For various reasons, shareholders in a private company incorporated in Singapore may want to sell their shares. They may be looking to fundraise, to transfer ownership to a holding company, bring on new owners, or incentivise employees.
It is important to ensure that the shareholders follow the correct procedures, particularly understanding the obligations to pay the appropriate stamp duty when selling their shares.
What is Stamp Duty?
Stamp duty is a tax imposed on certain legal documents and it applies to share transfers in Singapore. For private Singapore companies, it is calculated based on the higher of the actual price paid for the shares or the value of the shares at the time of transfer.
When is Stamp Duty Payable?
Stamp duty must be paid within 14 days after the execution of the Instrument of Transfer if the transaction is completed in Singapore. If the transaction is completed outside Singapore, the timeframe extends to 30 days from the date of receipt of the document in Singapore.
How is Stamp Duty Calculated?
The stamp duty rate for share transfers is 0.2% of the value of the shares transferred. For private companies, the value of the shares transferred is taken to be the net asset value (NAV) or the allotment price of the shares in the target company.
Where the company has been incorporated for more than 18 months
For Stamp Duty purposes, the value of the shares transferred is the NAV of the target company. The NAV is computed based on the latest statement of accounts of the target company which should be dated within 24 months before the date of transfer.
Where the target company owns any property, the market value of the property as at the date of document should be used in place of the book value if the book value is not reflective of the market value.
Where the company has been incorporated for 18 months or less
For Stamp Duty purposes, the value of the shares transferred is the allotment price if the target company does not own any property.
Where the target company owns any property, the management accounts have to be prepared to determine the NAV of the shares.
The statement of accounts or management accounts should:
- Reflect the market value of the property as at the date of document for the share transfer
- Be certified by the director or secretary of the company
Example: Transfer of shares in target company that owns only ordinary shares
Total assets : $750,000
Total liabilities: $250,000
Share capital : 100,000 ordinary shares of $1 each fully paid
Number of shares transferred : 5,000 ordinary shares
Total Net Asset Value (NAV)
Total assets - Total liabilities
= $750,000 - $250,000
= $500,000
NAV per share
$500,000 / 100,000
= $5.00
Stamp Duty
0.2% x NAV for the total share transferred
= 0.2% x ($5.00 x 5,000)
= 0.2% x $25,000
= $50
To test different scenarios, you may refer to IRAS' Stamp Duty Calculator.
Documents Required for Share Transfer:
To ensure a smooth transfer process, you will need the following documents:
- Instrument of Transfer
- Notice of Transfer
- Board Resolution
- Share Certificate
- Share Transfer Form
- IRAS stamp duty acknowledgement
Procedure for Share Transfer:
- Execution of Instrument of Transfer: This document formalizes the agreement between the transferor (seller) and the transferee (buyer).
- Board Approval: Most companies require board approval for share transfers, which should be obtained by submitting a Share Transfer Form to the board.
- Payment of Stamp Duty: The party responsible for paying stamp duty (usually stipulated in the Instrument of Transfer) must submit the Share Transfer Form to IRAS for stamping.
- Updating Company Records: Once the board approves the transfer and stamp duty is paid, the original Share Certificate must be surrendered to the company for cancellation or rectification.
- Issuing a New Share Certificate: A new Share Certificate is issued to the transferee within 30 days of registering the transfer with ACRA.
Conclusion:
Understanding and managing stamp duty on share transfers is essential for maintaining compliance and avoiding potential penalties. As a small business owner, it is good to understand the obligations around stamp duty. At Harvest Accounting, we help many small businesses and start ups navigate this area to ensure the correct stamp duty is paid, and the necessary corporate secretarial documents and actions are followed. However, we'd also recommend consulting with a corporate lawyer to navigate the legal intricacies surrounding share transfers effectively.
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