There has been an increase in local investors looking to grow their wealth through investing in local/foreign properties. Currently, however, local properties are not as attractive as compared to foreign properties. Such as the low purchasing price for a bigger and better apartment, high rental yield and many other attractive points that a property agent are most willingly to share with you.
There are various ways that you can purchase the property, either as an individual or setting up a company to hold the property. According to Inland Revenue Authority of Singapore (IRAS), an investment holding company refers to a company whose principal activity is that of an investment holding. It owns investments such as properties and shares for long term investment and derives investment income such as dividend, interest or rental.
In this post, we will explore the various benefits on setting up an investment holding company to hold a property.
For example, if you have only $100, 000 to spare and the property costs about $300, 000. You can find 2 other like-minded investors to form the company. The structure of the company will be limited by shares, and the allotment of shares can be based on the amount that each individual invests. Each shareholder will have the voting rights to make decision on any transactions, such as whether to sell the property. Therefore, we suggest that it is better to keep the partnership small to minimise conflicts arising from decision-making situations.
A private limited company in Singapore is a separate legal entity and shareholders are not liable for the company’s debts beyond the amount of share capital they have contributed (hence the term limited liability). Setting up a company, you are protected from liabilities that could cost up to your personal assets if you are acting as an individual.
Expenses that are attributable to the investment income taxable in Singapore are deductible. Generally, a company will incur certain expenses, such as accounting fees, basic printing and stationery, etc. Therefore, the company is able to use that to offset the revenue earned through investments.
Private Limited companies are able to enjoy full tax exemption for first $100, 000. However, an investment holding company incorporated after 25 Feb 2013 is not eligible to claim the tax exemption available to new start-up companies. The company will still enjoy the partial tax exemption. Beside partial tax exemption, companies can also benefit from the 30% Corporate Income Tax Rebate subject to a cap of$20, 000 per YA.
Since the property will be held by a company and not by an individual, the company can sell part or full shares to the interested parties. Once the transfer of shares is done, the new shareholder has the decision rights to collect the rent income or make any changes to the company investment structures.
One major benefit of being a foreign company is that you can use the company to convert UK property to non-UK property for the Inheritance Tax purposes. If the UK property is held by a foreign company, which in turn is held by a trust or an individual then the asset held by that is a foreign asset, namely the share in the company. Therefore, as foreign assets are not liable to Inheritance Tax and the value of the UK property held by the company will be completely outside the scope of Inheritance Tax
There are many other benefits that you can enjoy through a private limited company. Each jurisdiction have their own tax treatment and for local company you can rest assured that there will not be any double tax to the company.
Double taxation occurs when entities are taxed on the same income or capital by two different tax jurisdictions. Oftentimes, this occurs when an entity earns income in a country other than the one in which it is residing in. In such cases, both the source state in which the income is earned and the entity’s residence state may have the right to tax that same income under each jurisdiction’s domestic tax laws.