New tax policies for Real Estate Investment Trusts
Recently, the Ministry of Finance ("MOF") and the State Taxation Administration ("STA") have issued the Announcement on Tax Policies for the Pilot Program of Real Estate Investment Trusts (REITs) in the Infrastructure Sector (the "Announcement"), with effect on January 1, 2021.
According to the Announcement, before the creation of infrastructure REITs, the transfer of the infrastructure assets by the originator to the project company to obtain the equity of the project company accordingly shall be subject to special tax treatment, whereby the tax base of the infrastructure assets obtained by the project company depends on the original tax base of the infrastructure assets; while the tax base of the equity obtained by the originator in the project company depends on the original tax base of the infrastructure assets. The originator and the project company will not be subject to enterprise income tax (EIT) if they do not confirm the income. The Announcement stipulates that, during the creation stage, the originator transferring the equity of the project company to the infrastructure REITs is temporarily not required to pay EIT on the increase in value achieved from asset transfer valuation in the current period, and such EIT payment is allowed to be deferred until the infrastructure REITs complete the fundraising and the equity transfer price is paid. For the shares of the infrastructure REITs subscribed for (increased) through the secondary market, and the shares of strategic placement preferentially disposed of shall be determined according to the principle of "first-in, first-out".