The Inland Revenue Authority of Singapore (IRAS) has released a detailed e-Tax Guide outlining proposed legislative changes to Section 13W of the Income Tax Act 1947. The amendments, effective for disposals on or after 1 January 2026, are designed to provide companies with greater upfront certainty on the non-taxation of gains from the disposal of equity investments.
From a technical accounting and tax perspective, the key amendments and their practical implications are as follows:
1. Expansion of Eligible Gains to Include Qualifying Preference Shares
- The scope of Section 13W will be expanded to include gains from the disposal of qualifying preference shares, in addition to ordinary shares.
- This is a significant liberalisation that aligns the tax treatment with various corporate financing instruments. Companies utilising preference shares for investments must now review the specific “qualifying” criteria to be issued by IRAS. Due diligence processes for disposals must be updated to assess the eligibility of preference share holdings. This change may influence future decisions on structuring investments through equity versus debt.
2. Group-Based Assessment for the 20% Shareholding Threshold
- The critical 20% minimum shareholding condition can now be assessed on a group basis. This means a holding company can satisfy the threshold by aggregating the holdings of its subsidiaries.
- This simplifies compliance for corporate groups with decentralised investment structures. Groups can now strategically plan disposals at the most tax-efficient level within the group without being constrained by the direct ownership requirement.
- Important Clarification: This group assessment provision will not apply if the divesting entity is a registered business trust or a variable capital company (VCC). These entities must continue to meet the 20% threshold on a standalone basis.
3. Removal of the Sunset Clause
- The previously stipulated expiry date for the Section 13W regime will be removed.
- This provides permanent, long-term certainty for corporate strategic planning and M&A activities. Companies can now rely on this regime for future investments without the risk of its sudden lapse, thereby reducing a key element of tax uncertainty in long-term holding strategies.
Action Points for Professionals:
- Review Investment Portfolios: Identify all holdings in preference shares that may become eligible for Section 13W treatment from 1 January 2026.
- Update Group Charts & Policies: Analyse group ownership structures to identify disposals that may benefit from the new group assessment rule.
- Leverage New Guidance: Utilize the newly provided IRAS flowchart to streamline the internal assessment process for upcoming transactions.
These proposed changes collectively enhance Singapore’s attractiveness as a hub for holding and investment companies by providing more robust and flexible tax certainty.
Source: IRAS e-Tax Guide, 30 September 2025.