Recent changes to the stamp duty regime in Singapore

This article is relevant for candidates sitting the ATX-SGP exam. Although some dates referred to may be in the past and some of the rates used are historic ones, the underlying principles and concepts covered in the article are still examinable and remain relevant for current candidates. Candidates are advised to read this article in conjunction with the syllabus and study guide and examinable documents which are relevant for the exam session they are preparing for. 

The stamp duty regime in Singapore has undergone some significant changes in recent years and this article takes stock of these changes.

An 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. 

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 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.

Stamp duty on transfer of shares

Stamp duty on the transfer of shares is ordinarily borne by the buyer (with the exception of additional conveyance duties, another form of stamp duty, which can be applicable to sellers – see below). It is computed based on 0.2% of the purchase price or the net asset value of the shares.

There is no stamp duty on the issuance of new shares or the purchase of shares listed on the Singapore Stock Exchange.

Stamp duty on transfer of immovable properties

Buyer’s stamp duty (BSD)
There is 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 purchases of all properties based on the following rates:

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

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 twice on 12 January 2013 and again on 6 July 2018. 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 can be summarised below:

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 can be summarised below:

Stamp duty on transfer of shares in property-holding entities – additional conveyance duties (ACD)

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) which 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 remain 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 means any immovable property which 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 ten 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 (ie 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 a grandparent, parent, child, grandchild, sibling and spouse
• partners in a partnership, limited partnership or limited liability partnership, and
• the entities in which the buyer/seller beneficially owns 75% or more voting capital and more than 50% voting power.

Where the buyer is an entity, its associates include:

• subsidiaries in which it beneficially owns 75% or more voting capital and more than 50% voting power
• individuals or holding entities which beneficially own 75% or more voting capital and more than 50% voting power in the entity
• other entities in the group which are associated entities to a common holding entity or individual which meets condition (ii), and
• 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 an 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 4% (see above). The second portion is based on 15% of the entire value of the underlying property transferred if the acquisition occurs from 11 March 2017 to 5 July 2018; or 30% of the entire value of the underlying property transferred if the acquisition occurs from 6 July 2018 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, 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 which will result in significant stamp duty savings. In fact, the reverse is true as there can be significantly higher stamp duty instead.

To illustrate the effect of ACDB and ACDS, let us assume the transfer of a Singapore residential property valued at $4 million which is financed with a bank loan of $1 million. For the purpose of this example, let us make the following further assumptions for simplicity:

• A Singapore permanent resident owns only one residential property
• This property is held through a company
• He wishes to transfer this property to his 22-year old child
• Prior to the transfer, he had held the property for more than three years
• He has previously not transferred any ownership of this property
• The company which owns this property only has one asset which is this property
• The company has no other liabilities apart from the bank loan of $1 million

For a direct transfer of the property, the Singapore permanent resident will incur only BSD and ABSD of 5% based on his profile as a Singapore permanent resident who did not own any Singapore residential properties prior to buying this residential property. He does not have to incur any SSD, ACDB or ACDS. His total stamp duty payable is $344,600 (See Table A below):

For an indirect transfer carried out through acquiring the company which owns this same property, he now incurs no BSD, ABSD or SSD. Instead, he now incurs 0.2% stamp duty of $6,000 (see Table B). If not for the introduction of ACD, this option would have save him stamp duty of $338,600 (ie 344,600 – 6,000).

However, based on a qualifying acquisition and subsequently qualifying disposal of a PHE, he now has to contend with a total ACDB of $1,344,600 (see Table B) which is significantly higher than the total BSD and ABSD combined amount of $344,600.

On top of that, he now has an additional tax burden of $480,000 (see Table B) for ACDS which is based on the highest tier of 12% for SSD when no such liability would have been applicable for a direct transfer.

In short, the total stamp duty of $1,824,600 (see Table B) under an indirect transfer as a result of ACD is significantly higher than the amount of $344,600 under a direct transfer and therefore makes the former option a very tax inefficient choice.

Tax planning considerations

There is little scope in minimising the stamp duty on the transfer of shares as well as 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 be taken to lower the stamp duty burden:

• The owner can sell the residential or industrial properties after holding for a longer period – eg beyond three years; to either eliminate or at least reduce the impact of SSD
• The potential buyer can upgrade his or 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 an 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 which owns primarily residential properties in Singapore under such circumstances may still yield stamp duty savings compared to a direct transfer.  

Examination note:
Candidates should not be overly concerned with committing the stamp duty rates to memory. A table with the various stamp duty rates for transfer of shares, BSD, ABSD, SSD, ACDB and ACDS will be provided in the tax rates and allowances tables in the examination paper, which should be used to answer questions on this topic. Where ACDB and ACDS are examined, candidates will not be required to calculate the equity interests; where necessary, the relevant figures will be provided to candidates in the question.

Written by a member of the ATX-SGP examining team