This week the Singapore
government implemented immediate measures affecting its property market. In an effort to prevent further appreciation
in property (and thereby avoid a “bubble” and its consequent “bursting”),
Singapore announced that it would increase the 3%
stamp duty (tax) charged on purchases of real property, but only for purchases
by foreigners (now subject to 10%) and permanent residents (now subject to 6%).
The 3% rate would continue to apply
to Singaporeans.
All foreigners are subjected
to the 10% stamp duty except
for nationals of the United States, Switzerland, Lichtenstein, Norway and
Iceland. These nationals continue to
be subject to the 3% rate imposed on Singaporeans. The special treatment accorded these
countries, and not others, is a direct result of the interaction of the various free trade agreements (FTAs) signed by Singapore.
First, Switzerland,
Lichtenstein, Norway and Iceland are members of the European Free Trade
Association (EFTA). Under Article 40.1
of the EFTA-Singapore
FTA (ESFTA), Singapore must treat EFTA
nationals as if they were Singaporeans for purposes of investment, including
investments in property. This obligation
is known as “national treatment.” Article 41.2 explicitly applies this
obligation to taxation. Hence the ESFTA mandates that EFTA
nationals be subject to the 3% rate for
Singaporeans.
Second, Article 15.1 of the U.S.-Singapore FTA (USSFTA)
provides that Singapore must treat Americans as if they were Singaporeans
for investment purposes through the national treatment obligation.
Furthermore, Article 15.3 provides that any privileges provided to other
countries must be extended to Americans.
This obligation is known as “most-favored nation” treatment, and it
allows Americans to claim the benefits accorded EFTA nationals under the EFTA-Singapore
FTA. Finally, Article 15.4 provides that
Americans must be accorded the better of national treatment or most favored
nation treatment. Thus, through both the
USSFTA itself and through the interaction with the ESFTA, Americans are subject to the 3% rate for Singaporeans.
Third, although Singapore has signed many FTAs with other
countries, these FTAs do not provide for the same investor treatment that the USSFTA and
ESFTA provide. Most FTAs do not have the
most-favored nation clause that would allow the trading partners access to the
ESFTA (see the Korea-Singapore
FTA). Furthermore, under most FTAs,
Singapore expressly reserved the right to deviate from national treatment for
purposes of administering its real property laws (see Annex 3.2 of the New Zealand-Singapore
CEPA). Other FTAs, such as the Peru-Singapore FTA,
expressly exclude taxation from their coverage.
Finally, some FTAs do not even cover investment at all.
The new property stamp
duties thus demonstrate that FTAs have a far reaching effect beyond trade in
goods and services. They have direct and
continuing effects on the application of domestic law.
This particular episode also
illustrates why countries would want to negotiate an FTA with a country which
has 0% import duties and is quite open to foreign investment. The EU, which has seen its FTA talks with
Singapore continue on from an expected October 2011 completion to a first-half
2012 completion, now has another negotiation goal. Other FTA partners of Singapore must wish
that they could revisit the exclusions.
In any event, if you’re in the property market, it’s good to be an American, Swiss, Lichtensteiner, Norwegian or Icelander in Singapore now.
