As a starting point, in Singapore, investment gains are not taxable. Hence, if an individual or a business entity like a company sells a property, shares or other financial instruments, the possible profits that are received are not subject to tax.
According to IRAS, the following gains are generally not taxable:
- Gains that are derived from the sale of a property in Singapore as it is a capital gain.
- Profits or losses derived from the buying and selling of shares or other financial instruments are viewed as personal investments.
- Payouts from insurance policies as they are capital receipts.
However, if the sale and purchase are akin to trading, then trading income will be taxable just like any normal business entity that trades for a profit.
A hypothetical example would be a company, that is actively dealing with employment services like an employment agency, were to purchase a commercial property in year 1 and sell it for a profit in year 5, then that profit would be deemed as an investment gain and would not attract any tax. This is a one-off transaction and is similar to how individuals or companies would use excess funds to invest.
However, if the employment agency, is actively buying and selling commercial properties, say it is buying properties every few months and is also selling properties every few months. Also, the bulk of the business activity in the company is focused on this buying and selling activity rather than its primary business of employment services, then it can be said that the company is trading properties rather than investing.
There is no hard and fast rule as to how IRAS would categorise a purported investment activity as trading. However, some criteria used to assess if an individual or a business entity is trading in properties are as follows:
- Frequency of transactions (buying and selling of properties);
- Reasons for buying and selling of property;
- Financial means to hold the property for long term; and
- Holding period.
Do note that individuals or companies that are trading in properties will need to declare the profits under “Other Income”. If you are unaware whether this is necessary, you can email IRAS to check whether your gains from the sale of property is considered taxable income.
Please note that for entities whose main business is trading of equities or other financial instruments, this might also apply. For example, a company is incorporated for the purpose of trading on the stock market. It takes on clients as investors and these clients place monies with the company to invest on their behalf (as a collective investment scheme. there are regulatory registration requirements for such entities). Such profits are also considered trading income.
The editorial team at Singapore Secretary Services
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