Capital gains tax is a tax on the profits from an investment. It is incurred during the year in which the investment is sold.
In Singapore, gains from the sale of fixed assets, foreign exchange on capital transactions, disposal of equity investments are generally not taxable. Therefore, only gains or losses of an income nature derived by a company from disposal of equity investments in another company are taxable or deductible for tax purposes. The determination of whether a gain or loss from disposal of equity
investments in a company is income or capital in nature is based on a consideration of the facts and circumstances of each case. The factors considered are drawn from established case law principles (badges of trade). They include the motive of the seller when it acquired the shares, length of period of ownership of the shares disposed of, frequency of similar transactions, reasons for the disposal and means of financing the acquisition of the shares.
This also means that disposals of ordinary shares in an investee company, made during the period of 1 June 2012 to 31 Dec 2027, is certain to be exempted from tax. This is applicable regardless where the investee company is incorporated and whether it is a public or private company. Under the same scheme, gains derived by an investor company from its disposal of ordinary shares in an investee company are not taxable if immediately prior to share disposal, the investor company holds at least 20% of the ordinary shares in the investee company for a period of at least 24 months.
Investment in immovable properties such as real estate is excluded from this scheme.
Investment in preference shares, convertible preference shares and any such share class is also excluded from this scheme.
It is to note that countries like Singapore regard such capital gain tax situations based on facts and circumstances.
Corporate gains tax incurred by companies, if automatically subjected to tax, is added to the taxable income calculation, thereby the exposure is subjected to the same rates as corporate tax.
Speak to us about each capital gains situation.