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Looking to invest in a commercial property? Save more when you buy through your company
In its Resilience1 and Solidarity Budget2 2020, the government has unveiled over S$60 billion in support to help SMEs and workers get through a challenging year. As part of these packages, owners of qualifying commercial properties can receive rebates of 30 to 100 per cent for the year 20203. The type of properties that qualify for the respective rebate amounts are:
- For the 100 per cent rebate: Hotels, serviced apartments, tourist attractions, shops, and restaurants
- For the 60 per cent rebate: All premises in both Marina Bay Sands and Resorts World Sentosa
- For the 30 per cent rebate: Other non-residential properties such as offices and industrial premises
These rebates are, of course, not limited to just the business owners of commercial properties. People who own such properties as individuals are also eligible.
However, does this mean that there is no difference between buying commercial properties through a company or as an individual?
Buying commercial properties through companies vs. as individuals – a comparison
It is only in one specific aspect – the recent commercial property tax rebates – that the benefits of owning commercial properties through a company or as an individual are equal. In most other respects, buying them through a company offers clear advantages.
The table below provides an analysis on the differences between these two buying approaches from a tax and loan quantum perspective.
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The Tax Perspective Most commercial properties generate income for their owners, leading to taxes payable. Further, there are different tax exemptions and rebates applicable to companies and individuals. |
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| Buying Through a Company | Buying Individually |
| Corporate Income Tax Rate Not including exemptions and rebates, corporate income tax is levied at a flat 17 per cent rate4. |
Personal Income Tax Rate Not including exemptions and rebates, personal income tax is levied on a progressive scale, reaching up to 22 per cent5. |
| Tax Emptions Exemptions totalling S$102,500 as long as annual income is at least S$200,000. For newly incorporated companies, total exemptions increase to S$125,000, again assuming the same minimum annual chargeable income. |
Tax Exemptions The tax exemptions are already factored into the progressive taxation structure. However, additional reliefs may effectively raise the amount of tax that can be exempted. |
| Corporate Income Tax Rebates 25% corporate income tax rebate capped at S$15,000 for assessment year 2020. |
Personal Income Tax Rebates Personal income tax rebate of up to S$200 per individual for YA 20195. |
| Enhanced Commercial Property Tax Rebates3 Up to 100% in tax rebates for qualifying properties for assessment year 2020. |
Enhanced Commercial Property Tax Rebates3 Up to 100% in tax rebates for qualifying properties for assessment year 2020. |
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Implication While the wide variety of personal tax reliefs - such as the Working Mother's Child Relief - can change the balance somewhat, in general, it is more advantageous from a tax perspective to purchase a commercial property through a company. This is especially true if you are an SME with a turnover of more than S$1 million annually. |
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The Loan Quantum Perspective The loan quantum you would be able to get to purchase a commercial property differs between companies and individuals because of the Total Debt Service Ratio (TDSR) requirements6 by the Monetary Authority of Singapore (MAS). |
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The conclusion is clear. Barring exceptional circumstances, it makes more sense for SME owners to purchase commercial properties through their companies than as individuals. Not only is it more tax-friendly, doing so also allows them to potentially buy higher-value properties.
If you are a business looking to purchase commercial property, UOB's Business & Commercial Property Loan allows you to own your business property with just 10 per cent down payment, with one business day^ approval turnarounds.
Apply online or get in touch with us today to find out more.
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References:
1https://www.singaporebudget.gov.sg/budget_2020/resilience-budget/supplementary-budget-statement
2https://www.singaporebudget.gov.sg/budget_2020/solidarity-budget/solidarity-budget-statement
4https://www.iras.gov.sg/irashome/Quick-Links/Tax-Rates/Corporate-Tax-Rates/
5https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/
6https://www.mas.gov.sg/regulation/explainers/tdsr-for-property-loans/Who-TDSR-Applies-To
