The commercial real estate sector in Singapore is booming despite the government’s recent implementation of a number of cooling measures. Hence, there are many advantages of incorporating a Singapore Company to Buy Commercial Properties.
This is so because the policies primarily focused on lowering the prices of residential homes, virtually ignoring the commercial market.
The purchase of commercial real estate in Singapore is still a wise decision, and buyers have two choices. Purchase the property either directly as an individual or through the formation of a private limited company that will be utilised to buy the commercial property.
According to the advantages that a corporate organization receives from owning commercial real estate, the latter is unquestionably the better option.
THINGS TO CONSIDER BEFORE PURCHASING A COMMERCIAL PROPERTY IN SG
Things will be made simpler, more effective, and clearer with a few key considerations when purchasing a business property.
Modifying the intended use
Commercial buildings are zoned according to their purposes; if the applicant’s intended use differs from or is comparable to the prior use, they may need planning permission to make the change.
Which kind of property to buy?
The applicant can choose from various properties, each with advantages and disadvantages, including retail holdings, B1 industrial, commercial buildings, and eateries.
Paying ABSD (Additional Buyers Stamp Duty)
Since the applicant is buying a business property, they will not be required to pay the ABSD, which will ultimately result in savings of between 12% and 20% on the ABSD that they have avoided.
Checking the location
If the applicant is looking for a place to live, they must make sure to consider the area. If they are seeking near a train station or metro where there will be a lot of foot traffic, or are they looking somewhere more remote where the lease term might be brief, etc.
For a house, a lease agreement may last up to 1,000 years or, even better, be a freehold. On the other hand, commercial properties have a significantly shorter shelf life and, with careful negotiation, contracts can last up to 60 years.
Future growth potential
Consider the potential for future growth in the area where the property is located. Will the area continue to attract businesses and tenants? Is there potential for appreciation in property value?
The applicant must take a close look at the condition of the property they’re interested in. Is there any damage or structural issues that need to be addressed? Make sure to factor in any necessary repairs or renovations when considering the cost.
PROS AND CONS OF BUYING A COMMERCIAL PROPERTY WITH A CORPORATE ENTITY
Lower Corporate Tax Rates
In Singapore, personal tax rates are higher than corporate tax rates, particularly for high-income groups. Therefore, holding commercial property within a corporate structure is always preferable.
No Capital Gains Tax in Singapore
Gains from the sale of a property in Singapore are often exempt from taxes because they are considered capital gains, and Singapore has no capital gains tax.
When someone is thought to be trading in properties, there is an exception to the norm. The following factors are used to determine this:
Transaction frequency (buying and selling of properties)
- Reasons for buying and selling property
- Financial capacity to maintain ownership of the property for a long period of time
More Tax Relief
The amount of indirect expenses that may be deducted is limited by personal tax legislation. A corporate organisation can obtain bigger tax exemptions by claiming more direct and indirect costs.
Easy Transfer of Ownership
When transferring ownership of a business property, a Special Purpose Vehicle is more flexible than when an individual owner sells a commercial property.
Cheaper Cost of Funds
If the applicant wishes to obtain external financing for the purchase, it is advantageous to buy a commercial property through a corporate company.
This is true since the interest rates on personal loans are often greater than those on corporate loans.
Singaporean Real Estate Holding Companies are eligible for tax breaks and rebates
There are various tax breaks and rebates that Singapore property holding firms can enjoy. They include:
Partial Tax Exemption
Since 2010, corporations by guarantee are now eligible for the Start-Up Tax Exemption (SUTE) program. The tax exemption program for new start-up businesses does not, however, include:
- Holding corporations for investments
- Companies that deal in real estate development and were founded after February 2013
The previous firm will continue to benefit from the partial tax exemptions granted to businesses since 2008 on ordinary chargeable income up to S$200,000 even though it might not be qualified for SUTE.
- After a 75% exemption for the first S$100,000, S$75,000 is exempt.
- Additional 50% of the next S$100,000 are exempt from taxes.
Goods & Services Tax (GST) Returns
Singapore does not exempt the sale or lease of commercial (non-residential) real estate from GST, although it does exempt residential real estate sales and leases.
|Dwelling houses (e.g. bungalows)
|Boarding or guest houses
|Living or workers’ quarters
|Chalets, holiday bungalows, resorts
|Halls of residence
|Canteens in halls of residences
|The upper-floor of shophouses approved for dwelling
|The lower-floor of a shophouse approved for non-residential use
The 8% GST must be paid by the buyer in addition to the property’s appraisal price when purchasing commercial real estate.
Instead, a business should think about GST registration, which is a very streamlined and simple process, if it plans to purchase commercial real estate. In this manner, the business is able to recover the GST amount paid.
