Singapore Property Tax.

 Singapore proposes to tax gains derived from sale/ disposal of property (including shares) situated outside Singapore, in certain situations.

Over past several decades, we have been witnessing Singapore as one of the most favored jurisdictions for investing in South-Asia (especially countries like India), due to several reasons, one of them being favorable tax treatment under treaty and no capital gains tax in Singapore.

This phenomenon was jolted with amendments to India-Singapore tax treaty, whereby India was given taxing rights in respect of capital gains arising from transfer of shares of Indian companies (though investments upto 2017 were grandfathered).

Singapore has now proposed certain amendments to the Singapore Income tax Act (‘the Act’), which are now open for public consultation. One of the significant amendment, proposes to insert section 10L to the Act, which provides that gains derived by a ‘relevant entity’ from sale/ disposal of movable or immovable property situated outside Singapore (at the time of sale), but ‘received in’ Singapore, are treated as income chargeable to tax in Singapore. Such newly inserted provision targets transactions which would otherwise be either exempt or specifically not chargeable to tax in Singapore and is applicable in respect of sale/ disposal that occurs on or after January 1, 2024.

As per the explanatory statement issued, the section targets gains derived by entities that are member of a multinational group, but lack reasonable economic substance in Singapore (number/ experience/ qualification of employees; business expenditure; decision making, etc. in Singapore). Thus, the entities which have business operations only in Singapore are not affected. Section also provides certain exceptions, like financial institutions, entities under tax incentive schemes or gains received in Singapore by individuals.
The computation of gains is to be determined after deduction of expenses incurred for acquisition, improvement or disposal of such asset. Guidelines have also been provided on determination of situs of the property sold/ diposed, like shares of a company are considered to be situated in the place of incorporation of such company; equity interest in any entity other than company shall be considered to be situated where business of the entity is principally carried on.

While the proposed amendment aims to address international tax avoidance by anchoring economic substance in Singapore, it would be interesting to evaluate interplay of such section with amended provisions of India-Singapore tax treaty and taxation of indirect transfer of shares in India.