inbound investment series: investing in asia · 2015-12-10 · chile 5/15 papua new guinea 15/20...

Inbound Investment Series: Investing in Asia

Joshua Cardwell, Australia

PwC

Agenda

Section I. Real Estate Market Update

Section II. Key Considerations for Global Investors

Section III. Real Estate Investment Structures

2

December 8, 2015 2015 PwC Asia Pacific Real Estate Conference

PwC

Section I

Real Estate Market Update

3


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4


Real estate market in 2015

• New South Wales has dominated and forecast to continue

• Victoria is slowing and Queensland whilst large in size is under pressure

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5


• Ratio of foreign to domestic sources of capital has shifted and is accelerating.

• Local REITs have been net sellers.


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6


• Results skewed by Investa Property & GIC Logistics Portfolio

• China and Singapore are largest sources of funds.


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Section II

Key Considerations for Global Investors

7


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30% (offshore

deductions may reduce ETR)

MIT?

10-15% EOI *** 30% other

Summary of outcomes

Sovereign Immunity?*

Foreign Super Fund?

Trust structure?

Interest?

10% unless a financial

institution

0%

Corp. Tax: 30% WHT: 0-30%**

0%

No

Yes

Yes

No

No Yes

Yes

Yes

No

No

* Refer Appendix A

** Refer Appendix B

*** Refer Section III

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Appendix A: Sovereign Immunity

9

Australia does not have a statutory concept of sovereign immunity.

As a matter of practice, the following should apply:

1. sovereign immunity should be available for investments that represent a 10% or less interest in an entity;

2. where the investment is above 20% then sovereign immunity is generally unavailable.

3. for investments between 10-20% ,the exemption will depend on the level of influence and special rights that the sovereign entity has. For example, Board representation, veto rights or conversion rights.

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Appendix B: Unfranked dividend withholding tax

10

Recipient Dividends (%) Recipient Dividends (%)

Non-treaty 30 Malaysia 0/15

Treaty: Malta 15

Argentina 10/15 Mexico 0/15

Austria 15 Netherlands 15

Belgium 15 New Zealand 0/5/15

Canada 5/15 Norway 0/5/15

Chile 5/15 Papua New Guinea 15/20

China, People’s Republic of 15 Philippines 15/25

Czech Republic 5/15 Poland 15

Denmark 15 Romania 5/15

East Timor 15 Russian Federation 5/15

Fiji 20 Singapore 0/15

Finland 0/5/15 Slovak Republic 15

France 0/5/15 South Africa 5/15

Germany 15 Spain 15

Hungary 15 Sri Lanka 15

India 15 Sweden 15

Indonesia 15 Switzerland 0/5/15

Ireland, Republic of 15 Taipei/Taiwan 10/15

Italy 15 Thailand 15/20

Japan 0/5/10/15 Turkey 5/15

Kiribati 20 United Kingdom 0/5/15

Korea, Republic of 15 United States 0/5/15/30

Vietnam 10/15

Notes: 1. No withholding tax applies to franked dividends (i.e. to those which have been subject to corporate tax). 2. For withholding rates below 15%, the relevant treaties impose a combination of minimum ownership levels, holding

periods and characteristics (e.g. listed companies)

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Section III

Real Estate Investment Structure

11


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Managed Investment Trust

• Ownership requirement

- Must satisfy the widely held test

- Must not breach the closely held tests.

• Management requirement

- Trustee or Manager must hold an AFSL

- Substantial proportion of investment management activities must be in Australia.

• Asset qualification

- Must not be a trading trust

• Acquisition Stage

- 5.25-5.75%

• Holding Stage

- Not a taxable entity

- Taxable profit distribution is subject to withholding tax rate at 15% if EOI or 30% if non-EOI. 10% rate may be available.

• Exit Stage

- 30% rate if sell interest in MIT

- Profit distribution of capital gain as above. December 8, 2015 2015 PwC Asia Pacific Real Estate Conference

12

MIT

Foreign Investors

overseas

Australia

External debt

debt

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Non-MIT Australian Unit Trust (AUT)


13

SPV

AUT

HoldCo/Fund

overseas

Australia

debt

External debt

equity

equity


- N/A

• Management requirement

- N/A


- Must not be a trading trust if a public unit trust


- 5.25-5.75%

• Holding Stage


- Taxable profit distribution is subject to non-final withholding tax rate at 30%

- Internal debt between Holdco/Fund and SPV deductible subject to thin capitalisation and transfer pricing. This may result in a refund of the 30% non-final withholding tax

• Exit Stage

- 30%.

