Many financial institutions believe that the exemption and suspension of income tax on relevant companies reflect the government's determination to expand and develop the REITs market.
On January 29, 2022, China’s Ministry of Finance and the General Administration of Taxation issued the ‘Announcement on the Pilot Tax Policy for Real Estate Investment Trusts (REITs) in the Infrastructure Sector’
The document specifies the relevant tax policies for the operation of five REITs products:
The original equity holders inject infrastructure assets into the project to obtain the equity of the project company without corporate income taxes.
During the establishment stage of infrastructure REITs, the original equity holders can transfer the equity of the project company or obtain income from holding their own REITs shares, which can be deferred to pay enterprise income tax.
Infrastructure REITs operation shall be implemented in accordance with the provisions of the original tax law.
The scope of this policy (the projects under China Securities Regulatory Commission and Development and Reform Commission).
The implementation time of this policy (took effect on Jan 1, 2022).
It is worth noting that this is the first time that the Chinese government has issued REIT-related tax policies. China has previously charged a general tax amount in the REITs market. Many financial institutions in the industry believe that the exemption and suspension of income tax on relevant companies this time reflects the government's determination to expand and develop the REITs market.
On June 21, 2021, with the first batch of infrastructure REITs pilot projects listed, China's public offering REITs market was officially established. By the end of 2021, a total of 11 projects had been listed, covering many key areas, such as industrial parks, highways, sewage treatment, warehousing and logistics, waste incineration and power generation, and a total of CNY 36.4 billion had been sold. Among them, the net recovered capital for new investment is about CNY 16 billion, which can drive the total investment of new projects to exceed CNY 190 billion. We firmly believe that China's open public offering REITs market can form a virtuous circle of investment in China.