REIT Rules Revamped

REIT Rules Revamped

by: Joseph Bar Paulo V. Moises


Every start of the new year and during most of January, we see posts with the hashtag “#10yearchallenge” in various social media platforms until it becomes a trend. This trend, as the name suggests, encourages people to share their then-and-now profile pictures, selfies or other photos, mostly from ten years ago or so and the current year. It is popular because people want to show how they have changed since the beginning of the decade. A closer look at the trend suggests that the post who has the most likes or shares usually depict substantial, noticeable and obvious change in the pictures and photos. 

reit rules revamped

The #10yearchallenge also applies outside social media platforms, such as in business and finance where important substantial changes in regulatory framework made by the government became popular to potential investors because these bring drastic change in their investment opportunities or decisions. For this year, the government’s modification of the implementing rules pertaining to Real Estate Investment Trusts (REITs) could very well be its entry for the #10yearchallenge.

As a background, REIT is a creation of Republic (RA) No. 9856, otherwise known as The Real Estate Investment Trust Act of 2009. This law was enacted to encourage participation of Filipinos in the ownership of real estate in the Philippines, use capital market as an instrument to help finance and develop infrastructure projects and provide protection to investors by providing regulatory framework and fiscal incentives. RA 9586 defines REITs as stock corporations and created principally for the purpose of owning income-generating real assets, which are held for the purpose of generating a regular stream of income such as, but not limited to, rentals, toll fees, user’s fees, tickets sales, parking fees, storage fees, and the likes as may be defined and identified by the Securities and Exchange Commission (SEC). These assets may come from a sponsor or promoter, or any person who, acting alone or in conjunction with one or more other persons, directly or indirectly, contribute cash or property in establishing REITs.

Under the SEC implementing rules and regulations (IRR) issued on 24 May 2010, a REIT must be a public company and to be considered as such, it must maintain its status as a listed company, and upon and after listing, must have at least 1,000 public shareholders each owning at least 50 shares, and who in the aggregate, own at least 40% of the outstanding capital stock of the REIT at the initial year, provided, that the minimum ownership shall be increased to 67% within 3 years from its listing.

However, REITs in the Philippines did not take off. In fact, news reports have stated that since RA 9586 became a law in 2009, no local REIT has been established or incorporated despite the upswing in the local property market. This is partly due to investors’ view that the minimum public ownership (MPO) rules set by the SEC are too aggressive and difficult to achieve. Another roadblock then was the value-added tax (VAT) on the transfer of real properties to the REIT.

To address these concerns, the government enacted the Tax Reform Acceleration and Inclusion (TRAIN) Act (RA No. 10963) that took effect on 1 January 2018 and the SEC relaxed the MPO rules when it issued SEC Memorandum Circular (MC) No. 1-2020 dated 20 January 2020 or the Revised IRR of RA No. 9586.

The TRAIN law, as implemented by Revenue Regulations (RR) No. 3-2020, provides that the transfer of property to a REIT in exchange for its shares is now exempt from VAT pursuant to Section 109 (X) of the Tax Code, as amended. It is an additional tax benefit for property transferors who already enjoy exemptions from Documentary Stamp Tax (DST), Capital Gains Tax (CGT) and Creditable Withholding Tax (CWT).

The TRAIN law, however, increased the DST rates that are applicable to REITs. The DST on transfers of shares representing interest in real property increased from PhP0.375 to PhP0.75 for each PhP200 of the par value of the share.

On the other hand, SEC MC No. 1-2020 brought considerable and favorable changes to REITs. First noticeable change is the reduction of the MPO requirement from 40% to 1/3 of the outstanding capital stock. It also removed the proviso requiring the increase in MPO to 67% within three years from its listing.

Second, the SEC, with the end-goal of promoting the development of the capital market and Filipino participation in the real estate industry, now prescribes the submission of a Reinvestment Plan in order to establish a REIT. A Reinvestment Plan presents a firm undertaking to reinvest any proceeds realized by the sponsor or promoter from the sale of REIT shares or other securities issued in exchange for income-generating real properties transferred to the REIT in any real estate, or in any infrastructure projects in the Philippines. This reinvestment shall be made 1 year from the date of receipt of proceeds or money by the sponsor or promoter. Submission of the Reinvestment Plan is important because without the Reinvestment Plan, REITs may not avail of the tax incentives as provided by the recently issued RR No. 3-2020.

The new rules also seek to provide enhanced protection for REIT investors beginning with the mandatory creation of related party transactions committee. This committee is composed of independent directors who shall vote unanimously in approving related party transactions.  Further, any contract between REIT and related parties, including contracts involving the acquisition or lease of assets and contracts of services, is required to be fully disclosed and must be approved by at least a majority of the entire membership of the board and the related party transactions committee. The SEC also revised the requirements for REIT fund managers by providing standards to ensure their independence. A REIT fund manager can either be a registered domestic corporation, a trust entity with an existing BSP license or a foreign corporation duly licensed to do business in the Philippines. Majority of the members of the board of the REIT fund managers must be independent directors, and at least one of whom must have a working knowledge of the real estate industry, fund management, corporate finance or other relevant-related functions. Moreover, the directors of the REIT and its sponsors or promoters cannot jointly occupy more than 49% of the board of directors of the REIT fund managers. These amendments aim to find a middle ground between protection to investors and the expertise required for the proper functioning of these roles.

All these recent developments were placed to address potential investors’ concerns regarding the MPO requirement and profitability of REITS. After a decade, the framework now is more conducive to investors to set up REITs, as evidenced by news on big companies and conglomerates having regained their interest in establishing REITs in the Philippines. This could be a bright outlook for the future ahead as the Philippines grapples with the adverse impact of the COVID-19 to the economy.

Joseph Bar Paulo V. Moises is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email or

© 2024 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.


For more detail about the structure of the KPMG global organization please visit

Connect with us