Acquiring a property is a big step for anyone, and many people in Singapore would consider it only as an opportunity when it comes to residential properties, but what if there was more to it, particularly for companies wanting to grow themselves? Could owning a commercial property through a corporate entity be the solution you have been looking for to expand your assets portfolio? We take a look at why this could be the next step for your expansion into the commercial property sector.
For a long period, residential housing prices were significantly reduced to make home ownership easier. This did, however, mean that the commercial and industrial properties were left largely untouched until now.
Buying a commercial property has many benefits, and as Singapore is considered a tax haven for many businesspeople, let’s see what some of those are.
The Plus Side of Buying a Commercial Property (Under a Corporate Entity)
By incorporating a company, you essentially gain a higher profit and gain the benefits of corporate tax rates rather than as an individual where the tax rates are significant.
Lower Corporate Tax Rates
Those belonging to the higher-income brackets will find their personal tax rates considerably more compared to corporate taxes. Thus, it makes sense that to reduce the tax charges, you should hold your commercial property under a corporate entity.
Cheaper Cost of Funds
Financing your property externally by purchasing through a corporate entity will save you money in the long run. The interest rates for personal loans are very high, whereas they are not as much when it comes to corporate interest rates. Being able to save on financial costs anywhere is a win for you.
No Capital Gains Tax
Capital gains in Singapore refer to the profits you make by selling a property or other assets, and because the country has no capital gains tax, this profit is non-taxable. The only exception to the rule would be when a person has been deemed to be trading in properties.
Easy Transfer of Ownership
When an individual owner tries to sell a property, transferring the ownership can be tedious and often complicated, whereas a Special Purpose Vehicle (SPV), also known as an SPE – Special Purpose Entity, for holding a commercial property offers more flexibility in the ownership transfer process.
An SPV is a subsidiary designed to take on the sole burden, so to speak, of financial risks such that even if the parent company were to go bankrupt, it would still be protected.
Expenses Claimed
Finding tax exemptions is tricky when you operate under personal tax laws, but as a corporate entity, you have more freedom and the allowance to claim back more direct and indirect expenses.
When you want to purchase a building or company but may not necessarily have the financial means to do so on your own, incorporating or forming a company with a group of friends could be your next option. This would also help make the payment of stamp duties easier.
This way, the company which has now bought the commercial property will have shareholders who equally own shares in the asset as they would if they were co-owners of a property.
Can Everyone Buy a Commercial Property in Singapore?
Singaporeans, Permanent Residents, and Foreigners are all allowed to purchase commercial property in Singapore without restrictions, unlike residential properties. If your company is registered outside of Singapore as a foreign company, you are still allowed access to the commercial building world when purchasing under a corporate entity.
Applying for a commercial property loan is also very simple in Singapore. Getting in touch with your local or preferred bank to discuss your options will help guide you on how best to move forward with purchasing a commercial property. Each bank has its own eligibility requirements, and they will advise you on which documents and paperwork you need for the application process to proceed.
Things to Consider Before Purchasing a Commercial Property
With the process seemingly simpler compared to residential property purchases and loan processes, it is easy to see why people can get excited and dive straight in without thinking about the stages involved in more detail. A few top points to mull over when on the hunt to acquire a commercial listing will make things easier, more efficient, and, if anything else, clearer.
1. Which property type should you purchase – There are many types of properties you can consider, such as retail holdings, B1 industrial business buildings, and restaurants, each with its pros and cons.
2. Changing the intended use – Commercial buildings are zoned according to their uses, and if your intended use is not the same or similar to the previous use, you may need planning permission to change its intentions.
3. Location matters – Be sure to check your surrounding environment: is there a train station or metro where there will be heavy foot traffic, or are you looking at something more secluded that may have a short lease contract span?
4. Paying ABSD (Additional Buyers Stamp Duty) – As what you are purchasing is a commercial property, you won’t have to pay the ABSD, which in the long run means you save on a staggering 12% to 20% on the ABSD which you have avoided.
5. Lease length – If you already own a property, you know that leasing contracts can run up to anything from 90 – 1,000 years or, better yet, is a freehold. Commercial properties, however, have a much shorter shelf life and contracts range up to 60 years if well negotiated.
Note: Freehold commercial properties do exist but are very rare, and because they’re mostly located in prime areas, they can fetch a premium in rent.
Final Thoughts
Purchasing property or any assets is an investment worth looking into, and even more so if you can buy the commercial property you’re after under your corporate entity. Moreover, by doing it this way, your financial and legal liabilities are fewer, you attract a lower tax rate, and you can include as many or as few individuals to co-sign on the paperwork so that all the load is not solely on your shoulders. So now you can have your cake and eat it too, a win-win.
Engage a corporate service consultant today to understand how can you and your business can benefit by purchasing a commercial property in Singapore.
