Tax risks loom as preference shares may be classified as debt: report
Companies are urged to conduct thorough reviews to ensure their accounting treatment is aligned with intended tax outcomes.
Preference shares may still be considered debt for accounting purposes, meaning profits from their sale could be taxable, according to GrantThorton.
Although the scope of Section 13W has been expanded to include the disposal of preference shares, the extension is intended to apply only to equity instruments, the firm said.
Therefore, companies are urged to conduct thorough reviews to ensure that the accounting treatment aligns with the intended tax outcomes.
In addition, GrantThorton said businesses must remain vigilant about the application of Section 10L, which could still subject disposal gains to tax. This applies particularly when the vendor is a Singapore company that does not meet certain economic substance conditions.
On the other hand, from YA 2026, companies can claim tax deductions for payments related to newly issued shares of holding companies or Special Purpose Vehicles (SPVs).
However, businesses must ensure that a holding company or SPV is established beforehand, as payments to these entities are a prerequisite for admissible deductions.
Companies should also distinguish between the tax treatment of treasury shares and newly issued shares granted to employees, as the deduction rules differ.
The Equities Market Review Group has also proposed new tax incentives to stimulate corporate listings and fund management activities in Singapore.
Nomura points out that the effectiveness of these incentives will depend on whether rebates can be transferred to operating subsidiaries and on the stringency of qualifying conditions.
Although these measures are expected to enhance Singapore’s attractiveness as a financial hub, Nomura warns that investment conditions might discourage smaller fund managers from pursuing these incentives.