A Q&A guide to tax on corporate transactions in Singapore.
This Q&A provides a high level overview of tax in Singapore and looks at key practical issues including, for example: the main taxes, reliefs and structures used in share and asset sales, dividends, mergers, joint ventures, reorganisations, share buybacks, private equity deals and restructuring and insolvency.
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This Q&A is part of the PLC multi-jurisdictional guide to tax on corporate transactions. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxontransactions-mjg.
The Inland Revenue Authority of Singapore (IRAS) is the authority responsible for enforcing taxes on corporate transactions including:
Goods and services tax (GST).
The IRAS is headed by the Commissioner of Inland Revenue, who is concurrently the Comptroller of Income Tax, the Comptroller of Property Tax, the Comptroller of GST and the Commissioner of Stamp Duties under the relevant tax statutes.
It is possible to apply for tax clearances before completing a corporate transaction.
For income tax, taxpayers can request (in writing) an advance ruling on how the provisions of the Income Tax Act (Cap. 134, 2008 Revised Edition) (ITA) would apply to a proposed transaction. This advance ruling process is given statutory effect (section 108, ITA). A ruling binds the Comptroller of Income Tax to apply the statutory provision(s) in the manner set out in the ruling.
An advance ruling, whether or not favourable to the applicant, is final, that is, there is no appeal process at this stage. However, the applicant does not have to follow the ruling if he disagrees with it. However, in submitting his tax return (if it includes an issue that has been the subject of a ruling), the applicant must indicate that an advance ruling has previously been obtained and whether or not his submission accords with the ruling.
Where the Comptroller of Income Tax, based on the ruling, assesses that income tax should be paid and the applicant disagrees with this, the applicant can appeal the assessment under the normal appeal process in the ITA.
Taxpayers can also request in writing that the IRAS provide an advance ruling on issues related to GST. This advance ruling process is given statutory effect (section 90A, Goods and Services Tax Act (Cap. 117A, 2005 Revised Edition) (GST Act)). In the same way as for advance rulings for income tax, the ruling binds the Comptroller of GST to apply the statutory provision(s) in the manner set out in the ruling.
If the applicant decides not to comply with the Comptroller's ruling when submitting his GST return (if it includes the transaction that has been the subject of the ruling), he must declare in writing to the Comptroller that he has not complied with it.
Where the applicant has not complied with the ruling in completing his return and there is no material change in the facts and circumstances of his arrangements, the Comptroller of GST can decide that GST is payable. The applicant can appeal the assessment under the normal appeal process in the GST Act.
There is no formal system for rulings in relation to stamp duty under the Stamp Duties Act (Cap. 312, 2006 Revised Edition), but documents in certain transactions may need to be assessed by the Commissioner of Stamp Duties in a process known as adjudication. In addition, in practice, taxpayers often request a ruling or adjudication on a proposed transaction, particularly if the potential exposure to duty is significant.
There are provisions for stamp duty relief in relation to specific transactions, such as the transfer of assets between associated entities including companies, or the reconstruction or amalgamation of companies ("associated" and "entity" are defined in the Stamp Duties Act and relevant subsidiary legislation in relation to stamp duty). When applying for relief, the taxpayer must satisfy the Commissioner of Stamp Duties that the relevant prescribed conditions have been fulfilled.
Key characteristics. Stamp duty is levied on certain commercial and legal documents as prescribed in the Stamp Duties Act. These include:
Documents relating to the transfer, conveyance and assignment of shares and immovable property.
Leases of immovable property.
Triggering event. The chargeable instrument must be stamped within 14 days of its execution in Singapore. Any chargeable instrument executed outside Singapore must be stamped within 30 days of its first receipt in Singapore.
Liable party/parties. The person liable to pay stamp duty is set out in the Third Schedule to the Stamp Duties Act (Third Schedule), unless there is an agreement to the contrary that some other party is liable. The Third Schedule provides that (among other things), on the transfer of shares and immovable property, it is the transferee who is liable to pay stamp duty.
With effect from 14 January 2011 and depending on the date of acquisition, the disposal of residential immovable property within one to four years of the date of acquisition attracts an additional duty that is borne by the seller. This is referred to as the seller's stamp duty. The amount of a seller's stamp duty payable (based on a rate of 16%, 12%, 8% or 4%) depends on the length of time the property was held for. Generally, the longer the holding period, the lower the amount of the duty payable, as a lower rate applies.
Applicable rate(s). For the buyer, stamp duty is chargeable at a fixed rate or ad valorem basis, depending on the type of instrument executed. In particular, for the transfer of immovable property, stamp duty is payable at the rate of:
S$1 for every S$100 or part of this, on the first S$180,000.
