Saturday, 10 December 2011

Singapore Property Market & Free Trade Agreements (FTA)

In the Singapore Property Market, Not All FTAs Are Equal
by Edmund Sim

This week the Singapore government implemented immediate measures affecting its property market. In an effort to prevent further appreciation in property (and thereby avoid a “bubble” and its consequent “bursting”), Singapore announced that it would increase the 3% stamp duty (tax) charged on purchases of real property, but only for purchases by foreigners (now subject to 10%) and permanent residents (now subject to 6%). The 3% rate would continue to apply to Singaporeans.

All foreigners are subjected to the 10% stamp duty except for nationals of the United States, Switzerland, Lichtenstein, Norway and Iceland. These nationals continue to be subject to the 3% rate imposed on Singaporeans. The special treatment accorded these countries, and not others, is a direct result of the interaction of the various free trade agreements (FTAs) signed by Singapore.

First, Switzerland, Lichtenstein, Norway and Iceland are members of the European Free Trade Association (EFTA). Under Article 40.1 of the EFTA-Singapore FTA (ESFTA), Singapore must treat EFTA nationals as if they were Singaporeans for purposes of investment, including investments in property. This obligation is known as “national treatment.” Article 41.2 explicitly applies this obligation to taxation. Hence the ESFTA mandates that EFTA nationals be subject to the 3% rate for Singaporeans.

Second, Article 15.1 of the U.S.-Singapore FTA (USSFTA) provides that Singapore must treat Americans as if they were Singaporeans for investment purposes through the national treatment obligation. Furthermore, Article 15.3 provides that any privileges provided to other countries must be extended to Americans. This obligation is known as “most-favored nation” treatment, and it allows Americans to claim the benefits accorded EFTA nationals under the EFTA-Singapore FTA. Finally, Article 15.4 provides that Americans must be accorded the better of national treatment or most favored nation treatment. Thus, through both the USSFTA itself and through the interaction with the ESFTA, Americans are subject to the 3% rate for Singaporeans.

Third, although Singapore has signed many FTAs with other countries, these FTAs do not provide for the same investor treatment that the USSFTA and ESFTA provide. Most FTAs do not have the most-favored nation clause that would allow the trading partners access to the ESFTA (see the Korea-Singapore FTA). Furthermore, under most FTAs, Singapore expressly reserved the right to deviate from national treatment for purposes of administering its real property laws (see Annex 3.2 of the New Zealand-Singapore CEPA). Other FTAs, such as the Peru-Singapore FTA, expressly exclude taxation from their coverage. Finally, some FTAs do not even cover investment at all.

The new property stamp duties thus demonstrate that FTAs have a far reaching effect beyond trade in goods and services. They have direct and continuing effects on the application of domestic law.

This particular episode also illustrates why countries would want to negotiate an FTA with a country which has 0% import duties and is quite open to foreign investment. The EU, which has seen its FTA talks with Singapore continue on from an expected October 2011 completion to a first-half 2012 completion, now has another negotiation goal. Other FTA partners of Singapore must wish that they could revisit the exclusions.

In any event, if you’re in the property market, it’s good to be an American, Swiss, Lichtensteiner, Norwegian or Icelander in Singapore now.

Edmund Sim is a U.S. international trade lawyer at the Singapore office of Appleton Luff and adjunct associate professor of law at National University of Singapore. This article was published on 9 Dec 2011 at his blog, ASEAN Economic Community Blog.

Citizens of 5 countries to pay same stamp duty as S'poreans
By Jonathan Kwok, The Straits Times, 9 Dec 2011

CITIZENS of five countries that have free trade deals with Singapore, including the United States and Switzerland, will be treated as Singaporeans for the purposes of the new stamp duty measures.

When they buy a private home, Americans, Swiss and nationals from Liechtenstein, Norway and Iceland will be treated the same as Singapore citizens, the taxman said in a guide on Wednesday.

This will enable them to avoid the new 10 per cent additional buyer's stamp duty that foreigners now have to pay when they buy a private home.

Free trade agreements usually ensure that a country's citizens are accorded certain trade protections when they are in the partner nation.

The Additional Buyer's Stamp Duty (ABSD), as the new levy is called, was announced by the Government on Wednesday and hits foreigners hardest. They have to pay an additional stamp duty of 10 per cent when buying a home.

But the foreigners from these five countries can apply for remission or relief.

The Inland Revenue Authority of Singapore (Iras) website says they must provide identification, acceptance to option to purchase/sale, the purchase agreement and the ABSD declaration form.

Under the new rules, permanent residents (PRs) buying a second and subsequent property will pay an additional 3per cent stamp duty, while Singaporeans buying their third or subsequent homes must pay an extra 3per cent.

The rule is also that for purchases made by two or more parties with mixed residency status, such as a Singaporean with PR, the higher rate will be imposed.

But Iras also gave examples of situations where remissions can apply. These are in cases where married couples have mixed residency status.

For example, a PR who currently owns a property while his Singaporean spouse owns none can apply for relief from the additional stamp duty when they co-purchase a home.

In another scenario, a PR and a Singaporean spouse co-own a property. When they next jointly buy a property, they can apply to be exempt from the 3 per cent levy.

The relevant documents have to be submitted to Iras.

Relief will also be provided for qualifying developers.

Iras also said that people who want to downgrade from private housing to an HDB flat will be allowed a concessionary period to sell their private residential properties. The application for relief in such cases can be made through the HDB.

More details about the relief schemes can be found in the ABSD e-Tax guide, which can be downloaded from the IRAS website.

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