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What are REITs
Real Estate Investment Trusts (REITs) offer investors a convenient way to gain exposure to income-generating real estate without directly owning physical properties. Structured as closed-end funds or trust-based investment vehicles, REITs allow ordinary investors to participate in the real estate market with a lower capital outlay. These trusts are typically managed by professional asset managers with expertise in the real estate sector, providing both accessibility and industry insight.
Tax treatment for REITs holders
REIT unit holders are taxed in the Year of Assessment (YA) in which the distributed income is received. Such distributions typically carry a tax credit that unit holders can use to offset their tax liabilities, in accordance with subsection 110(9A) of the Income Tax Act 1967. However, if the REIT distributes at least 90% of its total income for the YA to unit holders, the REIT itself is exempt from income tax for that YA—but in this case, the distribution will not carry a tax credit.
In cases where a unit holder is tax-exempt, but the income distribution from a REIT or Property Trust Fund (PTF) has been subject to withholding tax under Section 109D of the Income Tax Act (ITA), the unit holder is entitled to claim a refund under Section 111 of the ITA. Conversely, any tax-exempt income received by the REIT/PTF and subsequently distributed to unit holders remains tax-exempt in the hands of those unit holders.
The chargeable tax rate applicable to unit holders would depend on their residency status. Unit holders are taxed as follows:
| Chargeable persons | Withholding tax rates |
| Individuals (Resident or non-resident), body of persons, or other unincorporated persons | 10% (Until YA 2025) |
| Resident Company | 0% (Income received is taxable at company’s tax rate) |
| Non-resident company | 24% |
| Foreign institutional investor (e.g. pension fund, collective investment scheme, or other persons approved by MOF)), and other unit holders not falling in above-mentioned categories | 10% (Until YA 2025) |
Capital Gains and RPGT
The disposal of listed REIT units by individuals is not subject to Real Property Gains Tax (RPGT) under Malaysian tax law. This is because REIT units are classified as securities or shares, rather than real property or real property company (RPC) shares.
REITs are traded on Bursa Malaysia, and transactions involving their units are regulated in the same manner as listed equities. As such, gains from the sale of REIT units fall under capital market transactions, which are not subject to RPGT—a tax that applies only to the gains from the disposal of real property or shares in real property companies.
This distinction provides tax efficiency and greater liquidity for investors, as they can exit their REIT investments without incurring RPGT liabilities, regardless of the holding period. However, note that while RPGT does not apply, any income derived from short-term trading of REIT units may still be assessed as business income if it constitutes a trade in the view of the Inland Revenue Board.
REITs offer a tax-efficient and accessible route for investors to gain exposure to the real estate sector. Understanding the tax implications—especially regarding withholding taxes, exemptions, and distribution requirements—is essential for maximizing returns and ensuring compliance with Malaysian tax laws.
