Tax Treatment For REITs / PTF Distribution To A Unit Holder

Loh Boon How CA(M), ATII
Oct 21, 2018
2 min read

What if a taxpayer who is a unit holder of Real Estate Investment Trust (REITs) or a Property Trust Fund (PTF), What is the tax treatment? Let us explore on this issue.

A) A REITs / PTF is tax exempted

If a REITs / PTF tax exempted (not less that 90% of total income is distributed to unit holder). Then, the unit holder is taxed in the Year of assessment (YA) when they are receiving the distribution of income.

An example :

A REIT close accounts on 31.12.2018

Unit holder received a distribution on 31.01.2019

Therefore, the distribution shall be taxed in YA 2019.

The unit holder who receives the distribution income will be subject to withholding tax. The withholding tax is a final tax, therefore, need not included in the tax return form.

In the YA 2017 and YA 2018, a resident company will be taxed at a corporate tax rate 24%, however a non-resident company will be subject to withholding tax of 25%. Meanwhile, a resident and non-resident individual and the foreign institutional investor will be subject to withholding tax of 10% at the same YA.

B) A REITs / PTF is taxable

Meanwhile, a REITs / PTF shall be taxed on the income distributed (if less that 90% of total income is distributed to unit holder). Therefore, the income distributed would carry a tax credit. The unit holder may declare the distribution received from REITs / PTF in a tax return form (Either a Form B / BE or Form C) and use such tax credit to offset the tax payable.

Similarly, the distribution of accumulated undistributed income which which is brought forward from previous years (less that 90% of total income), will be subjected to tax and would carry with a tax credit. The unit holders are also taxed in the YA, when they received a distribution of accumulated undistributed income from REITs / PTF and use such tax credit to offset the tax payable.

Conclusion

It I obvious the tax treatment not only depend on the residency of the taxpayer, but also whether REITs / PTF tax exempted or taxable.