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Appendix 1

Presenter CVs

14


PwC

Presenter CVs

Joshua Cardwell

Partner

TEL: +61 (2) 8266 0532

M: + 61 438 129 187

E-mail: [email protected]

Josh is a Partner of PwC Australia is the Head of Real Estate Tax - Australia. Josh has nearly 20 years tax experience, including 9 years at a Partner level.

Josh has a depth of expertise in structuring original and follow on investments, either directly or via investment vehicles (in particular Managed Investment Trusts); tax due diligence and documentation; structuring of divestments; tax components of share and asset acquisition agreements; review of forecasts for acquisitions and/or capital market raisings; and compliance functions in respect of the above entity types.

Josh is a frequent contributor, lecturer and examiner for the Taxation Institute of Australia and is heavily involved with the Property Council of Australia Tax Committee in respect of the new MIT Regime.

Josh is a registered tax agent, Chartered Tax Adviser of the Tax Institute of Australia and a member of the Institute of Chartered Accountants in Australia.

Josh has a Bachelor of Business from the University of Technology, Sydney and a Masters of Taxation from University of Sydney.

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This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2015 PwC. All rights reserved.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further

details.

PwC Restricted Use - Confidential

Inbound Investment Series: Investing in Asia

Taejin Park, Korea

PwC

Agenda

Section I. Real Estate Market Update

Section II. Real Estate Investment Structure

Section III. Key Considerations for Global Investors

18


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Section I


19


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Real Estate Market Update - Having the insight


20


• The average capitalization rate of investment made by foreign capital is expected to be around 6.3% in 2015.

• The foreign capital increased its investment ratio in office market from 29% to 36% in 2015.

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

<Avg. Cap Rate of Foreign Capital Investment in Korean Real Estate Market>

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Real Estate Market Update - Having the insight


21


• The average vacancy rate in office market in Seoul is around 7.4% in the 2Q of 2015.

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q

<Avg. Vacancy Rate in Seoul Office Market>

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Real Estate Market Update - Reading the trend

Changes in investment structure over the past years

22


0

1

2

3

4

5

6

7

8

9

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2014 2015

Nu

mb

er o

f tr

an

sact

ion

s

Year

Real Estate Fund

REIT

Corporation

ABS SPC

(*) Based on the publicly available data

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Section II

Real Estate Investment Structure

23


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Trust REF - Trust REF is a “trust” type entity set up under the Capital Market Act.


- At least two investors (independent) should participate in Trust REF.


- N/A


- 4.6%

• Holding Stage


- Profit distribution is subject to withholding tax rate at 22%, but tax treaty may apply.

• Exit Stage


- Profit distribution of capital gain is subject to withholding tax at 22%, but tax treaty may apply.


24

(*) FSS: Financial Supervisory Service

Offshore Fund

Overseas

Korea

Investors

Trust REF

FSS (*) Trustee

AMC

Property

Supervision Trust

Asset management

Acquisition

Capital investment

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LLC REF - LLC REF is a LLC type entity established under the Capital Market Act.


- At least two investors (independent) should participate in LLC REF.


- N/A


- 4.6%

• Holding Stage

- Taxable income can be reduced to zero through dividend declared deduction.


• Exit Stage

- Taxable income can be reduced to zero through dividend declared deduction.



25

(*) FSS: Financial Supervisory Service

Offshore Fund

Overseas

Korea

Investors

LLC REF FSS (*) Trustee

AMC

Property

Supervision Trust

Asset management

Acquisition

Capital investment

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Section III

Key Considerations for Global Investors

26


PwC

Key Considerations for Global Investors - Applying the treaty rate

Treaty rates OIV Rule

• For treaty access purpose, Overseas Investment Vehicle (“OIV”) will be looked through.

• To claim treaty benefits, the ultimate investor’s information should be disclosed to the withholding agent or the Korean Tax Authority.

• If the information about the ultimate investors are not submitted, withholding agent may apply domestic tax rate at 22%.


27

Jurisdiction Dividend (%) Interest (%)

Japan 5/15 10

China 5/10 10

USA 11/16.5 13.2

UK 5/15 10

Canada 5/15 10

Germany 5/15 10

France 5/15 10

Singapore 10/15 10

HK (*) 22% 22%

Netherlands 10/15 15

Luxembourg 10/15 10

UAE 5/10 10

Once tax treaty becomes effective, withholding tax will be 10%/15% for dividend and 10% for interest.

