New REIT tax rules bring winners and losers among local investors

 

ON MARCH 18, 2025, the Inland Revenue Board confirmed a new tax framework for REITs and property trust fund unitholders, effective from YA2026, effectively ending the flat 10% withholding tax that had applied to most non-corporate investors since YA2016.

Under the revised rules, corporate investors will see no changes. Resident companies will continue to be taxed at the standard 24% corporate rate, while non-resident corporates remain subject to a 24% withholding tax.

“The revised regime introduces a progressive tax structure for resident investors, resulting in asymmetric outcomes across income groups,” said Hong Leong Investment Bank.

While lower-income resident investors (below RM100k) may benefit from effective tax rates below the previous 10% level, higher-income residents face a sharp increase, with effective tax rates rising to 20%–30%. 

“Given that a significant portion of the investable base is subject to higher effective tax rates, the overall impact is skewed negatively, in our view,” said HLIB.

HLIB does not expect a sustained or disorderly selldown, particularly among long-term unitholders, as absolute yield levels remain attractive. 

MREITs continue to distribute more than 90% of their distributable income to maintain tax transparency under Section 61A of the Income Tax Act 1967, with most already operating close to a 100% payout ratio.

Operationally, earnings remain supported by rental reversions and acquisitions, with no direct impact from the tax change.

“We maintain our OVERWEIGHT stance on the sector, underpinned by its inherent defensive characteristics, resilient income profile, and the supportive low interest rate environment,” said HLIB.

PAVREIT, remains HLIB’s top pick, supported by a constructive tourism outlook that is expected to drive higher footfall and spending at its flagship assets including Pavilion KL and Pavilion Elite. 

Their other top pick is AXREIT, replacing SUNREIT, as they like it for its proactive acquisition strategy and Johor exposure that positions it to benefit from the JS-SEZ theme. — Focus Malaysia