PETALING JAYA: A clear resolution is crucial for the withholding tax concession which is expiring by the end of this year, given the attractive 5.7% dividend yields among the Malaysian real estate investment trusts (REITs).
The sector could lose its appeal if the long-standing withholding tax concession on REIT distributions expires.
Maybank Investment Bank Research (Maybank IB Research) said its base case assumes continuity of the 10% tax concession into next year.
This would be consistent with the government’s past practice.
Regularity clarity by year end would be critical for tax planning and portfolio allocation decisions.
Maybank IB Research said if the concession is not renewed beyond this year, REIT distributions to affected investors would revert to their respective marginal income tax rates.
This could reduce post-tax yields by between 50 and 100 basis points, and could weaken the sector’s attractiveness to regional REITs and lower net returns for retail and institutional yield-seeking investors.
For foreign investors, the loss of 10% flat rate would also diminish Malaysia’s attractiveness for investments in the REIT market.
The research house said the Malaysian REIT Managers Association is expected to raise the matter with the Finance Ministry, given that the latest Finance Bill made no reference to the concession’s extension.
The current tax concession for Malaysian REIT distributions for investors except for resident corporate, is legislated only up to this year, effectively expiring on Dec 31.
Under the Inland Revenue Board’s Public Ruling No. 1/2021, investor groups currently benefit from a 10% final withholding tax rate, while resident corporates are taxed at 0% (taxed at 24% at investor level) and non-resident corporates at 24%.
