The government is making it easier for investors to qualify for a separate-taxation benefit on real estate investment trust (REIT) dividends and extending the benefit by three years. The move is drawing attention amid signs that small investments of 50 million won ($34,900) or less could help turn around a REIT market that has been in a slump since JR Global Reit's debt default.
According to the government and industry sources Tuesday, the tax reform plan includes an extension of the separate-taxation benefit on REIT dividend income — from investments made through the end of this year to income earned through the end of 2029.
REITs that invest in overseas real estate, however, are excluded from the benefit. JR Global Reit suffered a liquidity crisis in April after the appraised value of its Belgian assets fell and senior lenders froze distributions. The fallout left roughly 28,000 retail investors with their funds locked up and forced to absorb losses, dealing a significant blow to confidence in REITs and rapidly chilling investor sentiment.
The plan also calls for dedicated accounts through which the separate-taxation benefit would apply automatically. Under the current system, investors must apply for the benefit separately with a brokerage. The new accounts would eliminate that step. The reform also removes the previous requirement that investors hold their positions for three years from the date of investment, broadening the pool of eligible recipients.
The revised separate-taxation benefit on REIT dividend income will apply to new investments of 50 million won or less made on or after Jan. 1 next year. For investments made before that date, investors may choose between the old rules and the new ones.
"REIT investors have had to go through the hassle of placing a separate order with their brokerage to apply for the separate-taxation benefit, but if the reform takes effect, the benefit will be applied automatically, which should help energize small-scale investment," an industry official said.
The tax reform plan also includes measures to support the housing market outside Greater Seoul by extending benefits for corporate restructuring (CR) REITs. The government plans to extend through the end of next year both the exemption from additional corporate tax and the exclusion from the comprehensive real estate tax for completed but unsold housing units outside Greater Seoul that CR REITs have acquired.
smh@heraldcorp.com
