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I wrote not too long ago why its strange fund companies do not come up with a non-synthetic index fund that tracks a basket of REITs in Singapore (Read Why A Singapore SGX S-REIT 20 ETF is Good for Singaporeans to Build Cash Flow Wealth and Financial Independence)
When I went to the REITs Symposium 2016, it is heartening to hear SGX’s Head of Research and Products Chan Kum Kong say that they are moving forward with this.
And hopefully, they have something to offer in the second half of 2016.
However, when more details were revealed, it seems that there is an explanation why such an ETF have not been brought to market.
A senior executive at an asset management fund who is looking into issuing an S-Reit ETF told BT: “The thing is that, right now, the tax regulation in Singapore is such that any Singapore fund which buys into an S-Reit will have to pay a 17 per cent withholding tax when it gets dividends. Individual investors, in contrast, do not get taxed on S-Reit dividends.”
The executive and his fund declined to be named. “So the situation is that it would be an administrative issue if we have to pay the tax on every dividend we collect,” the executive added.
One way to mitigate the issue would be for the Inland Revenue Authority of Singapore (IRAS) to waive the withholding tax when dividends are paid out by the Reits, and instead arrange for the tax to be collected at the ETF level.
Such a taxation structure “can be done, on a practical basis, and IRAS doesn’t lose any revenue”, the executive said.
This coincide with what I have been told from other sources why so far, there is little incentive for unit trusts to form a REIT theme fund (except Phillip Capital who came up with one)
Dividends are a large part of most REIT’s payout, and if a 17% withholding tax is levied on the ETF, it will be very detrimental to investor’s returns.
An 6% dividend would become 4.98%.
If this is the case, would you still invest in a REIT ETF with its profile of advantages?
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