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Singapore: Tax Rule Clarified

(June 5, 2012) Under Singapore's 2012 budget, company income gained by the sale of some equity investments, as of the beginning of June 2012, will not be subject to taxation. (Daljit Kaur, Singapore: Budget 2012: Non-Taxation of Gains from Equity Investments – Details (June 1, 2012), IBFD TAX RESEARCH PLATFORM, online subscription database.) The budget itself was released in February, but Singapore's Inland Revenue Authority released detailed rules on the subject on May 30, 2012. The rules were contained in an e-Tax Guide. (Income Tax: Certainty of Non-Taxation of Companies' Gains on Disposal of Equity Investments, IRAS E-TAX GUIDE (May 30, 2012).)

The purpose of the new rule, according to the e-Tax Guide, is “to facilitate companies' restructuring for growth and consolidation, enhance Singapore's attractiveness as a business location and minimise compliance costs for taxpayers.” (Id. § 2.2.) Singapore does not tax capital gains, only income, and the new rule is to determine when gains from the sale of holdings in another company can qualify as capital gains, thereby avoiding taxation. (Id. § 3.1.) The Guide establishes that gains from sales of ordinary shares in a business in which that company has invested will not be taxed for the period of June 1, 2012, through May 31, 2017. (Kaur, supra.) There is no requirement that the investee company be located in Singapore. (Id.)

There are certain conditions for the application of this tax rule:

  • the company seeking the tax relief must have held at least 20% of the ordinary shares in the business in which they are invested for at least 24 months immediately before the disposal of the shares;
  • the company seeking the tax relief must not include the gains or profits from the disposal of shares as part of its income based on normal income tax rules (rather than considering the profits to be capital gains; the determination as to whether the proceeds of a sale are income or capital gains are made on a case by case basis);
  • the entity in which the investment was made must not be in the business of trading or holding Singapore immoveable properties (other than the business of property development);
  • the company seeking the tax relief must not have incurred a loss from the sale of the shares in the investee company; and
  • the company seeking the relief must not have profited or lost from disposal of non-ordinary shares in an investee company. (Id.)