In this article
- Benefits of Buying a Commercial Property With a Corporate Entity
- No Capital Gains Tax in Singapore
- Lower Corporate Tax Rates
- More Tax Relief
- Cheaper Cost of Funds
- Easy Transfer of Ownership
- Singapore Property Holding Companies Get Tax Exemptions and Rebates
- Separate Legal Entity
- Stamp Duty Costs
- Carry Forward Losses as a Singapore Private Limited Company
- What Are the Disadvantages of Buying a Commercial Property Under a Newly Incorporated PL Company?
- The Benefits of Buying a Commercial Property With a Corporate Firm Are Aplenty
Singapore’s commercial property market is hot in spite of the several cooling measures introduced by the government in recent years.
This is because the measures were mainly aimed toward bringing down the prices of residential properties, thus leaving the commercial market largely untouched.
As buying Singapore commercial properties remains a wise choice, buyers have two options to choose from. Either buy the property in an individual’s name or incorporate a private limited company – a vehicle that is then used to buy the commercial real estate.
Going by the benefits that a corporate entity enjoys in holding a commercial estate, it’s definitely advisable to go for the latter. Below, we detail the reasons for doing so.
Benefits of Buying a Commercial Property with a Corporate Entity
Why is it a good idea to purchase a commercial property using a corporate entity?
We explore some reasons here:
No Capital Gains Tax in Singapore
Generally, the gains derived from the sale of a property in Singapore are not taxable as it is considered capital gain and the country has no capital gains tax.
The exception to the rule is when a person is deemed to be trading in properties. This is determined based on the following:
- Frequency of transactions (buying and selling of properties)
- Reasons for acquiring and selling of property
- Financial means to hold the property for the long term
- Holding period
Related Read: Corporate Tax Benefits for Singapore Companies »
Lower Corporate Tax Rates
Personal tax rates are higher than corporate tax rates in Singapore, especially for high-income brackets. Hence, it’s always better to hold commercial property under a corporate entity.
Calculate your company’s tax liabilities with our free online corporate tax calculator!
More Tax Relief
Moreover, under personal tax laws, indirect expenses that can be claimed are limited. A corporate entity can claim more direct and indirect expenses, which helps in getting higher tax exemptions.
Cheaper Cost of Funds
In addition, a corporate entity buying a commercial property is advantageous if you want to finance your purchase externally.
This is so because personal borrowing interest rates are normally higher than corporate borrowing rates.
Easy Transfer of Ownership
A Special Purpose Vehicle for holding commercial properties has more flexibility while transferring ownership, as compared to when an individual owner sells a commercial property.
Singapore Property Holding Companies Get Tax Exemptions and Rebates
There are various tax exemptions and rebates that Singapore property holding firms can enjoy. They include:
Partial Tax Exemption
Since 2010, the Start-Up Tax Exemption (SUTE) scheme has been extended to include companies by guarantee. However, the tax exemption scheme for new start-up companies is not extended to:
- Investment holding companies
- Companies engaged in property development activities that are incorporated after February 2013
While the old company may not be eligible for SUTE, it still will enjoy partial tax exemptions given to companies since 2008 on normal chargeable income of up to S$200,000.
- For the first S$100,000, after 75% exemption, the exempt amount is S$75,000
- For the next S$100,000, there is a further 50% exemption
|Chargeable income||Exemption||Exempt income|
You can estimate your company’s tax rate with our free online company tax calculator!
Goods & Services Tax (GST) Returns
While the sale and lease of residential properties are exempted from GST in Singapore, the transaction of commercial (non-residential) real estate is not.
|Residential Properties||Non-Residential Properties|
|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|
An individual buying commercial property will have to absorb 7% GST in addition to the valuation price for the property.
Instead, if a company is buying a commercial property, it can consider being GST-registered, which is a very streamlined and easy process. This way the company can claim back the GST amount paid.
Please note that IRAS put forth many requirements before allowing GST-registered companies to claim back the GST already paid. Hence, it’s always better to check with them on your eligibility or appoint us to register for GST.
Related Read: Understanding Goods and Services Tax (GST) »
Buying From a Non-GST-Registered Seller
A factor to consider while buying a commercial property is whether the seller is GST-registered. This is so because a S$100,000 property when bought from a GST registered company, would cost an additional S$7,000 to the buyer.
If the seller is not GST-registered, the buyer can save this S$7,000.
Separate Legal Entity
Because a private limited company is treated as a separate legal entity, the company shareholders have limited liability and are safeguarded against personal financial ruin even if the commercial property investment fails to generate many revenues.
Thus, in the case of a corporate entity liabilities are limited to the share capital of an individual in the company. Whereas if you buy commercial property in your own name, your liabilities will extend to all your other assets.
Related Read: Types of Companies or Business Entities in Singapore »
Stamp Duty Costs
Stamp duty is a tax on documents relating to immovable properties, stocks, or shares. Examples of such documents are lease/tenancy agreements, mortgages, and share transfer documents.
While there is no Additional Buyer Stamp Duty (ABSD) for commercial properties, industrial properties (a type of commercial property) attract the Seller’s Stamp Duty.
This is 15% of the sale price if sold in the first year, 10% for the second year, and 5% for the third year.
Individuals Form a Company and the Company Buys a Commercial Property
The real advantage in stamp duties is when a group of individuals buys a commercial property after incorporating a company together.
The property is bought in the company’s name and the individuals hold shares in the company in the same proportions as they would otherwise hold as co-owners of the property.
If any shareholder wishes to sell his shares in the company either to his co-shareholders or to a third party, they can do so. With this, his or her portion of the commercial property is also sold indirectly.
The benefit of this is that the stamp fees of 0.2% payable on the value of the shares of the company sold is much lower than the ad valorem stamp fees of almost 3% payable in respect of the value of the share in the property.
Carry Forward Losses As a Singapore Private Limited Company
Carrying Business Loss and Capital Allowances Forward
You can never be sure in today’s uncertain times. A private limited company that bought commercial property to benefit from rental income may even suffer downturns in rental income.
Such companies are allowed to carry forward the unabsorbed trade (rental) losses and capital allowances to subsequent years to offset against the income of those years until the trade losses are fully utilised.
What Are the Disadvantages of Buying a Commercial Property Under a Newly Incorporated PL Company?
Though very few and insignificant, the disadvantages of buying a commercial property under a newly incorporated private limited company in Singapore are:
But do note that the compliance requirements of a private limited company are much more as it is always governed by the laws, rules, and regulations under the Singapore Companies Act, which are much stricter.
There is a flat rate of 10 percent for property tax on non-residential properties, which must be taken into account while doing the rental yield calculations.
Individual owners also get fairly good preferential property loan interest rates, which are not available to private limited companies.
Individual owners can use their CPF savings to buy commercial properties for investment purposes. But it cannot be used for any contribution towards the shareholding of a company or the repayment of any loan taken by the company to finance the purchase of the property.
The Benefits of Buying a Commercial Property With a Corporate Firm Are Aplenty
It is evident that there are many benefits of purchasing a commercial property with a company in Singapore. Set up your business in the city-state with the help of our incorporation experts to get your property faster!
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