South African REIT’s rules to be amended by 2018 South African Income Tax Act.
The draft Taxation Laws Amendment Bill of 2018 has brought in new rules to allow the 4 new exchanges licenced in South Africa to also qualify for REIT status.
Previously, in order to qualify as a REIT for tax purposes, the entity had to be a South African tax resident and was required to be listed on the Johannesburg Stock Exchange (JSE). Similarly, the JSE has in its listing requirements a category for the listing of REIT securities.
Licencing of new Stock Exchanges in South Africa.
After enjoying a monopoly for many years the JSE now faces some competition in that in 2016, in order to broaden competition and market participation, the regulator granted new stock exchange licenses to 4 operators, namely, A2X, 4AX, ZARX and EESE.
It follows that the new licencees could not meet the requirement for a property company to be listed on the JSE and a change was required.
In order to qualify as a REIT for tax purposes, it is proposed that the newly licensed stock exchanges have a category for the listing of REIT securities in their listing requirements; and the REIT listing requirements must have been approved by the registrar in consultation with the Minister of Finance.
It is proposed that the amendments will come into operation on 1 January 2019 and will then apply in respect of listing requirements approved in terms of section 11 of the Financial Markets Act, on or after that date.
The REIT regime has enjoyed tremendous success around the world and is now the mainstay of the property industry. Only allowing JSE listed companies to benefit from the rules plainly did not make sense. We welcome the change as broadening the base of companies likely to benefit.
We also note that it makes South Africa a more attractive investment jurisdiction in that foreign investors like the certainty that the Reit regime brings. It is also an attractive way for South African emigrants to hold their property investments in South Africa, and we welcome the opportunity to discuss this with any parties holding large property investments in South Africa.