I have a confession to make.
I’m not sure how many of you attended last Tuesday’s webinar at KCLau.com. But, after the webinar session, I realized that my comments on the tax treatment for S-REITs are flawed. This realization came about when I did some study on the subject as I intend to write an article to explain the difference in tax treatment between M-REITs and S-REITs.
Here, I intend to share my current findings with you in regards to this subject matter. But, I would urge you to take a pinch of salt as I’m not a tax expert myself. Please consult and double-verify the facts presented above. Of course, if I have new findings on this matter, I would update you in writing.
So with that, let’s begin:
Tax Treatment for M-REITs
In Malaysia, the total income from a REIT is exempted from tax if the REIT made a distribution of at least 90% of its taxable income to its unitholders. This would be in accordance with Section 61A of the Income Tax Act 1967. Rather, all these distributions shall be taxed at the unitholders’ level, upon their declaration. The withholding tax rate is applied based on the unitholders’ tax status as follows:
Individuals and Institutional Investors: 10%
Take IGB REIT as a case study. From its Annual Report 2021, I discovered:
Source: Page 73 of IGB REIT
Source: Page 101 of IGB REIT
Source: Page 103 of IGB REIT
So, if I invested in IGB REIT as an individual, the net DPU 2021 made by IGB REIT is calculated as follows:
Net DPU 2021
= (Taxable DPU – 10% Withholding Tax) + Non-Taxable DPU
= (5.970 sen – (5.970 sen x 10%)) + 0.060 sen
= 5.970 sen – 0.597 sen + 0.06 sen
= 5.433 sen
Tax Treatment for S-REITs
In Singapore, there is a tax transparency treatment issued to REITs, which states that REITs are not subjected to tax on ‘specific taxable income’ if they choose to declare at least 90% of such income to their unitholders. These ‘specific taxable income’ are listed as follows:
Source: Page 4 of the IRAS e-Tax Guide
Subsequently, these distributions would be taxed based on the investors’ status as defined in the Inland Revenue Authority of Singapore (IRAS). Personally, I will be categorized as a ‘qualifying unitholder’ as I’m an individual investor. So in my case, such distributions would be declared without income tax deduction.
Thus, the DPUs declared and paid to me are exempted from income tax. But, you may ask, ‘Would these DPUs be subjected to income tax in Malaysia?’. According to PR 2/2014, these dividends are also tax-exempted.
Source: Page 5 of PR 2/2014
For example, I have invested in some units in Mapletree Logistics Trust (MLT). In 2022, it declared 8.787 cents in DPU. As an individual investor, I had received its DPU (tax-exempt), after deduction of a small dividend handling fee. This fee will be dependent on your choice of broker to buy and hold units of MLT. Here, let’s reserve the subject of stockbrokers for another day.
That is it. The above are my findings on the subject of tax treatments for M-REITs and S-REITs.
Here, if you happen to find something useful for this topic, please leave your comments below for the common good. Also, if you wish to learn more about dividend investing, you may check out the free training below: