Buying a commercial property in Singapore through an investment holding company has many benefits. It is often better than buying it in your personal name. Here’s a comprehensive overview:
Benefits of Purchasing Commercial Properties Under an Investment Holding Company
1. Lower Corporate Tax Rates
Companies in Singapore benefit from a flat corporate tax rate of 17%. In contrast, individual income tax rates are progressive, reaching up to 24% for higher income brackets. Thus, holding property under a company can led to significant tax savings for high-income individuals.
2. Tax Deductibility of Expenses
Investment holding companies can deduct costs related to earning investment income. This includes expenses like property maintenance, loan interest, and management fees. These deductions can reduce the company’s taxable income.
3. No Capital Gains Tax
Singapore does not impose capital gains tax on property sales, benefiting both individuals and companies. However, if property transactions are frequent and deemed as trading activities, the profits may be considered taxable income.
4. Limited Liability Protection
Owning property through a company limits personal liability. In the event of financial issues or legal claims, shareholders generally protect their personal assets.
5. Easier Transfer of Ownership
Selling company shares can make transferring property easier. This method avoids property conveyancing and may lower stamp duties.
If the company owns the property and sells it, the stamp duty for selling shares is lower. We compare this to the stamp duty for buying property.
Here are the rates in question
Stamp duty rate for sale of share transfers: 0.2%
Stamp duty rate for sale of commercial property
First $180,000: 1%
Next $180,000: 2%
Above $360,000: 3%
6. Exemption from Additional Buyer’s Stamp Duty (ABSD)
Commercial properties are not subject to ABSD, unlike residential properties. This exemption applies regardless of whether the buyer is an individual or a company.
⚠️ Considerations and Potential Drawbacks
GST Implications: Purchasing commercial property may involve Goods and Services Tax (GST). GST-registered companies can claim input tax credits, but this adds complexity to tax reporting.
Administrative Costs: Operating a company entails ongoing compliance costs, including annual filings, accounting, and audit fees.
Financing Requirements: Banks may set stricter rules for lending to companies. This can include higher interest rates or lower loan-to-value ratios.
Summary
| Aspect | Investment Holding Company | Individual Ownership |
| Tax Rate | 17% corporate rate | Up to 24% personal rate |
| Expense Deductions | Broadly deductible | Limited deductions |
| Capital Gains Tax | Not applicable | Not applicable |
| Liability Protection | Limited liability | Personal liability |
| Ownership Transfer | Via share transfer | Requires conveyancing |
| ABSD on Commercial Property | Not applicable | Not applicable |
Deciding to buy commercial property can be tricky. You need to think about your financial goals. Consider the taxes involved.
Also, think about how much risk you are willing to take. Consulting with a financial advisor or tax professional can provide personalized guidance tailored to your situation. Speak to IQrate Mortgage Specialist should you require any financing assistance.