periods and the due dates for filing of Income Tax Return Form (Form TR).

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