Singapore is one of the most popular destination for property investors in Asia. On a global scale, the country also scores well as a form of wealth preservation due to its friendly investment environment. Investing in property is about projecting capital appreciation and rental yield of a property. In order to do so, a good understanding of a country’s tax system is essential to derive an accurate projected capital appreciation and rental yield of a property. We shall discuss 5 types of tax namely; stamp duty, additional buyer’s stamp duty, property tax, income tax and seller’s stamp duty that foreigners have to pay from purchase, renting to selling a residential property.
Let’s start with taxes that property investors need to pay when making the purchase. Anyone who purchase a property in Singapore have to pay stamp duty to IRAS (Inland Revenue Authority of Singapore). Stamp Duty is calculated as 1% on first $180,000, 2% on next $180,000 and 3% for the remainder. For instance, if the property costs SGD$500,000, the stamp duty payable is SGD$9,600.
Besides this, since 12 January 2013, foreigners who purchase residential property have to pay additional buyer’s stamp duty which is 15% of the property value.
Next, let’s consider 2 scenarios; I) property serving as the purchaser’s residence, and ii) property to be rented out to generate income.
In terms of income tax, foreigners who stay in Singapore for less than 182 days in a year have to pay a flat rate 20% of income generated from renting their property. If the stay in Singapore is 183 days or more, the person will be treated as a tax resident whereby income generated from renting the property will be treated together with their employment income. As such, income tax rate will apply progressively based on their total income earned in a year.
Property tax is payable annually to IRAS also. Computation of property tax depends on whether the property is owner-occupied or rented out to generate income. If the property is owner-occupied, the rate if 4% of the annual value of the property. If the property is rented out, the rate is 10% of the annual value of the property. Annual value is defined as the estimated gross annual rent of the property if it were to be rented out and is annually assessed by IRAS.
In many countries, owners have to pay tax on gain made when they disposed their property. In Singapore, there is no capital gain tax. However, seller’s stamp duty is applicable when you sell the property. Effective from 14 January 2011, if the person sells the property within 1 year from the date of purchase, 16% of the market value is payable. If the person sells between 1 to 2 years from the date of purchase, the rate is 12%. If the person sells between 2 to 3 years from the date of purchase, the rate is 8%. If the person sells between 3 to 4 years from the date of purchase, the rate is 4%. You need not pay any seller’s stamp duty if you sell after the 4th year from date of purchase of the property.