Originally found in the United States of America, Real Estate Investment Trusts (REITS) were aimed at allowing and facilitating small to medium type investors to invest indirectly in commercial property investments which they normally would not have access to. Since then, REITS have spread across the world in many jurisdictions including Zimbabwe where they were provided and enabled by the Finance Act , Statutory Instrument 172 of 1998 as read with Statutory Instrument 240 of 2019 , Securities Exchange Act through General Notices 469 of 2020 and Income Tax Act (Chapter 23:06). Typically REITS operate income-producing real estate or related assets which may include among , office buildings, shopping malls, apartments, hotels, resorts and warehouses with the Highland Shopping Complex owned by TIGERE REIT being an example.

Before looking at the tax benefits of REITS it is important to note that in terms of the Finance Act (No.2) Act, 2020 a REIT must meet the following requirements: -

  • Must be listed on a stock exchange in terms of the Securities Exchange Act [Chapter 24:25]
  • in the case of investors other than pension funds, income must accrue from new real estate projects;
  • a minimum of 80% of taxable income must be distributed in the form of shareholder dividends each year;
  • Must not have more than fifty per centum of its shares held by five or fewer individuals during a taxable year, with the exception that pension funds may be permitted to hold more than fifty per centum of its shares held by five or fewer individuals during a taxable year
  • Must have a minimum of 100 shareholders after the first year of the date when it qualifies in respect to benefit in terms of the Act.

On the Tax benefits the most critical benefit is that REITS are exempt from Income Tax which is payable by other corporate entities and persons in business which means more income and for the REIT which supports investment. Investors being REITs security holders pay 1% capital gains withholding tax on disposal of their securities and 10% withholding tax on dividends earned. Initially in the 2023 budget the Minister of Finance and Economic development had limited the group of property developments which could attract these tax incentives which was reversed.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.