S$2 for every S$100 or part of this, on the next S$180,000.
S$3 for every S$100 or part of this, in relation to the remainder.
(As at 1 March 2012, US$1 was about S$1.2.)
With effect from 8 December 2011, certain buyers of residential immovable properties will have to pay additional buyer's stamp duty. The amount of additional buyer's stamp duty payable (based on a rate of 10% or 3%) depends on the category in which the buyer falls. For example, where the buyer is a foreign national buying residential property, he must pay additional buyer's stamp duty at a rate of 10% on the total purchase price or market value of the property (whichever is higher). Where the buyer is a Singapore permanent resident who already owns one residential property, additional buyer's stamp duty is payable at a rate of 3% on the total purchase price or market value of the property (whichever is higher).
Where there is a transfer of shares, stamp duty is payable on the instrument of transfer at the rate of S$0.2 for every S$100 or part of this, on the consideration or net asset value of the shares (whichever is higher).
Notaries' fees are incurred when there is a need to authenticate and certify the execution of documents required or intended for use outside Singapore. Notaries' fees vary depending on the certifying notary public or authority. These fees are not generally substantial.
A company pays income tax on the profits arising from its business or trade and on other income (such as rental or interest income) accruing in, or derived from, Singapore, or received in Singapore. This income is taxed under the ITA at the corporate tax rate of 17%.
For year of assessment 2012, companies enjoy a one-off cash grant of 5% on total revenue, subject to a cap of S$5,000.
While Singapore does not have a capital gains tax, there are income tax implications if the gains derived from a corporate transaction are revenue in nature (that is, where a seller of shares derives gains from the sale as part of a trade or business involving the buying and selling shares). If subject to tax, the current corporate tax rate of 17% applies.
It was recently announced in the Singapore Budget Statement 2012 that gains derived from the disposal of equity investments by companies will not be subject to income tax (where the shares are disposed of on or after 1 June 2012) if the divesting company holds a minimum shareholding of 20% in the company whose shares are being disposed, and the minimum shareholding of 20% has been maintained by the divesting company for a minimum period of 24 months before the disposal. This scheme will be reviewed after five years and further details of the scheme are expected to be released by the IRAS by 1 June 2012.
Key characteristics. GST is charged on taxable supplies of goods and services made by a taxable person in the course or furtherance of any business carried on by that person. This includes the import of goods into Singapore.
Triggering event. A taxable supply is a supply of goods or services made in Singapore other than an exempt supply. A taxable person is a person who is, or is required to be, registered under the GST Act. Registration is required when a person provides (or intends to provide) more than S$1 million worth of annual taxable supplies in Singapore.
Liable party/parties. When a taxable person transfers or disposes of the assets of his business, whether for consideration or not, he must collect GST on the transfer or disposal from the buyer. However, if certain conditions are met, the transfer of assets can be considered an excluded transaction and so not subject to GST. These conditions are:
The supply of assets is made in connection with the transfer of a business. It must not be a mere transfer of assets. The transfer of assets must have the effect of putting the transferee in possession of a business.
The transferred assets must be used to carry on the same kind of business as that of the transferor.
If only a part of the business is transferred, that part of the business must be able to operate on its own.
After the transfer is completed, there must be continuity of the business. There should not be immediate termination of the business, other than temporary closures to allow the business to be operationally ready.
The transferee must be GST-registered at the time of transfer.
Proper records must be kept on each transferred asset by both the transferor and transferee. Parties must be able to reconcile the difference in the value of assets before and immediately after the transfer with the value of the transferred assets.
Applicable rate(s). The standard rate of GST is 7%. Exports and the supply of international services (as defined in the GST Act) can be zero-rated. A GST-registered person must provide a GST return to the Comptroller of GST on a quarterly basis (unless otherwise determined by the Comptroller of GST). This person must pay the Comptroller of GST the amount of GST due for the accounting period to which the return relates (that is, the difference between output tax and input tax for the period).
No other taxes are generally payable on corporate transactions. However, transactions involving certain goods or products may be subject to customs or excise duties or vehicle taxes, for example, liquors, cigarettes, cigars, tobacco leaves, motor cars and petroleum.
A foreign company is liable to stamp duty if the executed instrument concerned is chargeable to stamp duty in Singapore and the foreign company is the party liable for the duty under the Third Schedule of the Stamp Duties Act (see Question 3).
