BETTER INCENTIVES: Revise current rate of 25pc for non-resident companies, says Sunway REIT chief
MALAYSIA needs to further liberalise its Real Estate Investment Trust (REIT) withholding tax.
"The 10 per cent rate needs to be on par with neighbouring countries to attract more foreign investments," said Sunway REIT Management Sdn Bhd chief executive officer Datuk Jeffrey Ng.
In the 2012 Budget, the government extended the withholding tax for Malaysian REITs for another five years until end-2016. The rate, however, remained at 10 per cent.
Compared with Singapore, Malaysia's withholding tax rate is not attractive for individuals and non-resident corporates.
This is because non-resident companies investing in Singapore REITs are offered a concessionary tax of 10 per cent until March next year.
The lowering of tax rate for this category is aimed at attracting foreign investments into Singapore REITs.
In Malaysia, non-resident companies are taxed at 25 per cent, which makes is less compelling for foreign corporates to invest in Malaysian REIT.
In Singapore, retail investors enjoy tax exemption on withholding tax. This is certainly a better option because retail investors putting money in Malaysian REITs will have to pay the 10 per cent withholding tax.
Looking back, Malaysian REITs have gained traction among foreign investors and retail investors in recent years.
"We, however, need to see further liberalisation of the withholding tax. The rate needs to be on par with the region so that it will augur well for future growth of the REIT market," Ng said.
"We hope the government will consider foregoing this small revenue stream in exchange for attracting more local and foreign investors into the capital market, which will certainly bring greater benefits to our economy."
Ng went on to explain that REITs are often backed by sponsors, whose role includes supplying pipeline assets to the REIT and incubation of assets.
Under the prevailing tax regime, sponsors enjoy exemption in Real Property Gains Tax for property sales to REITs and the REITs enjoy stamp-duty exemption.
To further support the growth of the Malaysian REIT market, the government may consider offering incentives to sponsors that undertake incubation of assets, such as waiver of stamp duty to the sponsor on acquisition of the assets to be incubated for a specific timeframe to be injected into the REIT.
If, however, the time frame is not met, the sponsor will then be subjected to the stamp duty.