Second Reading Speech By Second Minister For Finance Lawrence Wong On The Stamp Duties (Amendment) Bill 2017

1. Madam Speaker, I beg to move, "That the Bill be now read a second time".

2. The Stamp Duties (Amendment) Bill 2017 will have its three readings done in a single Parliament sitting today. We adopt this approach because the measure involved is market sensitive and needs to be effected shortly after the Bill has been announced . In order to read the Bill three times in a single Parliamentary sitting, the Ministry of Finance had sought and obtained the President’s certification that urgency exists for this Bill under Standing Order 86 of the Standing Orders of the Parliament of Singapore. 

3. The Bill introduces a new stamp duty treatment for the acquisition and disposal of equity interest in property holding entities (or PHEs). PHEs are defined as entities whose primary tangible assets are residential properties in Singapore. This new stamp duty treatment addresses the stamp duty rate differential that presently exists between the direct acquisition or disposal of residential properties, and the acquisition or disposal of equity interest in entities whose primary tangible assets are residential properties in Singapore. This Bill, if approved by Parliament, will take effect on and after 11 March 2017. 

4. Let me explain this existing stamp duty rate differential. Currently, the acquisition of shares in companies is subject to 0.2% stamp duty based on the purchase price or the value of the shares. There is no stamp duty on the acquisition of equity interest for other types of entities such as partnerships and trusts, or the disposal of equity interest in all types of entities including companies. This treatment applies even when the entity’s assets mainly comprise residential properties in Singapore. 

5. In comparison, the purchase of residential properties in Singapore attracts Buyer’s Stamp Duty (“BSD”) of 1% to 3%, and Additional Buyer’s Stamp Duty (“ABSD”) of up to 15%. Both BSD and ABSD are based on the purchase price or the value of the properties. The sale of residential properties in Singapore may also be subject to Seller’s Stamp Duty (“SSD”).

6. There is therefore a stamp duty rate differential between the buying/selling of residential properties and the buying/selling of equity interest in entities holding residential properties. With ABSD and SSD remaining relevant in our property market, we have decided that it is timely to close this stamp duty rate differential. 

7. The Bill thus seeks to apply new duties to the acquisition and disposal of equity interest in entities whose primary tangible assets are in residential properties in Singapore under specified circumstances. These new duties, which I will henceforth refer to as additional conveyance duties or (“ACD”), will apply irrespective of whether the equity interest in the PHE is acquired or disposed of for bona fide business reasons. This is just like how we currently levy the BSD and ABSD, or the SSD on the purchase or sale of residential property, even if the purchase or sale is for bona fide business reasons. The new ACD will apply in addition to the prevailing stamp duty of 0.2% for the transfer of shares in companies.

8. I should highlight that the measure will not impact the ordinary buying and selling of shares by retail investors in entities listed on the Singapore Stock Exchange. Currently, they are not subject to share duties, where the shares are scripless and no document is executed for the transfer of such shares. Rather the ACD is aimed at the transfer of equity interest in PHEs by significant owners of such entities. PHEs stand for property holding entities. 

9. Madam, I will now elaborate on the key features of the new measure. Specifically, an entity is regarded as a PHE under two circumstances.

a. The first category of entities holds residential properties directly. To establish if such an entity is a PHE, we will apply a significant asset test. An entity can be a PHE if 50% or more of its total tangible assets is residential properties in Singapore. We will call this a Type 1 PHE.

b. There is also a second category of entities^[1] that have indirect holdings of residential property through Type 1 entities in which they have at least 50% equity interest. The entity may also own some residential property directly. For such an entity, it will be considered a PHE if it meets two criteria:

i. First, it beneficially owns at least 50% equity interest in a Type 1 PHE, and 

ii. Second, it meets the significant asset test as mentioned above – in other words, the total value of the residential property it hence owns indirectly through these Type 1 PHEs^[2], as well as the value of the residential property it may own directly, comprises 50% or more of its total tangible assets^[3].

10. The ACD will apply to acquisition or disposal of equity interest by owners with significant equity interest in a PHE. To be considered a significant owner, one has to either presently hold at least 50% equity interest in a PHE, or hold at least 50% interest after the equity acquisition. 

11. In determining whether the 50% ownership threshold for significant ownership is met, we will take into account the equity interest held by associates. Examples of associates include a parent company and its subsidiary, or in the context of individuals, a father and his children, husband and wife. We will also cover arrangements under which individual buyers act in concert to purchase shares with the objective of avoiding the new duties. This serves to mitigate any potential attempt to circumvent the 50% ownership threshold through its associates, and thus avoid the ACD for purchase or sale of its equity interest in a PHE.

12. The computation of ACD will be based on the prevailing market value of the underlying residential property at the time of the qualifying acquisition or disposal of equity interest, in proportion to  equity interest. 

13. With the new measure, an acquisition of equity interest in a PHE will be subject to ACD for the buyer, if the buyer is already a significant owner at the time of acquisition, or becomes a significant owner thereafter. The ACD for the buyer comprises two components. First, 1% to 3% on the value of the underlying residential properties, which mirrors the existing BSD. Second, a flat 15% on the value of the underlying residential properties, which is similar to the existing ABSD for residential properties. This flat 15% rate applies irrespective of whether the buyer of the equity interest is a Singaporean, a PR, a foreigner or a non-individual entity.

14. Likewise, a disposal of equity interest will be subject to ACD for the seller if: 

a. One, the disposal is made after the seller has become a significant owner; 

b. Two, the equity interest disposed of is acquired on or after 11 March 2017; and 

c. Three, the equity interest disposed of is held for 3 years or less from the time of acquisition. 

The ACD will be set at a flat rate of 12% for sale of equity interest within three years of purchase, similar to the SSD for residential properties. This flat rate applies irrespective of the holding period for the equity interest which is disposed.

15. I should also clarify that once a person acquires equity interest on or after 11 March 2017 in a PHE, and becomes a significant owner of such a PHE, the ACD on sale of equity interest will continue to apply until such time that the owner has disposed completely of all the equity interest in the PHE.

16. To deter potential attempt by the buyer and seller to circumvent the provisions for the new duties, the Bill includes a specific anti-avoidance provision. This provision charges the new duties, notwithstanding that the conditions are not met. For instance, an arrangement was made with the purpose of allowing an entity to be no longer a PHE. The duty is not chargeable if the Commissioner is of the opinion that the arrangement was not carried out to avoid the duty.

17. The remaining legislative changes are mostly technical in nature.

18. Madam Speaker, I beg to move.

^[1] They may or may not own residential property directly.

^[2] These are Type 1 PHE in which the entity owns at least 50% equity interest.

^[3] This comprises the total tangible assets it owns directly, as well as through entities (whether PHEs or not) in which it owns at least 50% equity interest. 

Additional information: Factsheet for Stamp Duties _Amendment_Bill 10 March_FINAL.pdf (240 KB)