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Appendix 1

Presenter CVs

28


PwC

Presenter CVs

Taejin Park

Partner

TEL: +82 - 709 - 8833

E-mail: [email protected]

Taejin Park is a partner in the Financial Services Tax Group of PricewaterhouseCoopers Korea, and has over 14 years of experience advising international clients related to transaction advisory services and tax structuring.

He has extensive knowledge and experience in cross-border deals and structuring private equity, real estate and infrastructure investments. He advises his clients in designing, establishing and implementing their inbound and outbound investments and provides tax services in all different areas of tax, such as income tax, value-added tax, transfer tax and property tax. He also advises his clients related to real estate transactions that involve SPVs such as REITs, Trusts, and ABS SPC. He has a wide range of experiences in transactions in close collaboration with PwC in other countries.

Taejin graduated from the Krannert School of Business with masters degree in business administration and is a CPA.

[Photo here]

29





details.


Inbound Investment Series: Investing in Southeast Asia Real Estate

www.pwc.com/jp/e/tax

Teo Wee Hwee, Singapore

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Agenda

1. Singapore

2. Malaysia

3. Indonesia

4. Vietnam

32

Tax Implications and Structures for Real Estate Investments in:

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Singapore

33

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Singapore as a holding location for South East Asian Investments

34

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Singapore as a platform for Asia – DTA rates

35

Dividends Interest

Capital gains (shares of land rich

unlisted cos)

Domestic DTA Domestic DTA Domestic DTA

Indonesia 20% 10% / 15% 20% 10% 5%* N.A.

Thailand 10% 10% 15% 10% / 15% 15% Exempt

Vietnam N.A. N.A. 5% 10%

22% on the net gain or 0.1% on the gross sale

proceeds of joint stock companies

N.A.

Myanmar N.A. N.A. 15% 10% 40% 10%

Malaysia N.A. N.A. 15% 10% 5% to 30% N.A.

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ASEAN Fund Structure

Fund management Company

(Singapore)

Trustee (Singapore)

Investment management

agreement

Trustee arrangement

Trust* (Singapore)

SPV (Singapore)

Hold Co* (Singapore)

Property (Singapore)

Cayman LP / Singapore LP

SPV (Singapore)

SPV (Malaysia)

Property (Malaysia)

SPV (Singapore)

SPV (Vietnam)

Property (Vietnam)

SPV (Singapore)

SPV (Thailand)

Property (Thailand)

SPV (Singapore)

SPV (Myanmar)

Property (Myanmar)

SPV (Singapore)

*Singapore Trust and Hold Co could apply for the Enhanced-Tier Fund tax incentive scheme.

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Singapore Real Estate Investment Tax Issues

37

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Snapshot of tax implications on investing in Singapore Real Estate

38

Acquisition Phase

AC

QU

ISIT

ION

Stamp Duty

Share deal • Stamp duty is payable by the acquirer at 0.2% on the purchase price or market

value, whichever is the higher Asset deal • Stamp duty is payable by the acquirer at about 3% on the purchase price or

market value of the property, whichever is the higher • An additional buyer’s stamp duty of 15% may be applicable on purchase of

residential property

Goods and Services Tax (GST)

Share deal • The sale of shares is exempt from GST in Singapore

Asset deal • GST of 7% is applicable on the purchase price of commercial properties in

Singapore • Exemption under Transfer of Business as a Going Concern may apply.

Otherwise, the entity should be able to claim the input tax incurred (if the entity is registered for GST)

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Snapshot of tax implications on investing in Singapore Real Estate

39

Holding Phase and Profit Repatriation

Ho

ldin

g

Corporate Income Tax

• Rental income will be subject to tax at the prevailing corporate tax rate (i.e. 17%) • Whether an entity is able to claim capital allowances on qualifying plant and

machinery against its rental income will depend on whether the entity is carrying on an active rental business

• If the loan was specifically used to purchase the properties from which taxable rental income and/or gains from sale of the properties is derived, the resultant interest expense should be deductible

Capital Structure

• No thin capitalisation rules in Singapore but debt-equity ratio should be commercial. Excessive interest charged would invite unnecessary scruntity from the IRAS and may also have a negative tax impact on future exit.

