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Don’s Column: Singapore’s Stamp Duty Regime

Taking Stock Of Recent Changes
Simon Poh
BY Simon Poh

TAKEAWAYS

  • From 15 February 2023, two new top marginal buyer’s stamp duty rates were introduced for both residential and non-residential properties, targeting higher-end properties in excess of $1.5 million.
  • As a temporary property cooling measure, additional buyer’s stamp duty has been introduced for certain categories of buyers of residential properties since 11 December 2011 and has now been raised again from 27 April 2023. Seller’s stamp duty has also been introduced for buyers of both residential and industrial properties who fit certain criteria.
  • The recent changes also addressed areas for potential tax avoidance.

The stamp duty regime in Singapore has undergone some significant changes in the last couple of years. In addition to hikes in the stamp duty rates, recent amendments to the legislation and audits conducted by the tax authorities sought to close any potential loopholes that may have been exploited by taxpayers to avoid paying this high tax burden. This article takes stock of these changes.

A form of indirect tax, stamp duty imposes tax on documents relating to the transfer of immovable properties and shares. It is a tax burden ordinarily borne by the buyer and computed based on certain prescribed rates applied to the consideration or market value of the relevant asset, whichever is higher.

STAMP DUTY ON TRANSFER OF IMMOVABLE PROPERTIES

Buyer’s stamp duty

There is buyer’s stamp duty (BSD) levied on purchases of all properties, whether residential, industrial or commercial.

For a long time, BSD has been payable by the buyer on the purchase of all properties based on the following rates:

With effect from 20 February 2018, the top marginal BSD rate was raised from 3% to 4%, but applied on the value of only residential properties in excess of $1 million as follows:

From 15 February 2023, two new top marginal BSD rates were introduced for both residential and non-residential properties (Tables 1 and 2, respectively), a move clearly targeting all the higher-end properties in excess of $1.5 million.

Table 1 BSD rates for residential properties

Table 2 BSD rates for non-residential properties

Temporary cooling measures

As a temporary property cooling measure, additional buyer’s stamp duty (ABSD) has been introduced for certain categories of buyers of residential properties only. Seller’s stamp duty (SSD) has also been introduced for buyers of both residential and industrial properties who buy their properties after certain prescribed dates and sell them within a short period of three years or less.

These temporary measures mainly aim to moderate the strong investment demand by both local and foreign buyers of residential properties. They also aim to ensure that residential properties remain affordable for Singaporeans and that the prices move in tandem with economic fundamentals.

ABSD

In addition to BSD, buyers of residential properties have had to pay ABSD since 8 December 2011. The ABSD rates vary, depending on the profile of the buyer, and have been raised four times – on 12 January 2013, 6 July 2018, 16 December 2021 and, again, on 27 April 2023. For acquisitions made jointly by two or more parties of different profiles, the ABSD rate applicable will be based on the profile with the highest ABSD rate on the entire property value acquired. The latest applicable ABSD rates are summarised in Table 3

Table 3

SSD

Sellers of properties do not normally have any stamp duty obligations. This is unless they sell residential or industrial properties acquired after certain dates and within a short holding period. The applicable SSD rates are summarised in Table 4.

Table 4

STAMP DUTY ON TRANSFER OF SHARES IN PROPERTY-HOLDING ENTITIES – ADDITIONAL CONVEYANCE DUTIES

Comparing the stamp duty obligations for the buyer of all types of immovable properties with those for the buyer of shares in entities with substantial immovable properties, it is clear that the buyer will choose the latter option due to the substantially lower stamp duty burden of 0.2%, compared to the higher BSD rates and potentially ABSD and SSD as well. This significant rate differential loophole was closed when the government introduced additional conveyance duties (ACD) for both buyers and sellers of equity interests in property-holding entities (PHEs) that own primarily residential properties in Singapore with effect from 11 March 2017. This is over and above the normal 0.2% stamp duty applicable on the higher of the transaction value or the net asset value of the shares, which remains payable.

