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Questions and Answers
What is a potential outcome of identifying tax exposures during a transaction?
Which of the following is NOT a key warranty typically included in tax warranties?
What does tax indemnity specifically cover in the context of a transaction?
In assessing potential tax liability, which aspect is NOT considered?
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What action can be taken if the wording of a Seller's tax statement proves to be incorrect?
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What is the main condition for a loss to be deductible against profits as per the Same Business test?
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Which of the following transactions is subject to stamp duty according to the content?
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When must stamp duty be paid if the instrument is executed outside of Singapore?
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What rate of stamp duty applies to the transfer of shares?
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In which scenario would Additional Conveyance Duty (ACD) apply?
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What can be used as a proxy for the value of shares if there is no market value available?
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Which type of property is considered under the definition of residential property for ACD purposes?
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What is the time frame for paying stamp duty on instruments executed within Singapore?
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What is included in the definition of Tax Liability covered by the tax indemnity?
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Which of the following is NOT considered a limitation or exclusion from tax indemnity?
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In what circumstance may an indirect share transfer trigger tax issues?
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What should be considered when calculating the costs of making a claim under the tax indemnity?
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Which condition would NOT lead to a Tax Liability for the Target post-Completion?
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Which of the following is a reason why certain jurisdictions may 'see through' a share transfer?
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What does the Seller covenant with the Buyer regarding Tax Liabilities?
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In evaluating Tax Liability, which factor is least likely to influence the amount payable?
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What is a key tax implication of a share sale from a tax perspective?
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Which scenario does not apply in an asset sale?
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What must a company do to claim the writing down allowances under Section 19B?
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Which of the following is NOT included in the definition of intellectual property rights as per Section 19B?
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What may trigger a balancing charge when it comes to intellectual property rights?
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What is the implication of a transfer qualifying as a transfer as a going concern in an asset sale?
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Which of the following is a condition that can disallow further writing down allowances under Section 19B?
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What type of tax burden may a seller face in an asset sale?
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What is the general withholding tax rate applied to royalties deemed as Singapore-sourced income paid to non-Singapore tax residents?
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Under what condition can the withholding tax rate on royalties be reduced for non-Singapore tax residents?
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Who is primarily responsible for withholding the appropriate tax on royalties paid to non-Singapore tax residents?
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Which section of the Income Tax Act (ITA) defines royalties as Singapore-sourced income when borne by certain entities?
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When a royalty payment is deemed Singapore-sourced, which financial action is taken regarding withholding tax?
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What might shift the economic burden of withholding tax from the payor to the non-Singapore tax resident?
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What is one distinguishing feature of a payment categorized as a royalty under the withholding tax guidelines?
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Which tax treaty provides a concessionary withholding tax rate for royalties paid from Singapore?
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Study Notes
Exemption from Income Tax
- If an exemption is granted, the ‘Same Business’ test will apply.
- Any loss may only be deducted against the profits of the same trade or business of the company in respect of which that loss was incurred.
Stamp Duty
- Stamp duty is a tax on instruments.
- Generally, stamp duty is imposed on instruments effecting the transfer of:
- Shares in a Singapore company, or a foreign company that maintains a share or branch register in Singapore.
- Singapore immovable property (including leases).
- If the instrument is executed within Singapore, it is payable within 14 days after it is executed.
- If the instrument is executed outside of Singapore, it is payable within 30 days after it has been received in Singapore.
- For a transfer of shares, the instrument or agreement effecting the share transfer is subject to stamp duty at the rate of 0.2% on the higher of:
- The consideration
- The market value of the shares transferred.
- If there is no market value and no fair market valuation of the shares, the net asset value can be used as a proxy for the value of the shares transferred.
Additional Conveyance Duty (ACD)
- ACD may also be applicable on the transfer of equity interests (including shares) in an entity that:
- Holds Singapore residential property.
- Beneficially owns more than 50% equity interest, directly or indirectly, in one or more entities that hold Singapore residential property.
- ACD, if applicable, applies in addition to any stamp duty.
- "Residential property" is defined broadly for ACD purposes and includes (among others):
- Commercial and residential property.
- Property zoned for mixed purposes one of which is residential.
Tax Due Diligence
- Potential tax liabilities that may otherwise go unnoticed.
- Information to understand the current tax profile of the Target.
- Future issues.
- Review tax positions taken in tax returns.
- Identifying potential tax exposure / risk.
- Scope: can be very broad, e.g., income tax, GST / VAT, stamp duty, withholding tax, transfer pricing, tax incentive / grants.
- Covered period: periods not subject to statutory limitations.
- Quantum: materiality threshold.
- May lead to further warranties, negotiation for tax deed / indemnity.
- Possible impact on purchase price.
- Need for a retention (e.g., specific tax escrow), completion accounts, pre-transaction restructuring and financial limitations.
