2015 - Budget 2015 - Key Takeaway for REITs and Venture Capital Sectors

REAL ESTATE INVESTMENT TRUSTS

Singapore is playing a pivotal role in the region’s real state and infrastructure sector by smartly leveraging on its financial and capital market. The burgeoning regional economies and the focus of the governments on developing the infrastructure has led to the phenomenal growth in the listing of real estate investment trusts (REITS) in Singapore.

Tax concessions extended 
The following concessions, which are due to expire on 31 March 2015, have been extended until 31 March 2020.

  • Exchange listed REITS enjoy tax transparency if the trustee of a REIT distributes at least 90% of its taxable income to unit holders in the same year in which the trustee derives the income.
  • Concessionary income tax rate of 10% for non- tax resident non-individual investors.
  • Tax exemption on qualifying foreign-sourced income for listed REITs and wholly-owned Singapore subsidiaries of listed REITs, subject to conditions.

Stamp Duty Remission – allowed to lapse

The following remissions will be allowed to lapse on 31 March 2015:

  • Stamp duty remission on the transfer of Singapore immovable properties to a listed REIT.
  • Stamp duty remission on transfer of 100% issued shared capital of a Singapore company that holds immovable properties situated outside Singapore to a listed REIT.

GST Concession – enhanced and extended

GST remission enjoyed by listed REITS for GST incurred on business expenses will be extended until 31 March 2020 and enhanced to be applicable for GST incurred costs to setup fundraising SPVs and SPV’s business costs.

Our Comments

The enhancement to GST comes as a boost for the industry while the lapsing of stamp duty remission is deemed to hurt the REITS focused on local property acquisition. However the government appears to have taken the tough decision to cool the hot local property market. This may reduce the appetite of the REITS for local property and urge them to look at overseas expansion. But the REITS may also resort to buying the equity of Singapore companies that hold local properties; the stamp duty is far cheaper than the stamp duty on direct acquisition of properties. This will bring some interesting twists in the market. The extension of tax concessions will attract more REITS to be listed in Singapore.

VENTURE CAPITAL SECTOR

Venture capital funds have been driving the phenomenal growth of startups in Singapore. Several government schemes including the risk sharing programmes have been instrumental in the healthy growth of the venture capital activity in Singapore. Tax incentives also played a key role in promoting active high-tech startups and entrepreneurial endeavors in general. This year the budget has set review dates for tax concessions and revoked tax exemptions in this sector.

Funds (VCF) and VCF management companies
Tax concession – to be reviewed

Approved VCFs presently enjoy tax concession on specified incomes derived from approved investments. The tax scheme will be subjected to review on 31 March 2020.

Pioneer Service Incentive – allowed to lapse & new tax concession introduced

Under the PSI fund management companies managing approved venture capital funds enjoyed tax exemption on incomes in the form of management fees and performance bonus, this tax concession will be allowed to lapse on 31 March 2015. It must be noted that pioneer certificates issued previously remains unaffected.

Instead of PSI, a 5% concessionary tax rate will be accorded to approved venture capital FMCs managing 13H Funds. The approval period will be from 1 April 2015 to 31 March 2020.

Our Comments

The changes may appear to dampen funding activity and slow down the entrepreneurial activity, but it must be noted that the government has introduced risk-sharing schemes, which will come to the aid of startups at diverse growth stages.

Back to top