Withholding Tax

Interest • Subject to domestic withholding tax at 15% (may be reduced by DTAs)

Dividends • No dividend withholding tax in Singapore

Ex

it


• Non-resident normally exit by selling shares. Usually not taxable as gains arguably not sourced in Singapore.

• Asset Sale: No capital gain tax in Singapore but must prove to IRAS investment is long term and not short term/speculative.

Stamp Duty • Similar to acquisition phase

GST • Similar to acquisition phase

Exit Phase

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Structures for Singapore Real Estate Investments

• Common for foreign investors/funds to use Mauritius as a

holding location to invest into Singapore Real Estate. Under the Singapore-Mauritius DTA, interest payment is not subject to withholding tax. However, with the development of BEPS and increased focus on substance requirement, one needs to re-consider the use of Mauritius. Increased substance requirements under Mauritian law also potentially increases the costs of using Mauritius.

• Under the revised Singapore-Luxembourg DTA, interest payment is also not subject to withholding tax (currently the rate is 10%). Groups with established substance in Luxembourg could now consider Luxembourg as an alternative. The revised DTA is not yet ratified but is widely expected to be so in Jan 2016.

• Note that with effect from year of assessment 2015, it is now mandatory to maintain contemporaneous transfer pricing documentation. Hence, one now has to perform benchmarking study on interest rate charged on shareholders’ loans.

40

Mauritian / Luxembourg Holding Structure

Property company (Singapore)

Hold Co (Luxembourg / Mauritius)


Investor

SPV (Singapore)

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Singapore LP

41

FMC (Singapore)


agreement


Ordinary shares with controlling

interest

Hold Co (Singapore)

Preference shares

Issue of QDS Limited

Partnership (Singapore)


GP (Singapore)

• The FMC will own controlling interests of the property company’s

(Prop Co) shares. Prop Co would then issue bonds which are to be arranged as qualifying debt securities (QDS), to Singapore LP (Sing LP), the proceeds of which would be used to repay the existing loans.

• Interest on QDS would be exempt in the hands of Sing LP under the

ETF Scheme. Same applies to gain on sale of shares in Hold Co.

• The main conditions for the bonds to be QDS are:

1. It should be arranged by a company that has either the Financial Sector Incentive (FSI)- Bond Market, FSI-Standard-Tier or FSI-Capital Market incentive. There are some rules around fulfilling this condition if the financial institution does not have these tax incentives. In practice, the arranger tends to be a bank; and

2. The QDS, during its primary launch, should not be issued to less than 4 persons or 50% or more of the issue of debt securities should not be held by related parties of the issuer.

• Hence, in the structure, it is important that the Sing LP is not

considered related party to Prop Co, therefore the controlling interest lies with the FMC. Hence, the GP and the FMC should not be 50% or more held by the same shareholders. Further analysis required.

• Alternatively, it needs to be evaluated whether we can look through the Sing LP to the investors so as not to come within the related party definition. This requires further consideration.

• Need to consider tax avoidance risks.

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Singapore Trust

42

FMC (Singapore)


agreement


Ordinary shares with controlling

interest

Hold Co (Singapore)

Preference shares

Trust (Singapore)


Trustee (Singapore)

Trustee arrangement

• The FMC will own controlling interests of the property company’s (Prop Co) shares. Prop Co would then issue bonds which are to be arranged as qualifying debt securities (QDS), to Sing Trust, the proceeds of which would be used to repay the existing loans.

• Interest on QDS would be exempt in the hands of Trust under

the ETF Scheme. Same applies to gain on sale of shares in Hold Co.

• The main conditions for the bonds to be QDS are:

1. It should be arranged by a company that has either the FSI- Bond Market, FSI-Standard-Tier or FSI-Capital Market incentive. There are some rules around fulfilling this condition if the financial institution does not have these tax incentives. In practice, the arranger tends to be a bank; and

2. The QDS, during its primary launch, should not be issued to less than 4 persons or 50% or more of the issue of debt securities should not be held by related parties of the issuer.

• Hence, in the structure, it is important that the Sing Trust is not

considered related party to Prop Co, therefore the controlling interest lies with the FMC. Alternatively, it needs to be evaluated whether we can look through the Sing Trust to the investors so as not to come within the related party definition. This requires further consideration.

• Need to consider tax avoidance risks.

