Real Estate Investment Trusts: Special purpose vehicles to get income tax exemption

ISLAMABAD: The government has decided to grant the special purpose vehicles (companies) of Real Estate Investment Trusts (REITs) an exemption from income tax through the (fourth) amendment to the tax laws, 2021.

Sources told Business Recorder here on Monday that the government can limit the scope of the agricultural income tax exemption under the 2001 Income Tax Ordinance.

The Federal Tax Office (FBR) can restrict the term “agricultural income” according to the 2001 Income Tax Ordinance.

One of the proposals is to limit the income tax exemption to only the landlord, and the absent landlords may be subject to tax.

Another proposal is to limit the income tax exemption to vital food crops. However, no final decision has yet been taken on the restriction of the scope of the agricultural income tax exemption.

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There are currently 7-8 REIT projects in the pipeline and the SECP can grant them registration as REIT Management Companies (RMCs) to start the housing sector.

The FBR has already granted the REITs a corporate tax exemption that would be extended to the special purpose vehicles.

The goal of the reforms in REITs is to transition to disclosure-based issuance, provide the necessary support for the growth of REIT systems, remove barriers to entry, and attract PPP-based infrastructure projects to the REIT space.

Major reform proposals with a view to revising the traditional REIT model that will allow REITs to invest either directly in real estate or by investing in special purpose vehicles, to introduce the concept of public-private partnership-based infrastructure projects under the REIT umbrella, etc.

In addition, the regulatory changes include making it easier for REIT companies to remove a number of approval processes and streamlining the requirements for filing various documents.

Copyright Business Recorder, 2021