🏘🏘🏘 REIT investors, look over here 🏘🏘🏘
Are you familiar with the tax rate around the globe for REIT dividend / distribution income ? Some countries actually offers zero tax rate while some are up to a whopping 30% tax on your returns! 👇👇👇 Look down below for different country with different tax rate.
🇲🇾 Malaysia – 10% tax rate on distribution income
👉 What does this mean? If you get a return of 8% on your REIT from dividends, then the effective return you will get is 7.2% 8% – (8% x 10%).) In Malaysia, REIT are considered rental income, therefore there is tax on rental income generated from REITS as well.
🇸🇬 Singapore – Tax exempted
🇭🇰 Hong Kong – Tax exempted
👉 Isn’t it funny how the country faced so much problem on land scarcity offering 0% tax rate on your distribution income? However, this attracts more investor to flow their money into Singapore and Hong Kong REIT, which increases the valuation of REITS in these countries, and thus lowered your return on investment. Therefore, the return could potentially be lower than countries which they impose taxes on it!
For example, US’s mortgage REIT might offer up to 15% dividend yield. After 30% tax rate (Yes, US REITs have a 30% tax rate on dividend income.) , the effective return on your investment is 10.5%. 15% – (15% x 30%)
**However, do not get fooled by the double digit returns from these REITs. You MUST perform due diligence on the whole business before you invest in it!
🇦🇺 Australia – 30% or 15% from certain countries (Applicable to foreign investors only)
🇨🇦 Canada – 25% (Applicable to foreign investors only)
🇯🇵 Japan – 13.315% + 3-5% (Applicable to foreign investors only)
👉 You might wonder why are they implementing so much taxes for foreign investors, this is actually serves the purpose to be fair to local investors. In their own country, they are subject to domestic taxes on their income. However, for foreign investors whom are not PR (Permanent Resident), it’s difficult to impose tax on them. Therefore, they would tax you beforehand on the dividend / distribution income. (Also, of course they would like to tax you, it’s another source of income to their country!)
🇺🇸 United States – 30% tax rate on dividend income
🇬🇧 United Kingdom – 20% tax rate on dividend income
☝️ United States taxes are a little bit complicated. When you sold the REIT, you are required to file a US tax return form. More paper work compared to other countries. However, if you are a fan of mortgage REIT, I guess this is a must for you!
—– BONUS —–
🤔 What is mortgage REIT?
- Mortgage REIT can be explained as you are the lender of mortgage loans. These REITs purchase mortgage loans from the financial institution and package it into REIT, and ultimately you, the purchaser of mortgage REIT, is the partial owner of these house buyer’s creditor.
You (Investor) –> REIT management company —> Financial Institutions —> House Buyers <– You (Creditor)
😍 Sign me up! How do I invest in foreign REITs?
- This is a very common question where local investors might ask. First, you need to consult your broker / dealer whether the platform you are using allows you to buy foreign shares / REITs. (If not, you might have to register for another brokerage account.)
Butttt… (Here comes the “but” part) do bear in mind that brokerage fees are a hefty amount ranging from 20USD to 50USD “per transaction”. So you might want to save up a little bit and buy in bulk to save some money!
If you still have any unanswered questions, kindly comment down below 👇👇 and we will try to help you as soon as possible!