Liberty International converted into a UK Real Estate Investment Trust (`REIT´) on 1 January 2007.
A REIT is a company or group that invests in property and enjoys a measure of protection from corporation tax in return for an obligation to distribute a significant amount of the REIT’s cash flows to shareholders. As a REIT, the Liberty International Group no longer pays UK direct taxes on the income and capital gains from its qualifying property rental business carried on by UK resident Group companies (the `Tax Exempt Business´).
Dividends
One requirement of the REIT regime is that a REIT must distribute to shareholders by way of a dividend at least 90 per cent. of profits from its Tax Exempt Business in the form of a Property Income Distribution (`PID´). Any further distribution may also be designated as a PID or may be designated as an ordinary dividend (`Non-PID Dividend´). As stated in the Circular to shareholders dated 22 November 2006, Liberty International intends to continue a relatively full and progressive dividend policy and expects the dividend for 2007 to include an extra increase out of the net savings from conversion to a REIT.
The first Property Income Distribution paid by Liberty International as a Real Estate Investment Trust (REIT) was the 2007 interim dividend on 4 September 2007, which was 100% PID. The proposed 2007 final dividend to be paid on 28 May 2008 will be paid wholly as a non-PID and therefore will not be subject to deduction of the withholding tax described below. Future dividends may be a mixture of PID and non-PID dividends - any non-PID dividends will be treated in the same way as dividends paid prior to entry into the REIT regime.
Withholding tax
Liberty International is required to withhold tax at source from its PIDs at the UK basic tax rate of 20% for PIDs paid on or after 6 April 2008 (22 per cent. for PIDs paid in 2007). UK shareholders need take no immediate action (unless they qualify for exemption as described below) and will receive with each dividend payment a tax deduction certificate stating the amount of tax deducted.
UK shareholders who fall into one of the classes of shareholder able to claim an exemption from withholding tax (see Circular, page 14) may be able to receive a gross PID payment if they have submitted a valid relevant Exemption Declaration form (either as a beneficial owner of the shares, or as an intermediary if the shares are not registered in the name of the beneficial owner) to Liberty International’s registrars, Capita Registrars, for the attention of Steve Miller, Client Services, The Registry, 34 Beckenham Road, Beckenham Kent BR3 4TU by the deadline stated in the dividend timetable. A valid declaration form, once submitted, will continue to apply to future payments of PIDs until rescinded, and so it is a shareholder’s responsibility to notify Liberty International if their circumstances change and they are no longer able to claim an exemption from withholding tax.
PIDs paid to South African resident shareholders will constitute a foreign dividend which will continue to be exempt from South African income tax (because the company is listed on both the London Stock Exchange and the Johannesburg Stock Exchange, and has more than 10 per cent. of the share capital in the company held collectively by South African resident shareholders). However, the PID paid to South African resident shareholders will be subject to UK withholding tax at the full basic rate. Exemption declarations cannot be validly made in respect of shares held on the South African register. Shareholders may be entitled, on application either as an individual or as a company, to a refund from the UK’s HM Revenue & Customs (`HMRC´) (under the provisions of the UK/South African double tax treaty) of the tax withheld to the extent that it exceeds the treaty rate, currently 15 per cent. Refunds are not claimable from either Liberty International or the South African Revenue Service, only from HMRC.
Both the refund application forms and examples of how the forms can be completed are available for download from the right hand column of this page. Please note that applications for refunds cannot be dated before the date of receipt of the payment.
Other shareholders resident outside the UK may also be able to claim a refund (either as an individual or as a company) from HMRC subject to the terms of a double tax treaty, if any, between the UK and the country in which the shareholder is resident.
The above is based on Liberty International’s understanding of current UK and South African tax law and HMRC’s and the South African fiscal authorities’ practice which are subject to change, possibly with retrospective effect. This summary does not constitute advice and Liberty International does not accept liability for any loss suffered by shareholders as a result of reliance on such contents. Shareholders should seek their own professional advice.
Major corporate shareholders
Liberty International may not, under REIT legislation, make a distribution to any corporate shareholder which is beneficially entitled (directly or indirectly) to 10 per cent. or more of the shares or dividends of the REIT, or if it controls (directly or indirectly) 10 per cent. or more of the voting rights of the REIT, unless the REIT has taken reasonable steps to avoid such a distribution being paid.