Issue of QDS

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Malaysia

43

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Snapshot of tax implications on investing in Malaysia Real Estate

44

Acquisition Phase

AC

QU

ISIT

ION

Stamp Duty

Share deal • Stamp duty is payable by the acquirer at 0.3% on the purchase price or market value, whichever is the higher Asset deal • Stamp duty is payable by the acquirer levied at ad valorem rates of up to 3% of the purchase price

Real Property Gain Tax (RPGT)

Share deal • No step-up on the costs of the property. Consequently, upon disposal of the property in the future, a larger gain may be

realised, resulting in a larger amount of RPGT suffered by the disposer.

Asset deal • Any step-up on the costs of the property would lead to higher cost base and result in lower gain arising from future disposal

of the property, resulting in a lower amount of RPGT suffered.

Goods and Services Tax (GST)

Share deal • The sale or transfer of shares is exempt from GST in Malaysia Asset deal • GST of 6% is applicable on the purchase price of non-residential properties in Malaysia • Input tax credit should be claimable for the GST charged • No GST applicable if the sale of rental property is pursuant to a transfer of business as a going concern (subject to

prescribed conditions being met)

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45


Ho

ldin

g


• If regarded as carrying on an active rental business, rental income will be taxable at the corporate rate of 25%. Revenue expenses, capital allowance and industrial building allowances may be claimed against the rental income.

• If regarded as carrying on a passive rental business (i.e. taxed as an investment holding company), rental income will be taxed at the corporate rate of 25%. Industrial building allowance may be claimed, but capital allowance claim are disallowed. Direct expenses are deductible, but deduction of other permitted expenses is restricted.

Capital Structure

• No thin capitalisation rules in Malaysia currently. Implementation of thin capitalisation rules in Malaysia has been deferred but no details have been released to-date.

• Usually recommend for the shareholder's injection to be made in the form of shareholder’s loans to generate interest deductions against the rental income.

Withholding Tax

Interest • Subject to domestic withholding tax at 15% (may be reduced by DTAs)

Dividends • No dividend withholding tax in Malaysia

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46

Ex

it


• Sale of Malaysia property or shares of Malaysia Property Company should attract Malaysia RPGT (see below).

• However, if the seller is perceived to be in the business of buying and selling property, the gain on sale of property may be assessable to corporate income tax of 25%.

RPGT

• Sale of the Malaysia property or shares in a Malaysia company should attract Malaysia RPGT of between 5% to 30% on the gain on disposal, depending on the length of ownership prior to disposal

• In an asset sale, exemption of RPGT may apply if the property is disposed of to an asset-backed security (ABS) company or a real estate investment trust (REIT)



Exit Phase

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Structures for Malaysia Real Estate Investments

47

Singapore Holding Structure

• Common for foreign investors/funds to use Singapore as a

holding location to invest into Malaysia Real Estate. Under the Singapore-Malaysia DTA, interest payment from Malaysia Property Company to Singapore SPV is subject to a reduced withholding tax rate of 10%.

• Possible for gain from sale of Hold CO and/or SPV to be free of

Singapore tax.

• Under section 13Z of the Singapore Income Tax Act, any gain derived from the sale of ordinary shares in an investee company for which the seller owns at least 20% stake for a continuous period of 24 months is exempt from tax. Singapore does not tax capital gain and gain not sourced in Singapore.

Property company

(Malaysia)

Hold Co (Singapore)

Property (Malaysia)

Investor

SPV (Singapore)

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Exit Strategy Option 1: Issuance of shares to Investor B @ Step 1: Asset Holding Co issues $210M of Class B RPS to

Investor B and receives cash of $210M in return. # Step 2: Asset Holding Co pays tax exempt dividends of $100M

to Investment Holding Co 2. The remaining $110M will be used to redeem the Class A RPS with a premium of $10M.

! Step 3: Investment Holding Co 2 pays tax exempt dividends of

$100M to Investment Holding Co 1. The remaining $110M will be used to redeem the Class A RPS with a premium of $10M.

Notes There is a technical basis to argue that the redemption of Class A RPS should not attract RPGT. This also applies if the exit is via redemption of the BVI/SG SPV, under which the investor B would be a shareholder of the BVI/SG SPV instead. An offshore transaction may be preferred, especially if one can argue that legally, that is not even within the Malaysia tax web since Malaysia only taxes income /gains sourced in Malaysia.

Malaysia –RPGT Minimisation Strategy (1/2)

1. Issuance of ordinary shares (nominal)

2. Issuance of Class A Redeemable Preference Shares (RPS) of $100M



Issuance of Class B RPS of $210M

Investor B Cash $210M

Wholly owned unless otherwise stated Fund flow

!

