Tax exemption on REITs proposed to be extended

May 27, 2023

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The Reforms & Revenue Mobilization Commission (RRMC) has proposed that the government extend the income tax exemption for Real Estate Investment Trusts (REITs) until June 30, 2026. This extension aims to facilitate the launch of REIT schemes by newly licensed REIT Management Companies (RMCs).

Extending the income tax exemption period for the REIT scheme from June 30, 2023, to June 30, 2026, is expected to encourage RMCs to introduce various REIT schemes. This move will stimulate economic activity by attracting both local and foreign investors.

The RRMC’s recommendation, currently under review by the Federal Board of Revenue (FBR) for the 2023-24 budget, highlights that over 15 RMCs have already obtained licenses and are in the process of launching different REIT schemes. These RMCs gained momentum following the revised REIT Regulations introduced in June 2021 and subsequently in November 2022. The existing provision in the Income Tax Ordinance 2001, stated in Part I of the Second Schedule, grants exemption on profits and gains derived from the sale of immovable property or shares of Special Purpose Vehicles (SPVs) to any type of REIT scheme until June 30, 2023.

With the current expiration date approaching on June 30, 2023, newly licensed RMCs will not have sufficient time to launch their REIT schemes. The original purpose of the benefit provided in the Income Tax Ordinance 2001 was to boost the REIT industry, which has seen significant growth with numerous companies obtaining RMC licenses, according to the RRMC.

Renewing this benefit will encourage individuals and entities to sell their properties or SPVs under the regulated and documented REIT structure. Furthermore, it will motivate RMCs to introduce various REIT schemes, thereby fostering economic activity and attracting local and foreign investors. The recommendation is to extend the current benefit until June 30, 2026. Additionally, it is suggested to replace the term “immovable property” with “Real Estate” to align the provisions of the Ordinance with the REIT Regulations.