A PHE is an entity which has at least 50% of its total tangible assets comprising prescribed immovable properties (PIP) in Singapore. A PHE can be a Type 1 PHE, a Type 2 PHE or both.

PIP refers to any immovable property that is:

a) zoned or situated on land that is zoned “Residential”, “Commercial and Residential”, “Residential/Institution”, “Residential with Commercial at 1st Storey”, or “White”;

b) permitted to be used by a written permission given under section 14(4) of the Planning Act (not being one that is given for a period of 10 years or less) or notification given under section 21(6) of the Planning Act for solely residential purposes or for mixed purposes one of which is residential; or

c) used for solely residential purposes or for mixed purposes one of which is residential, in a case where the property was so used on 1 February 1960 and has not been put to any other use since that date, and where such use is not the subject of a written permission or notification mentioned in paragraph (b).

Type 1 PHE means the target entity has PIP of which the market value makes up at least 50% of the value of the entity’s total tangible assets (TTA).

Type 2 PHE means the target entity:

  • has 50% or more beneficial interest (directly or indirectly) in one or more entities each of which is a Type 1 PHE (henceforth referred to as “related entities”); and
  • the sum of the market value of the PIP beneficially owned by the target entity directly and indirectly through its related entities is at least 50% of the TTA of the target entity and all the entities which the target entity has 50% or more beneficial interest (directly or indirectly) in.

Unlike stamp duty on shares which is levied on only the buyer and based on 0.2% of the higher of the transaction value or the net asset value of the shares, there are two forms of ACD:

  • ACD applying to buyers for a qualifying acquisition (ACDB); and
  • ACD applying to sellers for a qualifying disposal (ACDS);

ACDB

A qualifying acquisition happens when equity interest in a PHE (that is, the target entity) is acquired on or after 11 March 2017 and the buyer (with any associates):

  • is already a significant owner of the PHE before the acquisition; or
  • becomes a significant owner of the PHE after the acquisition.

A significant owner of a PHE refers to an individual or an entity who beneficially owns at least 50% equity interest or voting power in a residential PHE, either on its own or with its associates. In determining whether the 50% ownership threshold for significant ownership is met, the equity interest of the buyer’s and seller’s associates will be taken into account.

Where the buyer is an individual, his/her associates include:

  • family members such as grandparent, parent, child, grandchild, sibling and spouse;
  • partners in a partnership, limited partnership or limited liability partnership; or
  • the entities which the buyer/seller beneficially owns 75% or more voting capital and more than 50% voting power in.

Where the buyer is an entity, its associates include:

  • subsidiaries which it beneficially owns 75% or more voting capital and more than 50% voting power in it;
  • individuals who or holding entities which beneficially own 75% or more voting capital and more than 50% voting power in it;
  • other entities in the group that is an associated entity to a common holding entity or individual which meets the condition listed immediately above;
  • partners in a partnership, limited partnership or limited liability partnership.

Associates also include parties with an agreement or arrangement (whether oral/written/expressed/implied) to act together to acquire, hold or dispose of equity interest in, or with respect to the exercise of their votes in relation to the target entity.

ACDB consists of two portions. The first portion is based on the normal BSD rates which are based on graduated tax rates of 1% to 6% (see Tables 1 and 2). The second portion is based on 65% of the entire value of the underlying property transferred if the acquisition occurs from 27 April 2023 onwards. In the event that less than 100% of the equity interest is acquired, the ACDB will be apportioned accordingly.

ACDS

A qualifying disposal happens when the seller (together with any associates) is a significant owner of the PHE and the equity interest of the PHE disposed of:

  • was acquired on or after 11 March 2017; and
  • disposed of within three years of acquisition (holding period) on a first-in-first-out basis.

The terms “PHE”, “significant owner” and “associates” have the same meaning as those defined above for ACDB.

Unlike ACDB, ACDS has only one portion, and is computed based on 12% of the entire value of the underlying property disposed. This portion coincides with the highest tier of the SSD rates.