A foreign company is liable to income tax if it carries on a trade or business in Singapore, even if this trade or business is only partly carried on in Singapore. Gains or profits that are not directly attributable to a part of the trade or business carried on outside Singapore are subject to Singapore income tax. A foreign company is also liable to income tax on gains or profits made by a Singapore branch of the company (see Question 4).
A foreign company must collect GST if it is a taxable person (see Question 5) who supplies taxable goods and services in Singapore. A foreign company must appoint a Singapore agent who acts on its behalf for all GST matters. This agent is responsible for the accounting and payment of GST to the Comptroller of GST.
There is no requirement to withhold tax on dividends or other distributions. Dividends paid by any tax resident company in Singapore are exempt from withholding tax as Singapore operates a one-tier corporate tax system. Dividends are not generally subject to tax (see Question 9).
Stamp duty is payable on the execution of the share transfer instrument. The rate of duty is S$0.2 for every S$100 (or part of this amount) of the consideration or net asset value of the shares (whichever is higher) (see Question 3).
Income tax is payable if gains are made from the share disposal and the transferor is carrying on a trade or business (see Question 4).
No GST is chargeable on a sale of shares.
There are two main types of relief from stamp duty that may apply to a share acquisition or disposal.
Where the share acquisition or disposal is for the reconstruction of any company or companies, or amalgamation of companies, stamp duty relief is available if certain conditions are satisfied. A reconstruction involves the transfer of an undertaking or part of an undertaking of an existing company to a new company, which has substantially the same shareholders. An amalgamation involves combining two companies to form a third company, or where one company is merged with another company.
An application must be made to the Commissioner of Stamp Duties for relief (see Question 2). There are claw back provisions, as the relief granted may later be disallowed. In this case, the amount of relief given together with interest becomes payable immediately on the subsequent occurrence of various prescribed events, such as a disposal of the undertaking within two years.
Where the share acquisition or disposal is made under a transfer of assets (such as shares) between associated companies and/or registered business trusts, stamp duty relief is granted subject to certain conditions.
A company is associated with another company in either of the following situations:
The company is the beneficial owner (directly or indirectly) of not less than 75% of the issued share capital of the other company.
Another company is a holding company which is the beneficial owner (directly or indirectly) of not less than 75% of the issued share capital of both the transferor company and the transferee company.
In both situations, a company that is an indirect beneficial owner or holding company of the other company must have more than half of the voting power in relation to the other company.
As with the application for stamp duty relief for a reconstruction or amalgamation scheme, an application must be made to the Commissioner of Stamp Duties for relief. The relief granted may later be disallowed and the amount of relief given together with interest becomes immediately payable on the subsequent occurrence of various prescribed events.
The Mergers and Acquisitions (M&A) Allowance Scheme and Stamp Duty Relief for M&A deals were introduced in 2010 and both incentives have since been given statutory effect. Following the Singapore Budget Statement 2012, enhancements were introduced to the M&A Allowance Scheme. Details of both incentives are set out below:
M&A allowance. This allowance is in the form of a deduction for capital expenditure incurred for any qualifying acquisition of ordinary shares in a target, executed from 1 April 2010 to 31 March 2015 (inclusive of both dates) and is calculated at 5% of the capital expenditure incurred (that is, the acquisition value of the ordinary shares). The deduction is capped at S$5 million in a single year of assessment, with an aggregate acquisition value of S$100 million. The deduction is generally written down equally over a period of five years against the acquiring company's trade or business income. For example, if a qualifying acquisition was executed on 1 April 2010 and the acquisition value was S$110 million, the maximum deduction is capped at S$5 million (that is, 5% of S$100 million), to be written down over five years. The acquiring company will enjoy a deduction of S$1 million each year from year of assessment 2011 to year of assessment 2015. Non-utilised deductions can, subject to conditions, be carried forward to subsequent years of assessment.
There are also other prescribed conditions which must be satisfied to enjoy the deduction. For example, where the acquiring company and the target are part of the same group of companies, a deduction is only allowed if the total number of ordinary shares acquired by the acquiring company results in a increase (to specified thresholds) in the total number of ordinary shares of the target held on the acquisition date by all companies in the group (excluding the target itself).
Following the Singapore Budget Statement 2012, the M&A allowance has been enhanced. For example, an acquiring company can acquire shares of the target company through multiple tiers, instead of just one tier (as allowed previously), of wholly owned subsidiaries. In addition, there is a 200% tax allowance on transaction costs (such as professional fees on due diligence, legal fees and valuation fees) incurred on a qualifying acquisition completed from 17 February 2012 to 31 March 2015, subject to an expenditure cap of S$100,000 in a single year of assessment. The allowance will be written down in one year. Further details on the tax allowance are expected to be released by the IRAS and the Economic Development Board by 30 June 2012.
