Nikko Asset Management Asia Limited has announced a dividend distribution for holders of the NikkoAM-StraitsTrading Asia ex Japan REIT ETF. The distribution, amounting to S\$0.0116 per unit, covers the period from 1 August 2024 to 31 October 2024. This development could have varying implications for different investor categories, depending on their tax status and investment strategies.

Breakdown of Dividend Distribution

The dividend distribution comprises multiple components:

• Taxable income component: S\$0.0079948 per unit from qualifying Singapore REIT distributions.
• Tax-exempt income: S\$0.0011464 per unit, which does not need to be declared in Singapore tax returns.
• Other income and gains: S\$0.0024588 per unit from the disposal of securities.
• Capital component: No distribution under this category for the period.

Tax Implications for Investors

The tax treatment of the distribution varies depending on the investor’s profile:

• Qualifying Individuals: Not subject to tax on the distribution as long as it is not derived from trade, business, or profession.
• Non-Qualifying Individuals: Liable for Singapore income tax and must declare the gross income distribution in their tax returns for the Year of Assessment 2026.
• Qualifying Foreign Non-Individual Investors: Subject to a 10% withholding tax, provided they meet specific non-residency and operational criteria.
• Other Investors: Subject to a 17% tax rate on distributions unless exempt due to their organizational structure.

For holders who treat their units as trading or business assets, any capital distributions will reduce the cost of the units for calculating taxable gains upon disposal. If the capital distribution exceeds the cost of the units, the excess will be taxable as trading income.

Key Considerations for Shareholders

The uncertainty around the expiration of the Designated Unit Trust (DUT) scheme on 31 March 2019 could potentially affect the tax treatment of distributions for certain holders. Though the Fund may retain DUT status if it meets specified conditions and submits the required declaration to the Inland Revenue Authority of Singapore (IRAS), the situation introduces an element of unpredictability for investors relying on tax efficiency.

Additionally, the Fund’s use of financial derivative instruments and its inherent investment risks, including potential loss of principal, could influence its attractiveness to risk-averse investors.

Potential Share Price Impact

The announcement of the dividend distribution, coupled with its tax implications and the ongoing risks associated with the Fund’s performance, may have an impact on investor sentiment and consequently the share price. Investors should carefully evaluate the suitability of this investment in light of these considerations.