When a Singapore company sells shares in another company, one of the first questions directors ask is: “Will IRAS tax this gain?” Singapore does not have a general capital gains tax, but the line between a tax-free capital gain and a taxable trading gain has historically been a judgement call — and judgement calls create uncertainty. Section 13Z of the Income Tax Act 1947 was introduced to remove that uncertainty for many ordinary share disposals.
This guide explains how Section 13Z works, who qualifies, what gains are excluded, and how directors should document a disposal so the relief is not lost. It is written for business owners, founders, and finance teams — not specialists — but cites the actual statutory provisions and IRAS guidance.
What Section 13Z Does
Section 13Z provides that gains derived by a divesting company from the disposal of ordinary shares in an investee company are not taxable, provided the divesting company:
- Has legally and beneficially held at least 20% of the ordinary shares in the investee company; and
- Has held that 20% (or more) shareholding for a continuous period of at least 24 months immediately before the disposal.
If both conditions are met, the gain is treated as a capital gain and falls outside Singapore’s income tax net. No IRAS ruling is required, and the divesting company is not required to prove that the gain was capital in nature — Section 13Z deems it to be so.
The relief was originally introduced in 2012 and has been progressively extended. Following the 2024 Budget, Section 13Z applies to qualifying disposals made up to 31 December 2027. Companies disposing of shares should always check IRAS’s current e-Tax Guide on Section 13Z for the latest sunset date.
Why Section 13Z Matters
Before Section 13Z, IRAS assessed the taxability of share gains using the long-standing “badges of trade” framework — frequency of transactions, motive at acquisition, holding period, source of finance, supplementary work performed on the asset, and so on. A company that sold shares in a related entity could find IRAS arguing the gain was a trading profit, taxable at 17% corporate tax.
Section 13Z gives Singapore holding companies, family offices, and corporate venture arms a clean, statute-based answer: hold 20% of ordinary shares for 24 months, and the divestment is tax-free. This certainty is one reason Singapore is consistently chosen as a holding company jurisdiction for Asia-Pacific groups — and why structuring decisions like setting up a Singapore holding company often hinge on whether future divestments will qualify.
Who Qualifies?
1. The Divesting Company
The divesting company must be a company (not an individual, partnership, or trust) — typically a Singapore tax-resident company holding shares as an investment. The relief is automatic if the conditions are met; no application or election is required.
2. The Shareholding Threshold
The divesting company must hold at least 20% of the ordinary shares in the investee company. Preference shares, redeemable preference shares, and other non-ordinary classes are not counted toward the 20%. If the divesting company’s ordinary shareholding falls below 20% at any point during the 24-month look-back period, Section 13Z does not apply to the disposal.
3. The Holding Period
The 20%+ ordinary shareholding must have been held for a continuous period of 24 months immediately before the disposal. A common trap is restructuring within a group during the 24-month period — for example, transferring the shares from one Singapore subsidiary to another — which can reset the holding period.
What Section 13Z Does Not Cover
Section 13Z explicitly excludes several categories of disposals. These remain taxable on ordinary “badges of trade” principles:
| Excluded Disposal | Why |
|---|---|
| Shares in an investee company in the business of trading or holding Singapore immovable property (other than property development) | Anti-avoidance — prevents converting property gains into tax-free share gains |
| Shares in an unlisted investee company in the business of trading or holding immovable property situated anywhere | Same anti-avoidance rationale, extended in 2022 |
| Disposals by insurance companies of shares held as part of their insurance funds | These gains are already brought to tax under separate insurance provisions |
| Disposals of preference shares, convertible loan notes, options, warrants | Not “ordinary shares” |
Note especially the property exclusion. If your investee company’s principal business is holding investment property, the gain from disposing of its shares is not covered by Section 13Z — IRAS will look through the share sale to the underlying property and assess accordingly. This is a key consideration in structuring an asset deal versus a share deal.
Worked Example
Facts: Singapore Holdco Pte Ltd owns 40% of the ordinary shares in Operating Co Pte Ltd. It acquired the shares in March 2023. In April 2026, Singapore Holdco sells its entire 40% stake to a third party for S$8 million, realising a gain of S$5 million over its original cost.