#

Property (Cost @$100M)

Investment Holding Co 2

(BVI / SG)

Asset Holding Co (Malaysia)


(BVI / SG)

@ @

Investor A

48

PwC 49

Malaysia - RPGT Minimisation Strategy (2/2)





Wholly owned unless otherwise stated Fund flow

!

#



(BVI / SG)

Asset Holding Co (Malaysia)


(BVI / SG)

Investor A



(BVI / SG)

Assets – Backed Securities Co

(Malaysia)


(BVI / SG)

Investor B


2. Issuance of RPS

1. Issuance of RPS

2. Issuance of junior bonds stapled to preference shares to Investment Holding Co 2

Sale of property

@

@ Cash $210 M

Exit Strategy Option 2: Sale of property to Asset–Backed Securities (ABS) Company

Step 1: Asset Holding Co sells the property at $210M to ABS Co.

Step 2: ABS Co issues bonds. BVI/SG SPV will

subscribe to junior bonds stapled with preference shares. Third party investors will subscribe to senior bonds, typically with a fixed interest rate that is lower than the junior bonds.

Notes

Under the ABS Program approved by the Securities Commission of Malaysia, gains on sale of property to an ABS Company will be exempted from RPGT and stamp duty. Asset Hold Co can pay tax exempt dividend all the way up.

In addition, under the ABS program, interest payments made to non-residents (i.e. Investment Holding Co 2) should be exempted from withholding tax. Hence, there is a potential tax arbitrage as the interest expense incurred by ABS Co is tax deductible. When ABS Co subsequently sells the property, RPGT will apply unless the property is sold back to the originator (i.e. Asset hold Co Malaysia). The same redemption mechanism under Slide 1 may be applied to avoid RPGT as well.

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Indonesia

50

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Snapshot of tax implications on investing in Indonesia Real Estate

51

Acquisition Phase

AC

QU

ISIT

ION

Stamp Duty

Share deal and Asset deal • Stamp duty is nominal (either IDR 6,000 or IDR 3,000) on all relevant transaction documents. Indonesia stamp duty

regime is under reform and the specific stamp duty implications should be reconfirmed at the time of the specific transaction.

Value Added Tax (VAT)

Share deal • The sale or transfer of shares is exempt from VAT in Indonesia

Asset deal • 10% VAT is applicable on the purchase price of properties in Indonesia, • Whether the input VAT is creditable in the hands of the buyer depends on the VAT profile of the buyer, profile of asset

being acquired and availability of valid supporting documentation.

Duty on acquisition of land and building rights

Share deal • No implications on the acquisition of land and building title via a share deal

Asset deal • Acquirer is liable to 5% duty on the higher of the transaction value or market value of the land and building less an

allowable non-taxable threshold (which varies depending on the location of the property.)

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52


Ho

ldin

g


• Rental income will be subject to a final tax of 10%. • No expenses (including tax depreciation) can be deducted against this final tax liability (i.e. interest expenses on

shareholders’ loan, if any, are not deductible against the rental income) • Non-final tax income such as service or property management fees (net of allowable deductions) are subject to

normal corporate income tax rate of 25%

Capital Structure

• Investments in Indonesia can be financed by a combination of paid-up capital/equity and loan. Thin cap rules have been intro but argably not applicable to real estate holding company paying final tax on gross rental income,.

• Indonesia’s Investment Coordinating Board (BKPM) regulation requires a 3:1 debt-equity ratio if the investment is at the minimum investment level of IDR10 billion.

• A higher debt-equity ratio may be allowed if the investment significantly exceeds IDR10 billion. • However, required to obtain the necessary regulatory approvals

Withholding Tax

Interest and Dividends • Subject to domestic withholding tax at 20% (may be reduced by DTAs)

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53

Ex

it


Share deal • Any capital gain on the sale of unlisted shares by Indonesia resident corporations is subject to corporate income

tax of 25%. • Sale of unlisted shares by a non-resident would attract a withholding tax of 5% on the gross proceeds • Proceeds from sales of shares listed on the Indonesian stock exchange are not subject to normal corporate

income tax, but is subject to a final withholding tax of 0.1% of gross proceeds. Asset deal • Final income tax of 5% is applicable on the gross value of the land and / or building


VAT • Similar to acquisition phase

Duty on acquisition of land and building rights

• Similar to acquisition phase

Exit Phase

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Structures for Indonesia Real Estate Investments

54



holding location to invest into Indonesia Real Estate. Under the Singapore-Indonesia DTA, interest payment from Indonesia Property Company to Singapore SPV is subject to a reduced withholding tax rate of 10% while dividend is subject to a reduced withholding tax rate of 10% or 15%.

