Stamp Duty Lifted on Group Company Transfers

Introduction
Associated Company Transfers
Two-Year Moratorium

Introduction

Stamp duty is normally payable on the instrument effecting the transfer of immovable property in Singapore or shares in Singapore companies. Section 15 of the Singapore Stamp Duties Act (Cap 312) provides an exception to this rule where a transfer is made pursuant to a reconstruction or amalgamation of companies. This relief has its origin in the English Finance Act of 1927. Under Section 15, stamp duty is not chargeable if two conditions are met. First, the transferee company must acquire the undertaking or not less than 90% of the issued share capital of the transferor company. Second, not less than 90% of the consideration for the acquisition must be satisfied by the issue of shares in the transferee to the transferor or shareholders of the transferor.

Associated Company Transfers

In the budget for year 2000, the minister for finance extended stamp duty relief to the transfer of assets between associated companies. By a circular dated June 30 2000, the Inland Revenue Authority outlined the details of the relief. The legislation for the new relief is not yet in place. The authorities are working out the necessary amendments to the Stamp Duties Act, which shall have retroactive effect, dating back to July 1 2000.

Under the new relief, where a company in a corporate group disposes of immovable property or stocks to another company in the group, stamp duty shall not be charged on the relevant instrument if certain conditions are met. The Internal Revenue Authority's circular provides the following main conditions for the relief:

• The effect of the instrument must be to dispose, transfer or convey a beneficial interest (both legal and equitable) in immovable property or shares from one company to an associated company. That is, one must be the beneficial owner of not less than 75% of the other, or a third company must be the beneficial owner of not less than 75% of the issued ordinary share capital of each of them. Ownership may be directly, wholly or partly through one or more companies in the group. Where it is indirect, the interest held in the intermediate company must be at least 15%.
  
  
• The transferee company must be incorporated in Singapore or be a Singapore tax resident.
  
  
• The transferee and transferor companies must be associated at least a year before the disposal/acquisition unless the transferee company is newly incorporated for the purpose of the acquisition.
  
  
• The transferor company must sell and the transferee company must acquire the entire interest in the property or shares held by the transferor.
  
  
• Valuable consideration must be paid in cash or in the issue of shares in the transferee company.
  
  
• There must be no arrangement whereby any part of the consideration is provided or received, directly or indirectly, by an outsider not associated with the transferor or transferee, unless the outsider is a financial institution acting in the capacity of the lender.
  
  
• There must be no arrangement whereby the beneficial interest in the immovable property or shares was previously transferred, directly or indirectly, by an outsider not associated with the transferor or transferee, unless stamp duty was paid on that acquisition or the duty on the instrument was exempted or remitted.
  
  
• There must be no arrangement whereby the transferor and transferee companies are to cease to be associated because of a change in the percentage of beneficial ownership of the transferor or a third company within two years of the acquisition (unless it is the result of a reconstruction, amalgamation or an initial public offering of not more than 25% of their existing issued share capital).
  
  
• The transfer must be for legitimate commercial reasons.
  
  
• The transferee company must not dispose of the beneficial interest in the property/stocks acquired for at least two years from acquisition unless it is the result of a reconstruction, amalgamation or liquidation. In the case of a liquidation, the assets must be distributed to its parent company which will retain the assets during that two-year period.
  
  
• The instrument of transfer must be executed within 12 months of the acquisition.
  
  
• Any application for relief must be accompanied by a statutory declaration made by a responsible officer of the transferee or parent company (eg, director, secretary, in-house counsel). The statutory declaration must address whether the above-mentioned conditions will or will not be met.

The definition of 'associated companies' for the purposes of the relief is stringent and has a different meaning from that contained in the Listing Manual of the Singapore Exchange and Securities Trading Limited. For the purposes of the stamp duty relief, a transfer between a subsidiary and holding company or a transfer between two subsidiaries of a common holding company will not qualify for relief unless (i) the holding company has, directly or indirectly, beneficial ownership in 75% of the shares in the subsidiary, or (ii) the common holding company has, directly or indirectly, beneficial ownership in 75% of the shares in both subsidiaries.

It appears that direct or indirect ownership can be aggregated to make up 75% beneficial ownership in order to qualify for the new relief. However, if the indirect ownership is through an intermediate company in which less than 51% interest is held, then it may not be counted.

It is not entirely clear whether the two-year moratorium on disposal is to be counted from the acquisition or the instrument of transfer. It appears that an agreement for sale and purchase is regarded as an acquisition, and if so, the two-year moratorium could arguably be from the date of the agreement for sale and purchase, instead of the actual completion of transfer by the execution of the instrument of transfer.

Furthermore, it is not clear whether the circular has any force of law. However, before the necessary legislation is in place, the circular provides the only guidance on the application of the new stamp duty relief.

Two-Year Moratorium

In addition to the relief for associated company transfers, the minister for finance announced other proposed changes to Section 15 of the Stamp Duties Act. The proposals are contained in an appendix to the circular, pending legislative amendments.

For acquisitions of shares or undertaking that were granted relief under Section 15, there must be no change in the beneficial ownership of the shares or undertaking acquired for a period of two years. This rule will be relaxed for companies that restructure for the purpose of an initial public offering or float further shares after restructuring.

The initial public offering or the flotation will not be regarded as a breach of the two-year moratorium (and thus result in claw-back of the stamp duty relief) if two conditions are met. First, the total shares floated by the company may not exceed the minimum requirement set by the Singapore Exchange and Securities Trading Limited for a main-board listing (which is currently 25% of the total issued ordinary share capital of the company). Second, the shares must be floated on the Singapore Exchange (eg, main board, Sesdaq) or cross-listed on the Singapore Exchange and a foreign exchange.

Public shareholders who acquired the shares in an acquisition or transfer in a restructuring exercise carried out under Section 15 will also not be subject to the two- year moratorium on sale.

For further information on this topic please contact Teoh Lian Ee or Vivien Teu at Drew & Napier by telephone (+65 535 0733) or by fax (+65 535 4864) or by e-mail (lianee.teoh @drewnapier.com or [email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com.