Upfront certainty of exemption of companies’ disposal gains

Enhancement to section 13W

The section 13W tax exemption scheme was first introduced in Budget 2012 to provide certainty of non-taxation of gains on the disposal of ordinary shares by companies. Under the scheme, gains are not taxed if the divesting company holds a minimum shareholding of 20% in the investee company for at least 24 months prior to the disposal, among other requirements.

Notably, the scheme only applies to disposals of ordinary shares and generally does not apply to disposals of unlisted shares in an investee company that is in the business of trading, holding or developing immovable properties (whether situated in Singapore or abroad) or to a divesting company that is an insurance company. The scheme is due to expire on 31 December 2027.

Budget 2025 introduces several important enhancements to the scheme:

• The scheme’s sunset date will be removed. Since its introduction in 2012, the effective date of the scheme has been extended twice, each time for a period of five years. Investors often face uncertainty when making decisions for investments that are to be held beyond the sunset date. The removal of a sunset provision is a key step to providing certainty and bolstering investors’ confidence.
• The scope of eligible assets is expanded to include preference shares that are accounted for as equity by the investee company under the applicable accounting principles. This should be warmly received by investors who are increasingly using financial instruments other than ordinary shares in their investments to protect and enhance their investment returns in the constantly evolving investment landscape. Given that the test here is placed on accounting classification as equity, it does beg the question of whether a future expansion of the scope could be to cover a debt instrument with sufficient features to be accounted for as equity, given that, in substance, such a debt instrument should be similar to a preference share accounted for as equity and the major difference is likely to be only the legal form.
• The 20% shareholding threshold condition can now be assessed on a group basis in that holdings by other group entities can count. This recognises that for various reasons, a group may choose to hold its entities through any number of holding vehicles. We eagerly await details as to what is the definition of a group and whether group holding through non-corporate vehicles (such as a partnership) can also qualify.

Further details will be released by the Inland Revenue Authority of Singapore by the third quarter of 2025.