The document provides information on Real Estate Investment Trusts (REITs) in Malaysia. Some key points: - REITs must invest ≥50% of assets in real estate and derive main income from rental profits. They require approval from the Securities Commission. - Rental income is business income. Expenses are deductible while losses cannot be carried forward. Capital allowances can be claimed against rental profits. - Distributions to unlisted REIT unit holders are subject to 24% tax withholding. Listed REITs are tax exempt if ≥90% of income is distributed. - When REITs distribute income to foreign/individual unit holders, they must withhold tax before distribution

1. REAL ESTATE
INVESTMENT
TRUST (REIT)/
PROPERTY TRUST
FUND

2. Introduction
◦ Special type of unit trust that invests ≥ 50% of its total
assets in real estates, including land, buildings, and
shares & bonds in real estate companies.
◦ Main source of income : rental income
◦ Must be approved by Securities Commission to enjoy
special treatment.
◦ Basis year = financial year end (31 Dec or non-31 Dec).

3. Rental Income
◦ Rental income from letting of real property is treated as
business income.
◦ Rental source for building arises when a building is
ready for rent.
◦ Any outgoings and expenses incurred in respect of the
business are deductible.
◦ Revenue expenses are deductible as at when the
rent is first received.
◦ When expenses > income, no c/f is allowed; it is a
permanent loss [s63C(3)].

4. Rental Income
◦ CA is available against the adjusted rental income.
◦ CA is available as at when the rent is first received.
◦ Unutilised excess cannot be c/f [s63C(4)].
◦ QCE includes any QCE used in the business of REIT
in addition to those used to derive rental income.

5. Other Income
Types of Income Treatment
Dividend income Exemptions, similar to
those of unit trust, are
given.
[Please refer to Lecture
notes.]
Interest income

6. Related Expenses
◦ The following expenses are not applicable to REIT:
◦ fraction of permitted expenses [s63B]
◦ deduction of QCE against rental income [s63A]
◦ Legal, valuation, and consultancy fees in connection
with establishing the REIT prior to SC’s approval shall
be given tax deduction in the YA when the REIT
commences business.

7. Distribution to Unit Holders
◦ For unlisted REITs, tax is pre-deducted at 24% on
dividend distributed to unit holders.
◦ Unit holders may claim the refund only on submission
of their tax return in the following year.
◦ Listed REITs meanwhile are exempted from tax on the
total income, provided that ≥ 90% of total income in that
YA is distributed to unit holders [s61A(1)].
◦ The distribution is deemed derived from Malaysia.
◦ When the amount distributed to unit holders < 90% of
the total income, then no amount available as
deduction against total income.

8. Withholding Tax
◦ REIT shall pre-deduct the tax as follows and distribute
only net amount to the unit holders.
◦ REIT need not withhold any tax when distributed to
resident companies [s109D(2).
Type of unit holders Withholding tax
rate
Foreign institutional investor – pension fund,
collective investment scheme, or person
approved by the Minister
10%
Non-resident company 24%
Others (individual) 10%

9. Unit Holders
◦ Unit holders, other than resident company, who receive
the net amount distributed need not account for any
income tax liability.
◦ The income received from REIT need not be declared in
tax return.
◦ There will not be any tax credit on dividend received.
◦ The tax withhold by REIT is the final tax.
◦ W.e.f. 30.12.2017, unit holders are allowed to applied for
tax refund in the event they are exempted from income tax
[s127(5)].

10. Responsibility of REIT
◦ WHT needs to be deducted when REIT distributes
income to unit holders, other than unit holder which is
a resident company
◦ The tax is to be paid to IRBM within one month after
distribution (period may be extended as allowed by
IRBM).
◦ Non-compliance penalty:
◦ 10% of unpaid tax; and
◦ both the tax deducted and the penalty are debts due to
government.
◦ W.e.f. 08.01.2009, IRBM may remit the whole or part
of the penalty if good cause are shown by REIT.