• Gain from sale of Hold Co and/or Singapore SPV may not be

subject to Singapore tax and Indonesian tax.

• Under section 13Z of the Singapore Income Tax Act, any gain derived from the sale of ordinary shares in an investee company for which the seller owns at least 20% stake for a continuous period of 24 months is exempt from tax. Singapore does not tax capital gain and gain not sourced in Singapore.

Property company (Indonesia)

Hold Co (Singapore)

Property (Indonesia)

Investor

SPV (Singapore)

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Vietnam

55

PwC

Snapshot of tax implications on investing in Vietnam Real Estate

56

Acquisition Phase

AC

QU

ISIT

ION

Stamp Duty

Share deal • No stamp duty applicable Asset deal • Stamp duty / registration fee is payable at 0.5% on the registration price • Registration price based on provincial People’s Committee under prevailing regulations depending

on type of assets. • Capped at VND 500 million (about USD 22k) for each time of registration of a single asset.

Value Added Tax (VAT)

Share deal • No VAT on transfer of shares

Asset deal • The sale/lease of property (i.e. not land/land use right) is subject to the standard 10% VAT rate. • VAT refund can be sought if certain conditions are met

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57


Ho

ldin

g


• Rental income will be subject to tax at the prevailing corporate tax rate (i.e. 22%, 20% w.e.f 2016) • Interest payments on loans are tax deductible if the charter capital has been fully contributed and

the loan is supported by a loan agreement.

Capital Structure

• There are no thin capitalisation rules within the tax regulations or limits on debt financing. • However, the minimum charter capital requirement for the real estate industry (VND20 billion

-approx. USD 900,000) effectively limits the amount of debt funding. • As a general rule, the preferred structure from a cash management perspective is to minimise

equity given the easy repatriation of debt and debt is also tax effective (subject to capital requirement)

Withholding Tax

Interest • Subject to domestic withholding tax at 5%

Dividends • No dividend withholding tax in Vietnam

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58

Ex

it Corporate

Income Tax

Disposal of asset • Sale of property will be considered a transfer of real estate and subject to tax at the standard CIT rate of 22% (20%,

w.e.f. 2016).

Disposal of shares The tax implications of the divestment of ownership in a Vietnam Company differs depending on whether it is: a) The transfer of capital (i.e. sale of a limited liability company or shares in a non-public joint stock company (“JSC”) ; b) The transfer of securities (i.e. sale of shares in a public JSC).



Exit Phase

Transfer of capital Transfer of securities

Vietnam corporate

transferor Gain on disposal subject to CIT at 22%

Overseas corporate

transferor

Gain on disposal subject to Capital

Assignment Profit Tax at 22%.

0.1% of sale proceeds

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Structure for Vietnam Real Estate Investments

59



holding location to invest into Vietnam Real Estate. • In addition, under section 13Z of the Singapore Income Tax Act,

any gain derived from the sale of ordinary shares in an investee company for which the seller owns at least 20% stake for a continuous period of 24 months is exempt from tax. Singapore does not tax capital gain and gain not sourced in Singapore.

• Need to consider recent changes in CIT regulations in relation to the right for the tax authority to tax gains arising from the indirect transfer of a Vietnam company. (e.g. using a Dutch Hold Co).

Property company (Vietnam)

Hold Co (Singapore / Netherlands / Luxembourg )

Property (Vietnam)

Investor

SPV (Singapore)

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Major real estate transactions

60

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Major Real Estate Deals in 2015

61

Country Deal Size (US$) Property Name Property Type Buyer/Seller

Singapore 979 .2 Mil

One Raffles Place Office

Buyer: OUE Seller: Kuwait Investment Authority

Singapore 863.9 Mil

AXA Building Office

Buyer: JV - Perennial Real Estate , HPRY Holdings Ltd , Low Keng Huat Seller: BlackRock Real Estate

Malaysia (Kuala Lumpur)

288.3 Mil Integra Tower Office

Buyer: KWAP Seller: BlackRock

Singapore 282.5 Mil Thong Sia Building Office Buyer: Sin Capital Partners Seller: Undisclosed (Collective sale)