Please be aware that before permitting GST-registered businesses to claim back the GST already paid, IRAS imposed a number of conditions. Therefore, it is usually preferable to confirm your eligibility with them or seek assistance from Relin Consultants to register for GST.
Buying From a Non-GST-Registered Seller
When purchasing a business property, it is important to take the seller’s GST registration into account. This is true since a $100,000 property would cost the buyer an extra S$8,000 if purchased through a GST-registered business.
The buyer can save this S$8,000 if the vendor does not have a GST registration.
Stamp Duty Costs
Stamp duty is a levy imposed on papers pertaining to real estate, stocks, or shares. Lease/tenancy agreements, mortgages, and share transfer paperwork are a few examples of these types of documents.
Commercial properties do not incur Additional Buyer Stamp Duty (ABSD), however, industrial properties, a subset of commercial properties, are subject to the Seller’s Stamp Duty.
If sold in the first year, this represents 15% of the sale price, 10% in the second year, and 5% in the third.
Individuals Form a Company, and the Company Buys a Commercial Property
When a group of people buys a business property after forming a company together, stamp duties become really advantageous.
The individuals purchase the property in the business’s name and possess the same number of shares of the company that they would otherwise hold as co-owners of the property.
Any shareholder may sell their stock in the corporation at any time, either to other shareholders or to a third party. This also indirectly sells his or her share of the commercial property. As a result, the stamp duties of 0.2% charged on the value of the firm shares sold are significantly lower than the ad valorem stamp rates of roughly 3% payable in respect of the value of the share in the property.
Separate Legal Entity
Even if the commercial real estate investment does not bring in a lot of money, the shareholders of the firm have limited liability and are protected from personal financial ruin because a private limited company is considered a separate legal entity.
Liabilities are therefore restricted to an individual’s share capital in the corporation in the case of a corporate entity. In contrast, if one purchases commercial real estate in their own name, all of their other assets will be subject to liabilities.
Carry Forward Losses As a Singapore Private Limited Company
A private limited corporation that purchased commercial real estate in order to profit from rental income may even see declines in said income.
In order to balance their revenue in succeeding years until the trade losses are fully utilized, such enterprises are permitted to carry forward any unused capital allowances and trade (rental) losses.
When calculating rental yield, it is necessary to account for the flat 10 percent property tax rate that applies to non-residential properties.
Private limited corporations are not eligible for the favorable preferred interest rates on property loans that individual owners receive.
A private limited company has far higher compliance obligations because it is always subject to the laws, rules, and guidelines under the Singapore Companies Act 1967.
Refer to company registration in Singapore for more information.
One cannot use their CPF funds to buy commercial properties, in contrast to residential homes. They must make sure you have enough initial cash available to pay the down payment and mortgage on their commercial property.
CAN EVERYONE BUY A COMMERCIAL PROPERTY IN SINGAPORE?
Contrary to residential properties, anyone can buy commercial property in Singapore, including Singaporeans, Permanent Residents, and Foreigners. One can still purchase commercial buildings while doing so as a corporate entity if their business is registered as a foreign company outside of Singapore.
In Singapore, applying for a loan for commercial real estate is also fairly easy. One must speak with their local or preferred bank to learn more about the possibilities.
They can advise on the best way to go with buying a commercial property. Each bank has its own qualifying standards, which will let the applicant know what paperwork is needed to submit the application.
Reach out to us at Relin Consultants for further assistance.
What is the process of incorporating a company in Singapore?
To incorporate a company in Singapore, you must first register with the Accounting and Corporate Regulatory Authority (ACRA). This involves choosing a name for your company, appointing directors and shareholders, and submitting various documents and forms. You will also need to have a registered office address in Singapore.
What are the ongoing compliance requirements for a Singapore company?
Once your company is incorporated, you will need to comply with ongoing reporting and compliance requirements, such as filing annual returns and maintaining proper accounting records. You will also need to hold annual general meetings and appoint auditors if required.
Can a foreigner incorporate a company in Singapore to buy commercial properties?
Yes, foreign individuals and companies can incorporate a company in Singapore to buy commercial properties. However, they must appoint at least one local resident director.
Can a Singapore company purchase a commercial property overseas?
Yes, a Singapore company can purchase commercial properties overseas. However, the specific rules and regulations regarding overseas property ownership and taxation will vary depending on the country where the property is located.
What are the tax implications of owning a commercial property through a Singapore company?
Owning a commercial property through a Singapore company can provide certain tax benefits, such as deductions for expenses related to the property.
However, the tax implications will depend on the specific structure of the company and the nature of the property ownership. It is recommended to consult with a tax professional for specific advice on this matter.