Tax Warranties
- Provides a remedy for Buyer (damages) if Seller’s statements are incorrect, subject to Buyer proving loss and restrictions on the recovery of damages.
- Provokes disclosure of any tax issues.
- Key warranties for all transactions:
- All returns filed, completed and correct.
- All liabilities on or before accounts date provided for.
- Disputes and investigations.
- No tax avoidance.
- No tax liability in other jurisdictions.
- No non-ordinary course transactions post the accounts date.
- All inter-company transactions on an arm’s length basis.
Tax Indemnity
- General indemnity covering tax liabilities of Target arising from pre-completion income, profits and gains and events.
- Seller covenants with Buyer to pay an amount equal to any Tax Liability of the Target resulting from or by reference to:
- Any income, profits or gains earned, accrued or received on or before the Completion Date.
- Any Tax Liability of the Target that would not have been payable had there been no breach of any Tax Warranties.
- Other specific concerns for tax liabilities of target arising from pre- and post- completion tax risks identified in due diligence.
Definition of Tax Liability
- Any liability of the target to make an actual payment of Tax.
- The loss or reduction in the amount of any Tax asset which is reflected in the target’s accounts.
- The loss or reduction in the amount of a tax asset of the target arising post-Completion.
Limitations and Exclusions
- Discharged prior to completion or provided for in accounts.
- Breach of SPA or tax deed by Buyer.
- Windfall income and gains.
- Claims or elections assumed in the target’s account.
- Financial limitations.
- Time Limits.
Transfer Tax Considerations - Indirect Share Transfer
- As Singapore is a common jurisdiction for holding companies, an indirect share transfer of foreign subsidiaries may trigger indirect transfer tax issues in other jurisdictions.
- Certain jurisdictions such as China and Indonesia may “see through” the share transfer and deem that the transaction is in substance a transfer / acquisition of the foreign entity and impute tax accordingly in that jurisdiction.
Share Sale
- Often no tax burden for the seller (from an income tax perspective).
- Carry over of tax attributes available for the buyer.
- Tax issues follow the sale need for tax due diligence, tax warranties / indemnities.
- Generally, GST-exempt.
- Stamp duty implications.
Asset Sale
- No carry over of tax attributes.
- No GST if the transfer qualifies as a transfer as a going concern.
- Tax issues do not follow the sale.
- Seller may be liable to income tax due to balancing charge on disposal of capital assets / sale of trading stock at OMV.
- Stamp duty implications – depends on whether there is transfer of chargeable property
Acquisition of IP
- Singapore has no capital gains tax.
- Section 19B writing down allowances are available for capital expenditure incurred by a company carrying on a trade or business in acquiring intellectual property rights for use in the trade or business.
- Subject to certain exclusions.
- The company is required to make an election to claim the writing down allowances over a 5-, 10- or 15-year period on a straight-line basis.
Definition of “intellectual property rights”
- “the right to do or authorise the doing of anything which would, but for that right, be an infringement of any patent, copyright, trade mark, registered design, geographical indication, layout-design of integrated circuit, trade secret or information that has commercial value, or the grant of protection of a plant variety”.
- It does not include customer information, customer lists, information on work processes and compilations of such information.
Section 19B Writing Down Allowances
- No further writing down allowances may be made if the intellectual property rights:
- Come to an end without being subsequently revived.
- Are sold, transferred or assigned.
- The company permanently ceases to carry on the trade or business.
- A balancing charge may be triggered where the intellectual property rights are sold, transferred or assigned.
Royalties
Introduction to Withholding Tax
- Generally, withholding tax is imposed on certain prescribed payments that are deemed sourced in Singapore and paid to non-Singapore tax residents, unless certain exemptions or concessions apply.
- A “royalty or other payment in one lump sum or otherwise for the use of or the right to use any movable property” is deemed to be Singapore-sourced income if it is:
- Borne by a Singapore tax resident or permanent establishment in Singapore (except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore).
- Deductible against any Singapore-sourced income.
- The payment of such royalty to a non-Singapore tax resident is generally subject to withholding tax at 10% on the gross payment.
Who Pays?
- It is the payor’s obligation to withhold the amount of tax payable and pay such amount to IRAS.
- The economic burden can be shifted by contractual agreement between the parties.
Note
- The applicable withholding tax rate may be reduced under an applicable tax treaty if the relevant conditions are met (for e.g., the non-Singapore resident is tax resident in an applicable treaty jurisdiction.
- For e.g., the Singapore-Germany tax treaty imposes a concessionary rate of 8%.
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Description
This quiz covers critical concepts related to exemptions from income tax and stamp duty in Singapore. It includes the 'Same Business' test for income tax exemptions and details on how stamp duty applies to property and share transfers. Test your understanding of these essential tax regulations and their implications on businesses in Singapore.