Malaysia (Petaling) 119.1 Mil Tropicana City Mall Retail Buyer: CapitaLand Mall Trust Seller: Tropicana

Malaysia (Kuala Lumpur)

107.7 Mil Menara Hap Seng Office

Buyer: Hap Seng Consolidated Seller: Akal Megah Sdn Bhd

Indonesia (Palembang)

59.3 Mil Palemban g Icon Retail

Buyer: LMIR Trust Seller: PT Metropolis Propertindo Utama

Vietnam (Hanoi)

33.7 Mil Hoa Binh International Office

Buyer: An Cu Property Management Seller: Hoa Binh Group

Vietnam (Hanoi)

23.2 Mil Indochina Plaza Hanoi Offices Office

Buyer: Gaw Capital Seller: Indochina Land

Indonesia (Batu) 19.9 Mil Lippo Plaza Batu Retail Buyer: LMIR Trust Seller: PT Metropolis Propertindo Utama

Source: Real Capital Analytics

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Major Real Estate Deals in 2015 - Singapore

62

Deal Size (US$) Property Name Property Type Buyer/Seller

75.5 Mil Suntec Tower 2 Office Buyer: Suntec Real Estate Investment Trust Seller: Maybank Kim Eng

979.2 Mil One Raffles Place Office Buyer: OUE Seller: Kuwait Investment Authority

73.3 Mil Prudential Tower (25F-27F) Office Buyer: Undisclosed Seller: JV- Lian Beng Group , KSH Holdings, KOP Group, Centurion

53.3 Mil Prudential Tower (28F-29F) Office Buyer: Undisclosed Seller: Lian Beng Group , KSH Holdings, KOP Group, Centurion

153.1 Mil ICS Building Office Buyer: Undisclosed Chinese investor Seller: Cheong Sim Lam

282.5 Mil Thong Sia Building Office Buyer: Sin Capital Partners Seller: Undisclosed (Collective Sale)

178.4 Mil Dapenso Building Office Buyer: Denis Jen Seller: Alpha Investment Partners

863.9 Mil AXA Tower Office Buyer: JV - Perennial Real Estate, HPRY Holdings Ltd , Low Keng Huat Seller: Blackrock Real Estate


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Major Real Estate Deals in 2015 - Malaysia

63


53.5 Mil Nu Sentral Retail Buyer: Pelaburan Hartanah Berhad Seller: MRCB

66.9 Mil Mydin Hypermall Retail Buyer: AmFIRST Real Estate Investment Trust Seller: Mydin Wholesale Cash and Carry Sdn Bhd

119.1 Mil Tropicana City Mall Retail Buyer: CapitaLand Mall Trust Seller: Tropicana

107.7 Mil Menara Hap Seng Office Buyer: Hap Seng Consolidated Seller: Akal Megah Sdn Bhd

60.0 Mil Menara Raja Laut Office Buyer: Hong Leong Assurance Bhd Seller: Hong Leong Bank

288.3 Mil Integra Tower Office Buyer: KWAP Seller: BlackRock

99.8 Mil KL Festival City Retail Buyer: Pramerica Seller: Parkson Holdings Bhd


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Major Real Estate Deals in 2015 - Vietnam

64


33.7 Mil Hoa Binh International Towers Office Buyer: An Cu Property Management Seller: Hoa Binh Group

23.2 Mil Indochina Plaza Hanoi Offices Office Buyer: Gaw Capital Seller: Indochina Land

22.3 Mil Indochina Plaza Hanoi Shopping

Centre Retail

Buyer: Gaw Capital Seller: Indochina Land

Undisclosed Diamond Plaza Office Buyer: Lotte Group Seller: POSCO E&C


Major Real Estate Deals in 2015 - Indonesia


59.3 Mil Palemban g Icon Retail Buyer: LMIR Trust Seller: PT Metropolis Propertindo Utama

19.9 Mil Lippo Plaza Batu Retail Buyer: LMIR Trust Seller: PT Metropolis Propertindo Utama

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Appendix 1

Continue the conversation…

Presenter CVs

65

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Presenter CVs

66

Teo Wee Hwee

Partner, Real Estate & Hospitality Tax Leader, Fund Structuring & International Tax PricewaterhouseCoopers Singapore Pte. Ltd. T: +65 6236 7618, +65 9791 2021 Email: [email protected]




details.


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