Recently, the Singapore government has begun cracking down on tax evasion in the real estate sector, particularly a loophole known as the “100-1 scheme.”
This scheme allows Buyer A to purchase a property first, and after fulfilling the sales agreement, sell 1% of the property ownership to Buyer B (who may have to pay additional stamp duty and have a higher loan limit). This method achieves the goal of tax savings and higher loan amounts but is highly unethical and even illegal.
The Inland Revenue Authority of Singapore (IRAS) has launched a rigorous investigation into this issue. In this scheme, Buyer A is typically a child with no property ownership, exempt from paying the Additional Buyer’s Stamp Duty (ABSD). Before the transaction is completed, the child sells 1% of the property to their parents, who may already own properties, enabling the parents to pay only 1% of the property price as ABSD, achieving tax savings and higher loan limits. However, this scheme is illegal, and the IRAS may scrutinize all similar transactions since the implementation of the ABSD policy in 2011. Violators will face tax evasion fines ranging from 50% to 400%.
It is worth noting that the 100-1 scheme is different from the 99-1 scheme. In the 99-1 scheme, a married couple pays the ABSD according to their respective statuses and, through a law firm, each holds a 99-1 property ownership share. This arrangement facilitates future decoupling of the ownership: one party sells 1% of the ownership to the other, allowing one of them to purchase another property. This scheme does not involve tax evasion since both parties have already paid the ABSD at the outset.
The Singapore government’s crackdown on tax evasion in the real estate sector aims to maintain a fair and just tax environment. For those looking to purchase property, it may be wise to buy sooner rather than later.