Reiz

REIT Operation Model

REIT Operation Model

At REIZ-REIT, our investment approach is structured to maximize shareholder returns while ensuring long-term stability and sustainable growth in the real estate sector.

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What is a Real Estate Investment Trust (REIT)?

A company that owns, operates or finances income producing real estate, funded by a pool of individual investors.

REIZ has paved the way for REITs. First-ever REIT Registered in Zambia
Challenges Faced:
• Navigating a Complex Regulatory and Taxation Framework
• Exposure to Double Taxation on Certain Incomes and Distributions
• Operating Under a More Restrictive Regulatory Framework than other markets
Our Commitment
• Collaborative Efforts with SEC,
Government, ZRA and Capital Markets Investors
• Improve investment attractiveness of Zambia’s real estate sector
• Align REIT Guidelines to international best practices
• Realize growth and benefits

REITs operate like a real estate investment vehicle but more efficiently

Formalisation drives investment and growth in both profits and taxes (directly and indirectly).

• Empirical research highlights that the introduction of REITs contribute to the formalization and growth of the real estate sector
• REITs create increased market efficiency, higher liquidity, lower transaction costs and higher long term returns, creating higher investment and an expanded the tax base
• This growth includes expansion of the tax base through secondary economic activities, such as construction, maintenance, and property management. These activities generate VAT (Value-Added Tax), PAYE (Pay-As-You-Earn) on wages, and corporate taxes on service providers

REIT tax treatment can lead to confusion on the benefits to the tax base of nation

It is critical to understand the difference in taxation of a REIT versus a standard corporate

REITs increase investment access..

• REITs allow anyone, from retail investors to large institutional investors, to invest in the real estate held by publicly quoted companies, the same way as investing in other industries through purchasing shares.
• Instead of investing in individual properties, investors in a REIT are able to earn part of the income produced by the underlying bricks and mortar

..and proceeds are taxed differently

• Recognising that the purpose of a REIT is to allow collective investment in real estate, the profit generated is not taxed in the hands of the REIT, but at the shareholder level, when the profit is paid out as a dividend.
• Legally, in Zambia a REIT is obliged to distribute 80% of its taxable income as dividends.

which creates misconceptions on tax..

• For this reason, the tax profile of REITs can be misunderstood.
• The tax on rental income and on gains realised on disposal is passed to shareholders to ensure that the tax liability is paid once (at the shareholder level) rather than twice (first by the REIT and then by the shareholder).
• This incentivizes real estate investment through accessible, transparent and liquid REITs

How do REITs contribute to Tax revenue?

REITs create tax benefits that are often not considered formally

  • People Taxes

    Employment is an important way in which REITs contribute to economies. This includes employer social security and income tax. Heightened investment thanks to the REIT structure drives employment which drives taxes from people.

  • Withholding Taxes

    These are a key feature of the REIT. Tax on profits made by the REITs is due from shareholders rather than from the REIT itself. The shareholder base may comprise individuals, institutional investors, other investors and may be domestic or based overseas.

  • Property Taxes

    As owners of property, REITs make a significant contribution from both transfer (purchase/ sale) and occupation of property. REITs are not speculative traders, instead investing in property for the long term, generating stable returns. Land and property have identifiable and unchangeable geographic locations which makes the tax base easier to identify for tax purposes. In addition, the ownership of land is generally visible and easily established, meaning it is relatively straightforward to identify who should be paying the tax

In the most Comprehensive Report done on the effects on the tax base from introduction of REITs in Europe – a PWC report highlighted that the total tax rate – a measure of the cost of taxes in relation to profitability and calculates the total taxes borne as a percentage of profits before all those taxes borne – is 19.4% (€4.1bn) based on data from 48 REITs across 11 countries

Get in touch

  • East Park Mall, Plot 5005 Corner Great East/Thabo Mbeki Roads P.O. Box 30012 Lusaka, Zambia
  • Phone: +260 211 258057/8
    Fax: +260 211 222906
  • info@reiz.co.zm
  • Reiz