11. Disposal of Property
◦ W.e.f. 01.01.2019, disposal of real properties or shares
on real property companies would be subject to RPGT
with rate as follows:
Disposed Rate of RPGT
Within 3 years 30%
In the 4th year 20%
In the 5th year 15%
Exceeded 5 years 5%

12. Disposal of Property
◦ A company disposing industrial building (where initial
and annual allowances have been claimed) to REIT will
not have any balancing charge on such disposal.
◦ All instruments of real property transfer to REIT
approved by SC will be exempted from stamp duty
[Stamp Duty (Exemption) (No. 4) Order 2004,
PU(A)21/2004].

13. Example 1
The income statement of TRP Property Trust, an approved
REIT, for the year ended 31st December 2022 shows the
following:
RM’000
Income
Gross rental income 25,000
Less: Operating expenses (8,000)
Net rental income 17,000
Interest income from local banks 200
Realised loss from the sale of quoted securities (1,500)
Gross dividend income 150
15,850

14. RM’000
Expenditure
Manager’s fee (2,000)
Trustee’s fee (100)
Professional fees (allowable) (1,165)
Printing, stationery, and postage (allowable) (300)
Provision for unrealised loss from revaluation of
quoted securities written back
2,000
Income from operations 14,285
Revaluation surplus 5,000
Interest expense (1,500)
Profit before taxation 17,785

15. Example 1
The total income distributed to unitholders amounted to
RM11.5 million.
Required: Compute the income tax payable for TRP Property
Trust for YA2022.

16. Computation of Income Tax Payable for YA2022
-
RM’000
+
RM’000
Profit before taxation 17,785
Interest income 200
Realised loss from sale of quoted securities 1,500
Dividend income 150
Trustee’s fee 100
Provision for unrealised loss written back 2,000
Revaluation surplus 5,000
7,350 19,385
7,350
Adjusted income 12,035

17. Computation of Income Tax Payable for YA2022
-
RM’000
+
RM’000
Adjusted income 12,035
Section 4(c) Interest income (Para 35, Sch. 6) Exempt
Dividend income Exempt
Total income 12,035
Less: Distributions to unit holders (11,500)
Chargeable income 535
Income tax payable nil
No income tax as the distribution >90% of the total income

18. Example 2
Antonymous Investment Trust (IAT) is an approved REIT
which makes up its account to 31st December annually. Its
results for the financial year 2022 are as follows:
RM
Income and gains
Rental income (gross) 680,000
Dividend income – (single-tier) 20,000
Dividend income – exempt dividend 12,000
Debenture interest – not exempted 4,000
Gains from realisation of securities 39,000
755,000

19. RM
Expenses
Interest expense on loan to acquire – real estates 70,000
Interest expense on loan to acquire – shares 8,600
Rates and assessments 34,500
Repairs and maintenance on buildings let out 56,200
Depreciation 45,900
Management fees on maintenance of buildings 34,130
Insurance premium on buildings let out 16,780
Entertainment provided to suppliers 34,000
Salaries and allowances 34,560
Manager’s remuneration 12,500

20. RM
Expenses
Advertising and promotion 43,000
Secretarial charges 4,000
Maintenance of register of shareholders 3,500
Audit and accounting fees 8,000
Tax compliance services fee 2,000
Telephone, printing, stationery, and postage 12,000
Donation to an approved charity 5,000
424,670
Net profit 330,330

21. Example 2
◦ Capital allowance for the year is RM31,830.
◦ During the year, IAT distributes dividend amounting to
RM300,000 by virtue of s61A(1).
Required: Compute the chargeable income and income tax
payable of IAT for YA2022.

22. Computation of Income Tax Payable for YA2022
-
RM
+
RM
Net profit 330,330
Dividend income (taxable) 20,000
Dividend income (exempt) 12,000
Interest income 4,000
Gains from realisation of securities 39,000
Interest expense on loan to acquire shares 8,600
Depreciation 45,900
Entertainment provided to suppliers 17,000
Donation to approved charity 5,000
Adjusted income 331,830

23. Computation of Income Tax Payable for YA2022
-
RM
+
RM
Adjusted income 331,830
Less: Capital allowances (31,830)
Statutory income 300,000
Section 4(c) Interest income 4,000
Dividend income Exempt
Aggregate income 304,000
Less: Approved donations (5,000)
Total income 299,000
Less: Distributions to unit holders (299,000)
Chargeable income Nil
Income tax payable Nil