The Government has taken swift legislative action to bring the stamp duty rate in the transfer of equity stakes in property-holding entities in line with the rate applying to regular property deals.
A new stamp duty - called additional conveyance duty (ACD) - will be levied on the purchase and sale of residential real estate in property-holding entities with effect from today.
The new tax is aimed at entities - including firms, trusts and partnerships - that hold at least 50 per cent of its total tangible assets in residential properties here.
In a rare move, the Stamp Duty Amendment Bill was read and passed in Parliament in one day owing to the market-sensitive nature of the announcement.
"The motivation for this Bill is not to raise revenue... but the motivation for doing this is to remove the existing differential in the stamp duty rates," said Second Finance Minister Lawrence Wong in Parliament yesterday.
Previously, a direct purchase of residential property attracted buyer's stamp duty of 3 per cent, and depending on the buyer's citizenship, up to 15 per cent additional buyer's stamp duty (ABSD).
However, acquiring equity interest of a holding firm which owns the property incurred a share duty tax of just 0.2 per cent of the firm's net asset value, prior to ACD.
Similarly, the seller's stamp duty applying to the sale of residential property within a stipulated holding period, also did not apply to selling stakes of a holding firm.
To better align the rates, the Government will impose the ACD on buyers and sellers who are significant owners. For buyers, on top of the 0.2 per cent share duty tax, they must pay ACD comprising 1 to 3 per cent on the value of underlying residential properties and a flat 15 per cent on the value of those assets.
Sellers, who are significant owners, disposing of their equity stake within three years of acquisition will have to pay a flat 12 per cent levy. The ACD does not affect ordinary share transactions in listed companies by retail investors.
The disparity in stamp duty rate was often seen by consultants as a loophole, allowing some developers to use innovative ways to escape hefty qualifying certificate extension charges on unsold homes.
"We will see fewer deals involving share sales of property-holding companies. The ACD will push up transaction cost of such deals and will weigh on the buyer's return on investment," noted International Property Advisor key executive officer Ku Swee Yong.