A Company Incorporation Singapore for Trading in Properties

Last modified: April 15, 2016

Company-Incorporation-Singapore-for-Trading-in-PropertiesWhen it comes to dealing in the property market, the circumstances in Singapore are in the favor of Singapore property holding companies than they are in an individual property owner’s favor. If it is true then, don’t you think it is the right time for you to opt for setting up a property company in Singapore? It is easy as the company incorporation Singapore is a 2 step process. It will give you a great opportunity to buy and sell properties.

Trading in Singapore Properties as a Corporate Entity

Individual Income Tax

There are drawbacks if you go ahead as an individual and start trading in Singapore properties. Generally, income derived from property sale is capital gain which is not taxed in Singapore. However, the number of deals or transactions made, reasons, financial means, and the holding period makes a difference.

Such an income needs to be reported as ‘Other Income’ and is taxable. The individual will have to pay personal income tax on this income, the rates of which are higher than that of corporate income tax.

Corporate Income Tax for Property Holding Companies

There are advantages of using a company incorporated in Singapore to trade in commercial properties. The corporate income tax rates are in the range of 0% – 17% and the personal income tax rates are in the range of 0% – 20%.

The Budget 2016 has announced a 50% of corporate income tax rebate for the years 2016 and 2017, which is capped at S$20,000. Companies that rent their properties can enjoy this benefit.

Raising Capital

Singapore is a great place for finding capital for your business and financing your property deals externally. For a Singapore business, it is easier to find finance at economical interest rates than an individual.

Leveraging Accumulated CPF Fund

On the other hand, individual buyers can purchase commercial properties using CPF funds. They cannot, however, invest these funds to purchase shares or repay loans taken to finance commercial property deals.

Partial Tax Exemption

If you are under the impression that your newly incorporated company will benefit from the start-up tax exemption scheme, then you are wrong. Instead, it will qualify for the partial tax exemption. This exemption is available only on chargeable income of up to S$300,000 and the exempt amount can be as high as S$152,500.

A Singapore registered company can also claim more direct and indirect expenses than an individual dealing in Singapore properties.

Singapore GST (Goods and Services Tax)

The sale or lease of non-residential or commercial properties attracts 7% of GST. Property holding companies also need to pay it at the time of purchasing this type of properties. By voluntarily registering your company for GST you have the chance of claiming it back. However, they do not have to pay GST if they are buying a property from an entity that is not GST registered.

On the other hand, an individual cannot register for GST and at the time of selling or leasing a commercial property, must pay GST out of his own pockets.

Seller’s Stamp Duty

It must also be noted that the documents related to immovable properties like agreements of lease or tenancy and mortgages attract stamp duty. In the case of industrial and commercial properties, seller’s stamp duty is 15% at its maximum.

In Singapore, the property holding companies are used for the buying and selling properties. These are specially created to hold commercial properties. Using them is more beneficial as it eases the transferring of ownership of a property after the sale.

Shareholders of these companies benefit when the company generates profit through dealings in properties and distributes the dividend. However, they do not have to pay any stamp duty when they cash it. The sale of their shares in the company also generates capital gains which are not taxed.

Administrative Costs

A property holding company has to bear the burden of administrative costs that arise because of the statutory requirements mandated by ACRA (Accounting and Corporate Regulatory Authority) and IRAS (Internal Revenue Authority of Singapore).

However, these companies can claim direct expenses incurred while earning income from the properties. The following are a few examples of the direct expenses:

  • Expenses incurred on Insurance, MCST management fees, and for collecting rent of the rental properties
  • Amount spent on paying for the Property tax and Repair and maintenance of the rental properties
  • Amount paid in interest on the loan taken to acquire property

For an individual, buying or selling properties can be a costly affair. His personal assets are involved. On the other hand, the responsibility of a company’s shareholders’ is limited to the amount they have used to buy shares of the company. Their personal assets are not used to pay for the debts or losses of the company accrued during the trading of properties.

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