Capital Gains Tax (CGT) is money paid to the state when selling something valuable, for profit. In a country other than Singapore it could look like this: Your company headquarters were previously in a mansion. Its value increased significantly and you sold the mansion. Upon sale, it’s CGT time and that’s when you’re expected to share those profits with the state.
Singapore does not tax capital gains. In most cases. We say “most” because there are always exceptions that apply depending on different situations.
If you’re unsure whether your situation may be an exception, the best place to start is to consult a Singapore accounting company or to partner with a bookkeeping service provider. The second-best place is to just read on!
In Singapore, capital gains tax is only imposed if it is one of your business activities to make profits on selling the classes of assets we’ve mentioned below. In all other cases, the CGT rate is zero. You don’t pay CGT in Singapore if you’re doing the following in a casual capacity:
- Selling fixed assets: Real estate, cars, mansions, diamonds, racehorses, etc.
- Selling intangible assets: Rights for the song your studio owns or the TV series idea Channel 5 wants to buy from you.
- Getting gains on foreign exchange on capital transactions: This is when you sell a piece of land for $150,000, convert the sum to Singapore dollars, and get S$212,000. Your accounting books show the historical value of the land at $150,000, and converted at S$210,000 but this S$2,000 difference is not taxable.
When Do I Need To Pay Singapore Capital Gains Tax?
If you sell assets with a profit-seeking motive your gains may be taxable in Singapore according to the IRAS. They first establish if you’re considered a trader by looking at your circumstances. To ascertain whether you’re eligible to pay Singapore capital gains tax, the IRAS refers to what’s called Badges of Trade:
Holding period: If your company bought a Bugatti and sold it with a profit after a month, it may look like the car had only been bought to make money. If you sell properties on a regular basis (at least once a year), the IRAS consider any gains as revenue gain.
Frequency of transactions. Has your company been selling a couple of houses every month with a profit? You might be trading.
Motive: If you planned to sell an asset from the moment it was purchased, you are a trader. If you originally needed it for something else, you aren’t. Let’s say you are a legendary yachtsman. Your yacht club bought a yacht and you signed its side to personalize it. 4 years later, the club sold the yacht for profit because it's signed by you (yep, you are that legendary). Did your company intend to make money on the future sale of the yacht at the time they bought it? There’s a good chance to prove it didn’t.
Supplementary work to increase asset value: If your company buys a warehouse, transforms it into a fancy loft and sells it to a coworking chain two months later, there is certainly some supplementary work in place.
Determine the Nature of Income When Trading in Capital Assets
Tax-free capital gains or taxable trading income? That is the question. The answer is not so black and white. It comes down to the governmental regulatory body definition and discretion. The IRAS will tax profit as income by determining whether or not the activity is done for profit-making purposes. Here’s what they’d considered when it comes to a capital asset like property and CGT:
- Frequency: How often you acquire and sell properties
- Purpose: The reason or motivation behind the buying and selling
- Financial means: How you plan to retain the property long-term
- Holding period: Calculated from date of property purchase until date of sale
CGT in Singapore: What Else Does the IRAS Ask?
What financing was used to buy the property?
If you purchase land with a 25-year loan and sell it later, it will be a capital gain and won’t be taxed. A trading company would need to buy and sell faster than a 25-year turnaround which is why short-term financing is a wake-up call for IRAS. If you buy the asset with a 5-year loan or less, IRAS is likely to discern a profit motive.
Did your company do research?
This is all about feasibility. Did you try to figure out whether the sale of the asset would be considered capital gain or revenue gain during the buying process? The IRAS expects you to, so take a hint.
How was the transaction accounted for in the books?
What were the reasons for capitalizing it or treating it as a non-taxable gain? Was it based on the Financial Reporting Standards or on your feasibility studies? This is a contextual story that only your company’s financial books will tell.
Is there "evidence indicating intention"?
If authorities want to reclaim a piece of land, they send an official letter and legally oblige you to sell everything you own on that land. Doing this is not seen as revenue but as a capital gain so there’s tax. Just be sure to keep the official letter somewhere safe and secure.
Selling Shares & the “Safe Harbour” Rule
Under the “safe harbour” rule - according to the Income Tax Act 1947 of Singapore (ITA) - you enjoy zero capital gains tax when selling common stocks and profiting from them.
If Company A sells ordinary shares of Company B on the stock exchange, the gains may be exempt from tax. It doesn’t matter whether or not Company B is Singapore-incorporated or listed.
To qualify for zero capital gains tax in Singapore, Company A must meet the following conditions:
- Hold at least 20% of the ordinary shares in Company B
- Hold those shares for at least 24 months before selling them
If these conditions are not met, IRAS will inspect the deal according to the criteria in the Badges of Trades that we touched on earlier.
Singapore Capital Gains Tax Summed Up
Singapore offers the advantage of zero capital gains tax to encourage investment in the country. Low CGT rates attract entrepreneurs and investors while a high rate will often see them steering clear of the jurisdiction.The only thing needed to profit from it is to ensure all your business transactions have the papers that prove your motives. Excited? We are too! And we’re just a click away to answer any questions.