Similar to ACDB, in the event that less than 100% of the equity interest is disposed of, the ACDS will be apportioned accordingly.

With the implementation of ACDB and ACDS, it is clear that an indirect transaction involving a qualifying acquisition or disposal of PHEs, as opposed to a direct transfer, is no longer a more attractive option that will result in significant stamp duty savings. In fact, the reverse is true as there can be significantly higher stamp duty instead.

TAX PLANNING CONSIDERATIONS

The generally high stamp duty rates for all properties have led taxpayers to engage in arrangements that can help them to save on these taxes. However, utmost care must be exercised to defend against any attempts by the tax authorities to treat these as tax avoidance or worse still, tax evasion arrangements.

There is little scope in minimising the stamp duty on the BSD on the transfer of immovable properties, whether they are residential, industrial or commercial properties.

But buyers should be mindful of potential ABSD applicable to residential properties, depending on the profile of the buyer and the number of properties owned or co-owned by the buyer prior to the purchase of the current property. Sellers of both residential and industrial properties should be wary of potential SSD depending on the timing of the sale.

The following are some measures which can lower the stamp duty burden:

  • The owner can sell the residential or industrial properties after holding for a longer period, for example, beyond three years, to either eliminate or at least reduce the impact of SSD;
  • The potential buyer can upgrade his/her profile, for example, from foreigner to Singapore permanent resident or even Singapore citizen to qualify for lower ABSD rates;
  • Avoiding joint ownership of properties in the case of married couples as each spouse is considered as having owned one property each, regardless of the partial ownership, thereby increasing the stamp duty exposure for subsequent properties purchased by any spouse;
  • Applying for special stamp duty for certain special scenarios. For example, from 12 January 2013, a married individual with a spouse who is a Singapore citizen can apply for ABSD refund on their second property if they sell their first property within six months from the date of purchase of their second property;
  • As a non-qualifying acquisition and a non-qualifying disposal will not trigger ACD, an indirect transfer of shares in a PHE that owns primarily residential properties in Singapore under such circumstances may still yield stamp duty savings compared to a direct transfer.

On the other hand, any attempts to save on paying the ABSD through “contrived or artificial” arrangements could potentially be regarded as tax avoidance arrangements by the tax authorities. Under a revised penalty regime effective from 7 December 2020, in addition to recovering the stamp duty that was avoided, a 50% surcharge can be imposed on the additional duty payable. If the stamp duty and surcharge are not paid by the deadline, penalties of up to four times the outstanding amount may be further imposed.

One such potential tax avoidance arrangement involving stamp duty is a “99-to-1” property deal that has been the target of a recent investigation launched by the Inland Revenue Authority of Singapore (IRAS). If two parties, typically family members, had purchased a property by declaring at the outset that the ownership will be in the ratio of 99-to-1, ABSD will have been levied on the profile of the co-owner with the highest ABSD rate. This rate could have been based on the higher rate of 30% on the entire value of the property applicable to the parent, assuming he/she already owned two residential properties at the time of purchase of the current third property. Instead, the transaction may be concluded based on 100% ownership by the child which attracts no ABSD, assuming the child is a Singapore citizen who has yet to own any residential properties before this purchase. The child then transfers a 1% stake to the parent which attracts ABSD based on only 1% of the value of the property. By including the parent’s name, the property then qualifies for a bank loan. Unless the joint buyers have a legitimate commercial justification as to why the purchase has to be structured through this two-step process, this transaction would have been a soft target for IRAS, to treat it as a sham to avoid paying a higher stamp duty.

High BSD rates, including high ABSD, SSD and ACD, are likely to continue to stay, and they are not about to come down any time soon. This is unless there is a major global recession that severely affects property prices in Singapore. While there are legitimate ways to save on stamp duty, buyers should be aware of the pitfalls of using arrangements to save on stamp duty, which will certainly be challenged by the tax authorities. If unsure, they should always consult a reliable and competent tax advisor.


Simon Poh is Associate Professor (Practice), Department of Accounting, National University of Singapore Business School.

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