Stamp duty relief for M&A deals. Under this relief, the transfer of shares for a qualifying acquisition of ordinary shares in a target is eligible for stamp duty relief capped at S$200,000 each year. This relief is available for qualifying acquisitions executed from 1 April 2010 to 31 March 2015 (inclusive of both dates). To enjoy the relief, prescribed conditions must be satisfied. For example, as with the M&A allowance, where the acquiring company and target are part of the same group of companies, the qualifying acquisition must result in an increase (to specified thresholds) in the total number of ordinary shares in the target held on the acquisition date by all the companies in the group (excluding the target itself).
The advantages of a share acquisition for the buyer are:
The target may still be able to enjoy unabsorbed capital allowances, losses and donations if a waiver is obtained from the Ministry of Finance. The key criterion for obtaining a waiver is that the change of shareholding is not intended to derive a tax benefit or obtain any tax advantage. If the waiver is given, the deduction is made against income from the same trade or business. Capital allowances are available for plant and machinery, and industrial buildings, but the allowance for industrial buildings has been phased out (businesses cannot claim allowances on capital expenditure incurred after 22 February 2010 on the construction or purchase of industrial buildings or structures except in specified scenarios).
However, there is a Land Intensification Allowance (LIA) incentive affecting users of buildings in various sectors (such as petrochemicals, marine and offshore engineering, medical technology and aerospace). Under the LIA incentive, qualifying businesses can claim allowances on qualifying capital expenditure (which includes various costs) incurred on or after 23 February 2010 for the construction, renovation or extension of a qualifying building or structure, up to the date of the completion of the construction or renovation or extension. Approval for the LIA incentive is granted by the Economic Development Board from 1 July 2010 to 30 June 2015 (inclusive).
Group relief is available if certain conditions are met. If the target and the buyer form part of the same group following the share acquisition, unabsorbed capital allowances, losses and donations can be transferred between group members to set off taxable income. Group relief only applies if the transferor and the claimant are Singapore incorporated companies. Two Singapore companies are members of the same group if either:
at least 75% of the total number of issued ordinary shares in one company are beneficially held, directly or indirectly, by the other;
at least 75% of the total number of issued ordinary shares in each of the two companies are beneficially held, directly or indirectly, by a third Singapore company.
Dividends received are exempt from tax in the hands of the buyer (shareholder).
Tax incentives continue to be available to the company, provided approval is obtained from the relevant authorities granting the incentives.
The disadvantages of a share acquisition for the buyer are:
The buyer is the person liable to pay stamp duty on an instrument of transfer (see Question 3, Stamp duty: Liable party).
If the acquisition is financed, the buyer is not able to deduct the interest expense incurred as the dividend income is exempt from tax (see Question 8).
Subject to the "shareholders' test", unabsorbed capital allowances, losses and donations of the target can be brought forward to be set-off against the future income of the target. This test requires the same shareholders at two relevant dates to own at least 50% of the target's shares.
for capital allowances, the two relevant dates are:
the last day of the year of assessment in which the allowances arose;
the first day of the year of assessment in which the allowances would otherwise be claimed.
for losses and donations, the two relevant dates are:
the last day of the year in which the loss was incurred or the donation was made;
the first day of the year of assessment in which the loss or donation would otherwise be deductible.
A share acquisition by the buyer may result in the target not meeting the shareholder's test, resulting in the target's inability to carry forward unabsorbed capital allowances, losses or donations.
The target remains liable for all its tax obligations to the tax authority and this becomes the concern of the buyer following the sale.
Tax incentives may cease to be available to the company, if approval is not given by the relevant authorities granting the incentives.
The advantage of a share disposal for the seller is that, following the sale, the tax obligations of the target remain with the company and not the seller.
The seller will be taxed on the profits arising from the sale if the sale is made pursuant to a trade, business or profession carried on by the seller (that is, the sale proceeds are revenue rather than capital in nature).
No specific share transaction structures are commonly used to minimise the tax burden.
The parties would also typically consider the possibility of an asset acquisition or disposal (see Questions 14 to 18) to determine whether this may be a better structure for minimising the tax burden.
Stamp duty is chargeable on instruments relating to the transfer, conveyance and assignment of immovable property (see Question 3). However, stamp duty relief may be available if the transfer is between associated companies or registered business trusts or due to a reconstruction or amalgamation (see Question 10).
A transfer of trading stock (such as inventory) can give rise to a gain or profit that is subject to tax.
