Review of the tax challenges faced by the South African real estate investment trusts on the application of the tax laws and regulations
Date
2023
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
University of the Witwatersrand, Johannesburg
Abstract
The introduction of the Real Estate Investment Trust (REIT) regime in South Africa in 2013 has created a substantial world-class real estate industry which has contributed significantly to the country's economic growth and prosperity over the long term. The REIT regime replaced the Property Unit Trusts and the Property Loan Stock property investments, which were in existence before the REIT regime was enacted in 2013. The REIT regime came with special tax dispensation for the South African REITs,and as a result, the investors of a REIT are taxed on the income generated by a REIT instead of the REIT itself; the REIT operates as a conduit for income derived from the immovable properties. Although most aspects of the SA REIT laws and regulations and taxation were confirmed, a few unresolved matters still require attention regarding the taxation of South African REITs. The 2019 budget review documents indicated that amendments are still required to the South African REIT tax laws and regulations to iron out current inconsistencies and challenges identified in applying the REIT tax laws and regulations. Currently, many other REIT markets, especially in underdeveloped countries, are looking to change their REIT tax regime to make it more attractive to foreign investors and to compete in global REIT markets. The study investigated the current tax challenges faced by SA REITs on the application of the SA REIT tax laws and regulations and made recommendations for necessary amendments to ensure the attractiveness of the SA REIT regime. The study made use of the qualitative and interpretive approach through the examination of existing discussion papers, both locally and internationally, legislation, reports, guiding memoranda, journals, books, case laws, website documents, and other material to understand the taxation of REITs. Interpretation ii notes and current discussions are looked at to understand the challenges faced by REITs relating to the Income Tax Act, value-added tax, Tax Administration Act, and tax treaty issues relating to REITs. The study provided a detailed understanding of the key tax design elements that underpin the SA REIT industry by comparing the SA REIT regime to the United States and United Kingdom REIT regimes. The study identified challenges that expose the REIT to double taxation, challenges that are violating the REIT conduit principle; issues that threaten the REITs to failure in meeting the 75% income test, possible exposure to fines and penalties, and threats to the loss of the REIT status. Furthermore, we have identified administration issues that cause unnecessary delays in the REIT tax administration process and tax treaty issues that affect the taxation of REITs. Further, the study made suggestions for amendments that can be made to REIT tax laws and regulations to address each of the identified tax challenges affecting SA REITs.
Description
A research report submitted in partial fulfillment of the requirements for the degree of Master of Commerce (Specialising in Taxation) to the Faculty of Commerce, Law and Management, School of Accountancy, University of the Witwatersrand, Johannesburg, 2023
Keywords
Real Estate Investment Trust (REIT), Investment, Real estate industry, Property Unit Trusts, South African REITs, Tax, UCTD
Citation
Mabuza, Harrieth Mcondisi . (2023). Review of the tax challenges faced by the South African real estate investment trusts on the application of the tax laws and regulations [Master’s dissertation, University of the Witwatersrand, Johannesburg]. RireDSpace. https://hdl.handle.net/10539/38742