Tax and stamp duty when selling a business in Singapore

Who is selling, and why it changes the tax

The first question your tax adviser will ask is who the seller is. There are three common cases, and each raises different points.

• You sell your shares personally. You own shares in your company and sell them to the buyer. The money comes to you directly.
• Your holding company sells its shares. A company you own holds the shares in the operating company and sells them. The money goes to the holding company.
• Your company sells its business and assets. The operating company sells its business to the buyer and receives the money, and you then need to take the money out of the company.

The commercial side of choosing between a share sale and an asset sale is covered in our guide to deal structures. This guide covers the tax, stamp duty and GST points to raise with your advisers. It does not replace their advice: rules and rates change, and small facts can change the answer.

Do you pay tax on the gain when you sell a business in Singapore?

Singapore does not generally tax capital gains. The question is whether the gain on your sale is capital, which is not taxed, or income, which is. That depends on the facts.

Individuals. Individuals selling shares they hold as an investment are generally not taxed on the gain. An owner who built a company over many years and sells it once will often be in that position, but it is not automatic. The kinds of factors usually considered include why you acquired the shares, how long you held them, and whether buying and selling businesses or shares is something you do regularly. Your tax adviser will look at your circumstances.

Corporate sellers. For companies there is a safe-harbour rule for gains on disposing of at least 20% of a company's ordinary shares held for at least 24 months. If the conditions are met, the gain is generally treated as not taxable. The rule has conditions and exceptions, so ask your adviser to confirm it applies to your holding before you rely on it. Falling outside the safe harbour does not automatically make a gain taxable; it means the answer turns on the facts.

Asset sales. When a company sells its business, it is the company that makes the gain. Different parts of the price, such as goodwill, equipment and stock, can be treated differently, so the way the price is split between assets in the contract matters. Ask your adviser to review the split before it is agreed.

Stamp duty on a share sale, with a worked example

On a share sale, stamp duty is 0.2% of the higher of the price or the net asset value of the shares. Property counts in the net asset value at market value, not at the value in the accounts. The duty is normally paid by the buyer within 14 days.

Because the buyer normally pays, stamp duty rarely changes what you receive. It matters when your company owns property, because a revaluation can lift the net asset value above the price.

Illustration only. The figures below are simple arithmetic to show how the rule works. Your lawyer or tax adviser will calculate the actual amount.

Stamp duty on an asset sale

On an asset sale there is no stamp duty on the business itself or on movable assets such as equipment and stock. Two things can still attract duty:

• Property. Buyer's stamp duty applies to any property transferred: up to 5% for non-residential property and up to 6% for residential property. On a business that owns its premises, this can be a large cost for the buyer, and buyers price it in.
• Leases. Most SMEs rent their premises. Assigning a lease to the buyer may attract stamp duty, and the landlord's consent is usually needed. Sometimes the landlord grants the buyer a new lease instead.

Property can also raise other duty and tax points depending on the property and how long it has been held, so ask your lawyer to check before you agree whether premises are included in the sale.

Is GST charged when you sell a business?

A share sale is not subject to GST. You are selling shares, not supplying goods or services.

An asset sale is different. GST at 9% can apply to an asset sale unless it qualifies as a transfer of a going concern. Whether it qualifies depends on conditions about the business being handed over as a running business and about the buyer, and your tax adviser will confirm whether your sale meets them.

Illustration only. On an asset sale priced at S$1,000,000, GST at 9% would be S$90,000 if it applied to the whole price. Even where that cost can be dealt with, it affects the buyer's cash flow on completion. The sale agreement should state clearly whether the price includes or excludes GST, and what happens if the tax treatment turns out to be different from what both sides expected.

Asset sales: getting the money from your company to you

In an asset sale the buyer pays your company, not you. Getting the money into your hands is a separate step, and it has its own tax and legal points. Common routes include paying a dividend, winding up the company, or keeping the company for other purposes. Ask your tax adviser and lawyer to compare them before you agree to sell assets rather than shares, because the cost and time of this step should be part of comparing offers.

Other questions worth raising on an asset sale:

• Does selling equipment for more than its tax written-down value create a taxable adjustment in the company?
• How will the price paid for goodwill and intellectual property be treated?
• What happens to the company's unused tax losses and allowances? In an asset sale they stay with your company and do not pass to the buyer.

In a share sale, tax losses stay with the company. Do not assume a buyer will pay for them: whether they can be used after a change of owner depends on rules your adviser can explain.

Tax points buyers check in due diligence

Tax also affects the price through due diligence. In a share sale, liabilities stay with the company and the buyer inherits its history, so buyers look closely at past tax and usually ask for warranties and an indemnity covering tax for the period before completion.

• Unpaid tax. Corporate tax owed on profits earned before completion is usually treated as a debt-like item and deducted from the price. See our guide to working capital and net debt.
• Normalised profit. Corporate tax is 17% with partial exemptions. Temporary corporate income tax rebates should not be treated as permanent earnings, and buyers will strip them out of the profit they pay a multiple on.
• GST and payroll records. Buyers check that GST returns and CPF contributions are up to date and match the accounts.
• Open queries. Any open question from IRAS will usually lead to a specific indemnity or a retention. Disclose it early.

Tidy tax records support your price. Our due diligence checklist sets out what to gather.

Questions to ask your tax adviser before heads of terms

1. Is my gain likely to be treated as capital or income, and why?
2. If a holding company is selling, does the safe-harbour rule for disposals of at least 20% of ordinary shares held for at least 24 months apply?
3. What would I keep after tax under a share sale compared with an asset sale?
4. If the buyer wants an asset sale, does it qualify as a transfer of a going concern for GST?
5. Does the company own property, and how does that affect stamp duty on either structure?
6. How should the price be split between goodwill, equipment and stock on an asset sale?
7. Are deferred payments and earn-outs treated in the same way as cash paid at completion?
8. What tax warranties and indemnities should I accept, and for how long?

Bring your last three years of accounts and tax computations, the company's shareholding history and a draft of the proposed deal structure to that meeting. If you have not yet tested what your business might be worth, our business valuation calculator gives an indicative range to start the conversation.