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Charting Tax, Trust Law Changes In Singapore

Dawn Quek and Enoch Wan, 9 May 2018

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This article by legal experts runs through a series of recent legislative, legal and related changes to tax, trusts and companies in Singapore.

4, Remission of stamp duty for certain types of share transfer

Previously, certain amendments had been made to the Stamp Duties Act (which took effect from 11 March 2017) which shifted the stamp duty point on transfer of shares, such that stamp duty became chargeable upon the signing of a contract for the sale of stock or shares (as opposed to the previous position where stamp duty was imposed only upon the execution of the share transfer instrument).

The chargeability of the contract for sales of shares also meant that transfers of scripless shares (which were previously not subject to stamp duty, as they did not involve any transfer instrument that could be charged with stamp duty) could attract stamp duty if a contract for the sale of such scripless shares was executed.

However, as of 11 April 2018, the Stamp Duties (Agreements for Sale of Equity Interests) (Remission) Rules 2018 have been gazetted. Amongst others, these provide for a remission on of stamp duty in relation to:

(a)          contracts or agreements for the sale or any stock or shares which is not subject to Additional Conveyance Duty.

(b)          contract or agreements for the sale of book-entry securities which are subject to Additional Conveyance Duty.

5, Extension of tax transparency treatment to Singapore-listed Real Estate Investment Trusts Exchange-Traded Funds (REITs ETFs)

Under existing tax treatment, the trustee or manager of a Singapore-listed real estate investment trusts ("S-REIT") can apply for tax transparency treatment on specified income, subject to conditions. This means that the income distributed by the S-REIT will be taxed in the hands of the beneficial investors, instead of the trustee. Depending on the profile of the beneficial investors, income tax can be exempted, imposed at a 10 per cent rate (as a withholding tax on certain non-resident individuals), or at the prevailing corporate tax rate.

However, REIT-ETFs which carry on operations in Singapore and which receive distributions of specified income from a S-REIT are subject to corporate income tax rate of 17 per cent in Singapore. This means that, although investors in the REIT ETFs are not taxed on distributions from the REIT-ETFs, there will already have been tax deducted from the distributions they receive. As such, it is disadvantageous for an investor to invest in a S-REIT through a REIT-ETF compared to investing directly in the S-REIT.

The new tax treatment will give tax transparency to the distributions received by REIT-ETFs from S-REITs. This would mean that investors in the REIT-ETF would be subject to the same tax treatment as if they had invested directly in the S-REIT. This change helps to ensure parity of treatment between investing in individual S-REITs and investing via REITs ETFs with investments in S-REITs.

These changes will take effect on or after 1 July 2018, with a review date of 31 March 2020. The IRAS will be accepting applications for tax transparent treatment on or after 1 April 2018.

6, Interaction between additional buyer's stamp duties (ABSD) regime and charitable trusts

In the case of Zhao Hui Fang and another v Commissioner of Stamp Duties [2017] SGHC 105, the Singapore High Court held that ABSD does not apply to residential property purchased by a charitable trust.

ABSD is an additional duty imposed on the purchase of residential property. The rate to be applied depends on the status of the purchaser. In the case where the property is being purchased by a trust, the rate will depend on the beneficial owner of the property.

The High Court held that under Trust Law, a charitable trust is a trust for purposes and not for persons. Neither the members of the public, the trustees, not the parties who stand to benefit from the charitable objects under the trust deed could be said to be the beneficial owner of the property. Rather, the beneficial interest in the trust assets is held in suspense. Since there is no active or extent beneficial ownership of the apartment, there is nothing for ABSD to attach to.

While the decision strictly adheres to trust law principles, there is a question of whether the decision holding would leave a lacunae in the ABSD regime that could have been unintended by Parliament, as the position can also be taken that beneficial interests in the trust assets of a discretionary trust are similarly held in suspense. It would be interesting to see whether the same analysis (and consequences) may be applied to such trusts under which the beneficial interest is suspended based on trust law principles.

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