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International Research Conference II
on
Real Estate Investment Trust (REITs)
Punit ShahPunit Shah
Partner
Co-head of Tax, KPMG India
20 March 2015
REIT structureREIT structureREIT structureREIT structure
SponsorSponsor
REITREITREITREITREITREITREITREIT
Sponsor Contribution
Trustee
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved.
REITREITREITREITREITREITREITREIT
SPV
Real estate assets
BorrowingBorrowingBorrowingBorrowing
Investment
Management agreement
Investors
REITREITREITREITREITREITREITREIT
Investment ManagerInvestment Manager
Units
1
REITREITREITREITREITREITREITREITInvestment
Management
fees
Option for Transfer of
property to REIT
Option 1
Transfer
directly held properties in
exchange of REIT units
Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT
REIT
Sponsor Group
(could be a
Developer)
REIT Units in exchange of properties
Option 1
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved.
Option 2
Transfer of shares in SPV
holding properties in
exchange of REIT units
SPVs
REIT
Sponsor Group
(could be a
Developer)
REIT Units in exchange of shares in SPV
Option 2
Note:
Option for Transfer of
property to REIT
Taxability in the hands of sponsor
Option 1
Transfer of
directly held properties in
exchange of REIT units
• No specific exemption on such transfer
− Taxable as per normal provisions at
20%/30%*
Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT Taxability on transfer of property to REIT
Option 2
Transfer of shares in SPV
holding properties in
exchange of REIT units
• Such transfer is specifically exempt.
− Taxability deferred to the time of sale
of REIT units
− MAT Applicable
• Holding period and cost of shares
available as holding period and cost of
REIT units
Note: *The above rates are exclusive of surcharge and cess
24
Income**
Rental
income on
property
directly
owned by
REIT
Interest from
SPV
Taxability of ongoing incomes Taxability of ongoing incomes Taxability of ongoing incomes Taxability of ongoing incomes
REIT
Sponsor / Unit
holders
Distribution of income
Distribution of income to unit holders
Interest / Dividend
Rent / Capital gains on sale
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved.
Dividend
from SPV
Capital gains
on Sale of
property /
SPV Shares
Capital gain
on sale of
REIT units***
Other Income
SPVs
* Final taxability @ 5% subject to specified conditions**The above rates are exclusive of surcharge and cess*** Sold on stock exchange and subject to STT paid
Rent / Capital gain
REIT Level SPV Level Unit Holders WHT
• Exempt
• WHT on
distribution at
10% to R & at
applicable
rate for NR
NA
• Taxable (Income
to included in the
Total income of
Unit holders)
• Tenant /
lessee not
to withhold
tax on
rental
payment to
REIT
Interest from • Exempt • Interest
payment to
REIT allowed
as deduction
• For R – To be
included in total
income; For NR*
– WHT @ REIT
level is final
• No WHT at
SPV level
• REIT to
withhold tax
@ 10% for level is final
taxability ie.5%@ 10% for
R and @
5% for NR
• Exempt • DDT at
17.65%
• Exempt • NIL
Capital gains
SPV Shares
• Sold by REIT
- Taxable at
REIT level
(20%/30%)
• Sold by SPV
– Taxable at
SPV level
(20%/30%)
• Exempt • NA
Capital gain
REIT units***
• NA • NA • LTCG-Exempt
(Subject to MAT)
• STCG - Taxable
@15%,
• NA
Other Income • Tax at 30% • NA • Exempt • NIL
25
Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective
• Tax deferral not available for direct transfer of property to the REIT
• MAT applicable (Twice) for the sponsors
• REIT unit to be held more than 36 months for the gain to be qualified as LTCG
• No pass through for offshore investors with respect to capital gains
• DDT / Big dampener in SPV structure
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative ('KPMG International'), a Swiss entity. All rights reserved.
• DDT / Big dampener in SPV structure
• Interest deductibility to REIT
Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective Key challenges from a tax perspective
Tax deferral not available for direct transfer of property to the REIT
MAT applicable (Twice) for the sponsors
REIT unit to be held more than 36 months for the gain to be qualified as LTCG
No pass through for offshore investors with respect to capital gains
4
Thank youThank youThank youThank youThank youThank youThank youThank you
This presentation has been prepared exclusively for the internal use of your organisation and does not carry any
right of publication or disclosure to any other party. This presentation is incomplete without reference to and
should be viewed solely in conjunction with the oral briefing provided by KPMG. Neither this presentation nor its
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available from public sources.
Whilst the information presented and views expressed in this presentation and the oral briefing have been
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or views.
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights
reserved.
The KPMG name, logo and "cutting through complexity" are registered trademarks or trademarks of KPMG
International Cooperative ("KPMG International").
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