COUNTRY

Singapore

SINGAPORE CAPITAL GAIN TAX

Capital gain tax Singapore is a tax imposed on a company or individual for its profits from capital transactions. Typically, the capital gain is computed by comparing the asset’s selling price minus any transaction cost and initial cost. 

Singapore does not impose any capital gain tax. However, there are no specific definitions of what represents capital transactions. Hence, an entity must carefully assess whether capital transactions are exempted for tax purposes. Capital transactions are generally transactions non-revenue in nature. 

As per the Inland Revenue Authority of Singapore (IRAS), the following gains are generally deemed as capital gains and not taxed in Singapore. 

  • Gains derived from selling a property in Singapore as it is capital gains unless the company is actively involved in buying and selling property as the primary business activity. 
  • Profits or losses derived from buying and selling shares or other financial instruments (including digital tokens) are viewed as investments unless a company is actively trading. 
  • One-off payouts from insurance policies.

REASONS TO PAY CAPITAL GAINS TAX IN SINGAPORE

IRAS has set out some criteria for companies to use when assessing their tax liabilities concerning capital gains. 

The five criteria are as follows:

1. Underlying purpose and objective of the transactions

The main objective of the transactions has to be assessed. The assessment will impact whether the assets were purchased for use and operation or with the sole intention to sell later. If the company acquired the assets for the latter purpose of reselling at a profit, the company would be entitled to Singapore capital gains tax. 

2. Underlying rationale for the sale of property 

If the company was under specific circumstances and it had to sell the assets, for example, forced liquidation or other government-regulated reasons, then IRAS will not impose any capital gain tax in Singapore.

3. Frequency of the capital transactions 

If the frequencies of the transactions were deemed higher than usual, then the profits made from the gains will be subjected to tax. As a benchmark, if the transactions are not in line with the primary business activity. For example, a company’s business activity provides professional services and actively trades in the stock market. Such circumstances will warrant capital gain tax. 

3. Enhancement of the acquired assets

If the company acquires and upgrades an asset with the main objective of achieving profit, this will be regarded as profit-seeking, and capital gains tax in Singapore will be applicable.  

4. Holding Period

If the company’s holding period of the asset was only short term and it was bought without any intention to use, it will be deemed for capital appreciation purposes and the subject to capital gain tax.

SAFE HARBOUR RULE

As per Singapore safe harbor role, a company that is selling shares in another company will not incur capital gains tax if the divesting company meets the following conditions:

  • The entity has held more than 20% of the ordinary shares
  • There was a holding period of more than 24 months

If the sale does not meet the two conditions above, IRAS will assess against the six badges of trade criteria.

CONCLUSION

The Singapore corporate tax system provides various advantages to companies in the region. In addition to exempted capital gains tax, the country’s low corporate tax as compared to the nearby area. If you require assistance with your company’s taxation, our team of Singapore Chartered Accountants will help you. Do reach out to us at enquiry@relinconsultants.com for further discussion.

FAQs

When Are Gains From Selling Property, Shares, And Financial Instruments Non-taxable?

Generally, the following gains are exempted from capital gain. 

  • Gains that were derived from selling a Singapore property to raise capital for the company.
  • Profits derived from trading shares or financial instruments (digital tokens included) are often considered personal investments.
  • Insurance policy payouts are treated as capital receipts.

When Do Companies Pay Capital Gains Tax In Singapore?

Singapore does not impose any capital gains tax. If the gains are deemed capital in nature, the company will be exempted from paying any tax.

What Is The Capital Gains Tax Rate In Singapore?

There is no tax on capital gains. If a transaction is deemed as capital gain in nature, a 0% tax is levied on the same.

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