IRAS has classified redeemable, non-convertible, non-cumulative, participating, non-voting preference shares as equity in Advance Ruling Summary No. 16/2026, adding that dividends paid to the subscribing companies are exempt from Singapore income tax.
The Inland Revenue Authority of Singapore (IRAS) has ruled that redeemable preference shares (RPS) issued by a Singapore-resident investment holding company are equity instruments for income tax purposes. The determination is set out in Advance Ruling Summary No. 16/2026 published on 1 October 2026.
IRAS also ruled that dividends paid on the RPS to the subscribing corporate shareholders will be exempt from Singapore income tax under the Income Tax Act 1947 (ITA). The ruling gives clarity on how shares with debt-like features, such as redemption rights, are treated when their other terms point to equity.
Questions before IRAS
The ruling addressed two questions:
- whether the RPS issued by Company A are equity instruments for Singapore income tax purposes
- whether future dividends on the RPS received by the subscribing corporate shareholders are exempt from Singapore income tax under the ITA
Ruling and statutory basis
IRAS ruled that, under Section 13(1)(za) of the ITA, the RPS issued or to be issued by Company A are equity instruments. Distributions on the shares are treated as dividends. Because Company A is a Singapore tax resident company, dividends paid to the subscribers are exempt from income tax under Section 13(1)(za) of the ITA.
Companies involved
- Issuer (Company A): Incorporated and tax resident in Singapore, with investment holding as its principal activity.
- Subscribers (Company B and Company C): Both are incorporated and tax resident in Singapore, carry on investment holding and are existing shareholders of Company A.
- Governance: Company A entered into a Joint Venture Agreement (JVA) with the subscribers to regulate share subscriptions and govern the company’s affairs and shareholder relations.
Key terms of the RPS
Company A’s capital structure includes both ordinary shares and RPS. The terms governing the RPS are:
- Tandem transfer: The RPS are issued to existing ordinary shareholders. Company A’s Constitution and the JVA both require that ordinary shares and RPS be transferred together in tandem.
- Liquidation ranking: The RPS rank pari passu with ordinary shares on liquidation, giving holders rights to residual profits and assets.
- Redemption and maturity: The RPS have no maturity date and can be redeemed solely at Company A’s discretion.
- Dividend rights: Distributions are discretionary, non-cumulative and payable strictly out of Company A’s distributable profits.
- Voting rights: Holders have no voting rights, except in limited circumstances expressly provided in the Constitution.
- Register: Holders are registered in Company A’s Electronic Register of Members.
Reasoning behind the decision
IRAS said the overall terms collectively support equity characterisation. These include discretionary, non-cumulative dividends, the absence of a fixed maturity date, redemption at the issuer’s sole discretion, the tandem transfer requirement and pari passu ranking on liquidation. As the dividends are paid by a Singapore resident company, they automatically qualify for the statutory tax exemption.
Scope and limits of the ruling
IRAS said the summary is published for general reference only and is strictly binding only in respect of the specific applicant and transaction. The Comptroller of Income Tax is not bound to apply the same tax treatment to similar transactions. IRAS also does not update published advance rulings to reflect later statutory amendments or interpretations.
The ruling shows that IRAS looks at the combined terms of a preference share, rather than any single feature, when deciding whether it is equity. Companies planning similar arrangements in Singapore should note that the ruling binds only the applicant and the transaction concerned, and should check the current provisions of the ITA before relying on it.