A taxable person must collect GST and account to the Comptroller of GST if he transfers, or disposes of, the assets of his business, whether for consideration or not, as he is making a supply for the purposes of the GST Act. However, if certain conditions are met, this transfer of assets may be considered an excluded transaction and therefore not subject to GST.
See Question 14.
The tax advantages of an asset acquisition for the buyer are:
The buyer avoids taking over the tax obligations of the company that owns the asset, unlike on a share acquisition.
The buyer can claim capital allowances on certain assets such as plant and machinery.
Financing costs may be deductible against income arising from the assets acquired.
The disadvantage of an asset acquisition for the buyer is that stamp duty on an asset acquisition involving immovable property is payable at a higher rate than on a share acquisition (see Question 3).
The tax advantages of an asset disposal for the seller are:
A balancing allowance may arise in favour of the seller if the amount of capital expenditure on the asset not yet claimed as capital allowances exceed the open market price of the asset.
Disposing of an asset does not affect the ability of the seller to continue to claim unabsorbed capital allowances (on other assets), losses and donations.
The tax disadvantages of an asset disposal for the seller are:
The seller will be taxed on the profits from the sale if the sale arises from a trade, business or profession carried on by the seller (that is, the sale proceeds are of a revenue rather than a capital nature).
The seller may be left with a dormant company after the assets held by the company have been disposed of, and will incur costs winding up the company. In doing that, all outstanding tax liabilities must be provided for.
A balancing charge may arise against the seller if the amount of capital expenditure on the asset not yet claimed as capital allowances is less than the open market price of the asset.
No particular acquisition transaction structures are commonly used to minimise the tax burden.
The parties would typically consider the possibility of a share acquisition or disposal (see Questions 9 to 13) as an alternative and assess whether this structure may minimise their tax burden.
For income tax purposes, the amalgamating companies are treated as having ceased business and disposed of their assets and liabilities, and the amalgamated company is treated as having acquired or commenced a new business. This treatment can give rise to taxable gains in the hands of the amalgamating companies because revenue gains from assets are subject to tax based on either the transfer price or open market value. A balancing allowance or charge on plant and machinery or industrial buildings must also be accounted for on disposal.
To minimise the income tax consequences arising from amalgamations, there is a tax framework for certain statutory amalgamations in place. This tax framework recognises the legal consequences of amalgamating that arise under the Companies Act and the Banking Act and gives effect to amalgamations by aligning their tax treatment with these legal consequences. This is achieved by treating the businesses of the amalgamating companies as continuing, with the result that there has been no acquisition of new businesses by the amalgamated company. All risks and benefits that existed before the merger are transferred and vested in the amalgamated company.
On the date of amalgamation (that is, the date shown in a notice of amalgamation or a court order) the amalgamated company is taken as having continued on with its businesses seamlessly. Under the new tax framework, most of the tax consequences of a continuing business apply to the amalgamated company.
No specific structure is commonly used.
There are no specific tax provisions that apply to JVCs. The same general tax considerations apply as to other forms of transaction (see Questions 3 to 5).
There are no specific reliefs available in relation to joint ventures.
No specific structure is commonly used.
A company reorganisation can, for example, take the form of a reconstruction or transfer of assets.
The same general stamp duty, income tax and GST considerations apply in relation to a company reorganisation (see Questions 3 to 5).
No specific structure is commonly used.
In business insolvency, non-current assets are disposed of and the balancing allowance or charge (that is, the difference between the sale proceeds and the tax written down value) is determined. A balancing charge is subject to tax.
The sale proceeds from trading stocks sold at market value are subject to tax.
The liquidator must make full provision for tax liabilities before making any distributions to shareholders.
Payments made by the company to shareholders in relation to a share buyback may be deemed to be dividends, which had tax implications under the old imputation system. Dividends are now exempt from tax in the hands of shareholders, as Singapore currently operates a one-tier corporate tax system where tax paid by the company is the final tax.
There are no specific exemptions or reliefs.
No specific structure is commonly used.
There is no specific exemption or relief available to the liable party.
No specific structure is commonly used.
There are currently no proposals for reform.
* The authors acknowledge the assistance given by Novella Chan in preparing this chapter.
Qualified. Singapore, 1990
Areas of practice. Revenue law including contentious and advisory/transactional work relating to income tax; stamp duties; property tax; GST. Civil litigation and arbitration including corporate/commercial disputes (including accounting-related matters); property disputes (including land acquisitions).
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Qualified. Singapore, 2005
Areas of practice. Income tax; goods and services tax; stamp duty; property tax.