The single largest difference between buying a shophouse and buying a condominium is not the stamp duty. It is GST.
IRAS puts the rule plainly: the sale and lease of properties in Singapore are subject to GST except for residential properties. Residential is exempt. Everything else, offices, shops, industrial units, shophouses, warehouses, is a taxable supply.
At the current rate of 9%, that is $180,000 on a $2 million shop unit. Buyers who have only ever bought homes do not expect it, and it is not a cost you can find at completion.
Who charges it, and when
GST is only charged if the seller is GST-registered. Registration is compulsory once taxable turnover passes the statutory threshold, and it is also available voluntarily.
That produces the first question in any commercial purchase: is the seller GST-registered? A private individual selling a single shop unit they have held for twenty years may not be. A company that owns a portfolio almost certainly is. The answer changes the price you need to fund by nine per cent, so it belongs in the due diligence, in writing, before the option is exercised.
The second question follows immediately.
Can you recover it?
If the buyer is GST-registered and will use the property to make taxable supplies, the GST charged on the purchase is input tax, and is generally recoverable. In that case the 9% is a cash flow problem rather than a cost: you fund it at completion and claim it back in a later GST return.
If the buyer is not GST-registered, or is in a business that makes exempt supplies, the GST is a real and permanent cost.
Two practical consequences.
Cash flow still bites even when the tax is recoverable. The money leaves at completion and comes back a quarter or so later. Financing has to account for that gap, and lenders do not always lend against the GST component.
Registration may be worth doing before the purchase rather than after. Timing affects recoverability. This is a question for your tax adviser, and it is worth asking early rather than at signing.
Furniture and fittings
GST is chargeable on the supply of movable furniture and fittings in both residential and non-residential properties. So even in a residential sale, a separately identified sum for furniture can attract GST, and in a commercial sale the apportionment between property and chattels needs care rather than a round figure inserted at the last minute.
Transfer of a going concern
Where a tenanted commercial property is sold along with the letting business rather than as bare real estate, the transfer may qualify as an excluded transaction: the supply is treated as neither goods nor services, and no GST is chargeable.
IRAS requires all of the following:
- The supply of assets is made in connection with the transfer of a business, and has the effect of putting the buyer in possession of a business. A mere transfer of assets does not qualify.
- The assets must be used to carry on the same kind of business as the seller’s.
- If only part of a business is transferred, that part must be able to operate on its own.
- There must be continuity of the business after the transfer, with no immediate termination beyond temporary closure to get operationally ready.
- The buyer must already be a taxable person, or become one immediately as a result of the transfer.
That last condition catches people out. So does the continuity requirement, where a buyer intends to take the property back for its own occupation.
Getting this right is worth a great deal on a large transaction, and getting it wrong is expensive in both directions: an unnecessary 9% charged, or a charge that should have been made and was not. Where the sums justify it, an advance ruling from IRAS is available.
What this means for the contract
The sale agreement should say, in terms:
- whether the price is inclusive or exclusive of GST, and never leave it silent
- whether the seller is GST-registered, as a warranty rather than an assumption
- who bears the tax if the treatment turns out to be different from what the parties assumed
- how the price is apportioned between the property and any chattels
- if the parties intend a going concern transfer, what happens if it does not qualify
“Plus GST if applicable” is not enough on a transaction of this size. It leaves the largest variable in the deal undefined.
What is not in play
ABSD does not apply to non-residential property. That is a real part of why commercial property attracts buyers who already hold homes. Buyer’s Stamp Duty still applies, at non-residential rates topping out at 5%. See stamp duty when buying property.
Seller’s Stamp Duty applies to industrial property on its own schedule, and does not apply to commercial property in the way it does to residential.
Where this sits
Our commercial conveyancing page covers how we run these purchases, and sale and leasing covers the letting side, where the same GST question arises on rent. Where the property is being bought through a company rather than personally, see corporate and commercial.
We are not tax advisers, and on anything close to the line, particularly a going concern transfer, the tax position should be confirmed with an accountant or with IRAS directly. What we do is make sure the agreement reflects that position instead of assuming it.