The ABSD only applies to Singaporean local residential properties; ownership of houses elsewhere is not included in these computations. That is to say, when purchasing residential properties in Singapore, ownership of property outside of the country does not affect ABSD duties.
Read More: How to avoid ABSD
Nevertheless, ownership of HDB apartments and foreign residential properties is subject to certain limitations. If you own residential real estate abroad and want to acquire a HDB apartment, you have to sell your overseas property within six months of your HDB purchase. If you own a HDB flat in Singapore, you are not allowed to buy residential real estate abroad until you have fulfilled the MOP requirements of the HDB (usually five years).
You are not eligible to purchase a HDB flat in Singapore if you currently own real estate, including other HDB flats and private properties in Singapore or abroad.
DOES PAYING ABSD IN SINGAPORE MAKE SENSE?
The property market in Singapore is complex in 2023, raising doubts about whether paying the Additional Buyer’s Stamp Duty (ABSD) is a prudent move. It necessitates a thoughtful approach to property ownership as well as a thorough comprehension of the updated ABSD rates.
Property experts point out that paying ABSD might occasionally be a wise decision. This is especially true if the property has a high potential for appreciation or a high rental return. In these kinds of situations, the advantages might offset the disadvantages of ABSD.
The most important lesson is that prospective real estate investors shouldn’t pass up possibly profitable chances just to avoid having to pay ABSD. Rather, compare the upfront ABSD expenditure against the long-term benefits of rental revenue and property appreciation.
Essentially, although though ABSD might appear like an extra expense, its cost might be justified when considered in light of the property’s total investment potential.
IN SINGAPORE, IS DECOUPLING ILLEGAL?
While decoupling per se is lawful, employing it as a means of avoiding paying ABSD tax is not. We must distinguish between tax evasion and avoidance in order to comprehend this.
Tax avoidance is the practice of lowering tax obligations using legal means and tactics. While tax avoidance is legal, there are situations in which it involves agreements that don’t seem legitimately commercially driven and instead look artificial or manufactured.
Conversely, tax evasion refers to the unlawful practice of purposefully avoiding taxes by using deceptive methods. Evading taxes is prohibited and carries severe consequences, such as fines and jail time. It is absolutely forbidden by tax authorities and usually entails dishonesty or unlawful activities to lower tax burden.
Therefore, we might conclude that decoupling may be a means of avoiding taxes. It will be deemed tax evasion, nonetheless, if someone knowingly gives false or partial information about their operations in order to lower their ABSD tax obligation.
The acquisition of real estate in which homeownership is divided 99 to 1 is now under investigation by the Inland Revenue Authority of Singapore (IRAS).
IRAS looks for “contrived or artificial” arrangements that house buyers employ to get out from under the ABSD. The tax authorities in Singapore may keep an eye on buyers who engaged into a 99-to-1 scheme—where the 1% stake is sold after the option to purchase, or OTP—with the potential goal of evading taxes.
In addition to the stamp duty and a 50% surcharge on any excess duty owed, defaulters risk additional penalties for failing to pay by the deadline.
But Does Saving Money on ABSD Always Happen?
Given your newfound knowledge of how to “avoid” ABSD charges, should you always try to avoid paying ABSD wherever possible? Are there any situations where it makes more sense to pay ABSD?
According to Andrew Nair, Associate Division Director of ERA Realty Network, there are situations in Singapore when paying ABSD is justified, especially if the property has significant potential for appreciation.
It all comes down to opportunity. You risk missing out on a fantastic offer if you wait for an opportunity to save ABSD instead of making a smart purchase. You do not necessarily make more money over time when you save money. Certain properties have both a strong rental income and a decent rate of appreciation. Hence, ABSD may be viewed as one of the “costs” of doing business, the speaker adds.
To avoid paying ABSD, he continues, “for instance, most will sell their HDB apartment and purchase a condo. However, what if they had paid the ABSD and retained the HDB? They could lease the HDB out and earn healthy rental yields—in certain situations, more than 10% annually.”
CONCLUSIONS
Property purchasers in Singapore are now required to look into legal means of minimizing or avoiding ABSD payments due to recent adjustments in ABSD rates. Upgraders in Singapore should think about selling their current homes before buying new ones in order to avoid the pressure to sell quickly and the resulting ABSD expenses.
If it isn’t possible, you can lawfully minimize your ABSD duties by using the solutions that have been presented.
Even if these plans give you alternatives, consider your circumstances, your capacity to pay, and your investing objectives. To successfully negotiate Singapore’s complex property ownership structure and make intelligent investment decisions, it is advisable to consult a specialist.
It’s critical to consider your options carefully and comprehend how the recent increase in ABSD rates may effect you if you want to make real estate investments.