Malaysian REITs and their Tax Treatment

Malaysian REITs

Special Tax Treatment of Malaysian REITs

The taxation of a Real Estate Investment Trust (REIT) in Malaysia depends on the amount of income that is distributed to shareholders.

Two different important conditions affect a Malaysian REITs’ tax treatment:

  1. If a Malaysian REIT distributes at least 90% of its taxable income, it will not be subject to corporate income tax;
  2. If the 90% threshold is not met, the REIT would be subjected to the prevailing corporate tax of 24%.

As such, Malaysian REITs generally always pay out at least 90% of its taxable income in dividends. And as a dividend investor, REITs are especially attractive to me and feature heavily in my portfolio.

Tax Credits for Resident Shareholders

I’ve received numerous queries regarding a REIT’s withholding tax as well as tax credits applicable to resident Malaysian unit holders. Firstly, you have to be a tax resident for any tax credits to be applicable.

The withholding tax is a final tax and it comes into play when Malaysian REITs reach that 90% threshold in distribution (Condition 1 above). Individuals and non-corporate investors are not required to declare REIT dividend income in their tax filing/returns. And no, you have no tax credits to claim if the REIT doesn’t pay any corporate tax. Distribution made to shareholders will only be subjected to a final withholding tax. For residents and individuals, that rate is 10%.

So when do you get tax credits? When Condition 2 is in effect and the REIT doesn’t meet the 90% payout requirement.  This is when you are allowed to set off those tax credits against your own payable tax. However, a REIT almost always pays out at least 90% of their income (this is when tax transparency is achieved) to take advantage and not pay any corporate tax.

End.

So, the short answer to whether or not we as individual investors are entitled to tax credits: almost (99%) never. No sensible REIT manager would miss out on the huge corporate tax cut.

I would actually like some feedback from you guys if you know of any Malaysian REITs that have opted not to distribute that 90% income. 

For a more comprehensive understanding of Malaysian REITs, please divert yourself to The Complete Guide to REITs in Malaysia.

 

16 Replies to “Malaysian REITs and their Tax Treatment”

  1. Hey Leigh

    I am a new follower of your blog and have just only been reading through the website. I am not a fellow investors yet, but saving up the capital to do so!

    I have read that you say we will be liable to pay 10% of the Dividend we earned as Withholding Tax. I, myself am still someone not under the scope of needing to pay for Income Tax yet. So where do I have to pay this Withholding Tax?

    Sorry for the amatuer questions

    P.S. Love your blog! So informative~ Thanks sharing your thoughts and experience!

    1. Hwy Danielle,

      Thanks for writing in and welcome onboard!

      The 10% withholding tax is paid automatically. You don’t have to do a thing. 10% is in lieu of the REIT paying a 19% corporate tax.
      It’s a saving and advantageous to you as an investor.

  2. Hi Divvy,

    Can I check if I am a Malaysian and I bought M-REIT under a Malaysian stock broker account but I am currently staying in SIngapore (not residing in Malaysia for the time being), will I get additional tax on top of the 10% witholding tax?

  3. Hey Divvy,
    Though that the dividend policy seems attractive, one of the concerns that worries me is the prospects of growth of a reit would be greatly hindered as almost all the retained earnings would be distributed. So, won’t the only way for the reit to have growing earnings and assets would be the the appreciation of the fair value of investment properties (increasing value of assets) and the rise of rental income (increasing the earnings)? And if my statement stands true, REIT although seems like a stable common stock investment, it would act more like an equity bond that have higher interest rate (5-7%) and having an expanding par value (though really slowly) and is more towards a fixed income investment, isn’t it right? Do correct me if I’m wrong

  4. In summary, if I am a tax retiree and pay zero tax, i cannot claim the 10% deduction, correct?
    I got a letter from IRB stating the WHT is final and not entitled for tax credit (i.e cannot claim back).

    Is this correct understanding?

    //Segar

  5. Hi Divvy,

    Thank you for this informative blog, please keep it running for as long as possible haha.

    I have a question to ask, though.

    I note from your writing above, that individuals do not have to declare REIT income in their tax returns. But the last sentence in that paragraph had me confused (i.e. For residents and individuals, that rate is 10%.)

    When Condition 1 happens, do investors (i.e. individuals) pay WHT?

    Thank you for taking the time to answer.

    1. Hi RX,

      I most certainly will keep this site up and running for as long as I can.
      To answer your question – Yes investors pay a 10% withholding tax. To make it simple, investing in REITs, the company (and eventually you) does not pay the mandatory 25% in corporate tax, instead, we pay a 10% withholding tax. Saving 15%.

      Hope this helped

  6. Q: Granted that a resident tax payor is not able to claim tax credit as there was no corporate tax., but how abt the 10% withholding tax.. would it then mean that tax payor will incurr a 10% tax on dividends earned., paid at source via this withholding tax ?

    1. Hey Alex,

      If the REIT distributes 90% of its taxable income, then yes in lieu of a corporate tax of 19-24%, the REIT’s income distribution is ONLY taxed a 10% withholding tax.

      I think that’s what you’re asking. IN simple terms, you’re paying 10% instead of 19%

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