7 Ways how You Can Win by Buying Commercial Property through Singapore Company
- Posted by Lee Bon
- On 02.03.2017
One of the ways how you can benefit from incorporating in Singapore is purchasing commercial properties on easy terms. Investing in Singapore commercial real estate is a winning move as the prices for such premises remain gratifyingly high. Buying commercial property as a personality, you expose yourself to much higher taxes while doing the same as a corporate entity (a Private Limited Entity fits the best), you get a bunch of financial benefits. The reasons are mind-blowing.
1. You don’t pay the capital gain tax in SG
Luckily for you, all profits your company gets from selling properties are defined as the capital gain which isn’t taxable in SG unless you buy and sell real estate property “professionally” (in order to have profit). If you carry on such trade, your income from selling commercial premises may be taxable. The authorities will assess your situation based on how frequent buying/selling happens, the period of hold, reasons for such transaction and so on.
2. Tax exemptions & rebates
- The rate of the personal income tax for massive incomes is higher than that of the corporate tax. The corporate tax in Singapore is 17% (one of the lowest on the planet), but rarely is it calculated this way because the government supports new companies with significant tax exemptions. Since 2008, you are able to save up to 152.5k SGD from the income that isn’t higher than 300k SGD (75% for the first 10k SGD and 50% for the next 290k SGD).
- Newly incorporated Private Limited companies can enjoy 3-year tax incentives: get their first 100k SGD of revenue tax-free and the rebate of 50% for the next 200k SGD.
- The government gives Private Limited companies the discount of 30% for their corporate tax (but no more than 30k SGD annually) during 2013-2015. You can use this rebate to your advantage if your business premises are let on lease.
- If you buy Singaporean commercial estate on your own behalf, the laws may put limits for your indirect expenses while the company (such as the Pte Ltd) has much wider limits for its indirect expenses, and therefore, the company can be a tax exempt.
3. Goods and Services Tax
You don’t have to pay the GST when you sell your premises or let them on lease, but when you buy commercial estate, you must pay the GST which is 7% in Singapore (by the way, one of the lowest rates on the planet): these 7% are added to the property’s price. But here a company-buyer has an advantage in comparison with the individual-buyer. When you buy premises on behalf of the company and register paying your GST, you can then reclaim it. There are certain requirements applied, so you should better enlist a thorough consultancy in your particular case to evaluate all pros and cons.
There is a way how you can avoid paying the GST and messing with claiming back it afterwards – buy a property from the GST-non-registered seller.
4. Limiting your liability
When you buy a commercial estate on your own behalf, you will be liable for all financial risks or any legal prosecutions with your own assets. When you do the same on behalf of the company (Private Limited), you protect your assets in risk cases because:
- Private Limited has its own legal entity, and it is liable before the law on its own behalf;
- Pte Ltd’s share capital is the measure of such liability;
- even if you go wrong with your commercial estate investment, the firm’s liability never goes beyond its share capital and touches your personal possessions.
Although the real estate market contains lots of opportunities for revenue, it is very unstable and unpredictable. Nobody is protected from losses in downturn times. Registering your commercial property business as the Private Limited company, you are able to bring forward trading losses to the next years and balance them with those years’ revenues.
5. Comfortable transfer into the ownership
If you create a Special Purpose Entity for owning your Singapore commercial estate, you can change your property’s ownership much easier than it would be if you owned this property as an individual.
6. Stamp duty benefits for the Pte Ltd
Any documents or agreements concerning real estate and stock located in Singapore are subject to the Stamp Duty. If you enter into a lease agreement, receive/give mortgage or transfer your shares, the Stamp Duty must be paid (its rate can be either ad valorem or fixed depending on the kind of the document issued). If a group of people buy a commercial estate on behalf of the Private Limited company, the shares are distributed among the holders proportionally to their parts in the estate purchased. They can sell their stock in the company meaning selling their part in the estate. Stamp fees you would pay while selling the shares of the Private Limited company are lower than that ad valorem stamp duty you would pay on the value of your estate shares.
7. Cheaper loans
As a company, you can get a cheaper loan for purchasing a property from a bank than if you were an individual. What is more, the image of the company incorporated as the Pte Ltd helps to win the bank’s favour easier due to the company’s limited liability “nature”.
Although buying commercial premises through the Private Limited company has its advantages, the drawbacks also present. You should remember that leveraging the company’s legal entity for purchasing non-residential premises, you cannot use your CPF as the Singaporean residents do and you have to pay the property tax which is 10% and reckon with laws and business regulations. Handling annual filing of audited accounts and the tax return is also a must.
In order to calculate your taxes and see the full picture of your benefits and obligation, please involve an expert consultation. Using the company’s legal entity for buying commercial premises is great business leverage if used sensibly.