Analysis: Singapore Holdco has held 40% (≥20%) of the ordinary shares for over 36 months (≥24 months) immediately before the disposal. Operating Co is a software business, not an immovable-property holding company. Section 13Z applies. The S$5 million gain is not taxable.
Singapore Holdco does not need to apply to IRAS for confirmation, but it should retain the share register, board resolutions, and sale agreement to evidence both conditions if queried during an audit.
Documentation IRAS Expects
Although Section 13Z is automatic, IRAS may review whether the conditions were met — particularly for material disposals. Maintain at minimum:
- The investee company’s register of members showing the divesting company’s ordinary shareholding throughout the 24-month period.
- Board resolutions and share transfer forms evidencing acquisition and disposal dates.
- The sale and purchase agreement for the disposal.
- Confirmation that the investee company’s business is not trading or holding immovable property (a copy of the latest financial statements showing principal activities is helpful).
- Stamp duty documents for the original acquisition and the disposal (where applicable) — see our guide on stamp duty on share transfers.
Section 13Z gains are still reported in the company’s tax computation as exempt income with a note citing the section. They are not simply omitted.
Interaction with Other Tax Provisions
Section 13Z sits alongside several other regimes:
- Section 13(8) foreign-sourced income exemption — applies to foreign-sourced dividends, branch profits, and service income, not share gains. The two provisions do not overlap.
- Family office tax incentives (Sections 13O and 13U) — single family offices structured under these schemes also enjoy concessionary tax treatment on a wider range of investments. See Section 13O vs 13U for family offices.
- Group relief (Section 37C) — applies to transfers of current-year unutilised tax losses, not capital gains.
- Stamp duty — remains payable on share transfers regardless of Section 13Z. Income tax exemption does not equal stamp duty exemption.
Planning Considerations for Directors
If your company is contemplating a divestment, three points are worth raising at the board level:
- Mind the 24-month clock. If a sale is being contemplated and the holding period is approaching but not yet at 24 months, consider whether the buyer can accommodate a short delay to crystallise the relief.
- Avoid resetting the clock. Internal restructurings — moving the shares from Holdco A to Holdco B before sale — can reset the period unless they qualify under tax-neutral merger or amalgamation provisions. Take advice before restructuring.
- Watch the property exclusion. If the investee company holds even substantial passive property assets, IRAS may treat the disposal as falling outside Section 13Z. Get a written tax position from a Singapore tax adviser before completion.
For complex divestments or multi-jurisdictional groups, also consider whether a transfer pricing position is needed if the buyer is a related party.
Frequently Asked Questions
Does Section 13Z apply to disposals to a related party?
Yes — Section 13Z does not distinguish between related-party and arm’s-length sales. However, related-party disposals at non-arm’s-length prices may attract IRAS scrutiny on transfer pricing grounds, and a non-commercial sale price may be re-characterised.
What if I hold the 20% across multiple tranches?
The 20% threshold must have been continuously held — that is, your aggregate ordinary shareholding never fell below 20% in the 24 months before disposal. Topping up from 15% to 22% nine months before sale will not satisfy the condition.
Does Section 13Z apply to disposals of foreign company shares?
Yes — Section 13Z applies regardless of whether the investee company is incorporated in Singapore or overseas, subject to the immovable property exclusion which catches both Singapore and (for unlisted companies) foreign property-holding investees.
What happens after 31 December 2027?
Unless the scheme is extended again, qualifying disposals must occur on or before 31 December 2027 to benefit from Section 13Z. Disposals after that date will fall back to the badges-of-trade analysis. Watch the annual Budget announcements for any extension.
Final Word
Section 13Z is one of Singapore’s most useful tax certainty provisions — but only for those who know the rules. The 20% ordinary shares, 24 months continuous holding, and the property exclusion are non-negotiable. Get those right and you can structure divestments with confidence. Get one wrong, and a S$5 million gain becomes a S$850,000 tax bill.
If your company is planning a divestment in the next 18 months, talk to us early — the documentation we set up now becomes the evidence IRAS asks for later. Email [email protected] or contact us via the form on our website.
— The Editorial Team, Raffles Corporate Services