When lending to borrowers
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1. Are there any restrictions in relation to the type of borrower who may borrow foreign currency or in relation to the term of foreign currency and/or the amount of foreign currency borrowed by local entities?

Currently, there are no foreign exchange controls restricting the amount of currency that may be imported or exported in relation to the rights and obligations of parties under a loan agreement.

Further, there are no limitations or consent requirements for a foreign company or bank to provide loans to Singapore persons. However, the making of loans may constitute the carrying on of banking business (as discussed in the answer to question 2 in the “When Considering Whether to Lend” section) and if so, a banking license must be obtained.

2. Are there any restrictions on the rate of interest or default interest that may be charged?

There is no cap on interest rates that may be charged by banks. Default interest may be unenforceable if a Singapore court decides that it constitutes a penalty.

3. Are there any restrictions on particular lenders or classes of lender entering into credit transactions with borrowers?

If a lender is a foreign lender and not regulated (and not required to be regulated) by a regulatory authority in Singapore in relation to its lending activity, there are generally no restrictions under Singapore law on the foreign lender entering into a credit transaction with a borrower in Singapore.

If, however, the lender is based in Singapore and regulated in Singapore in relation to its lending activity, the restrictions that may be imposed on that lender entering into credit transactions depend on the lender’s licensing status and the terms of the applicable license terms. For example, a licensed bank in Singapore is generally not subject to any restriction to enter into credit and financing transactions with any borrower in Singapore. However, the Monetary Authority of Singapore (MAS) may impose restrictions in certain circumstances or in relation to categories of credit transactions such as:

  • Restrictions in relation to the grant of unsecured non-card credit facilities (except for certain excepted loans made for certain specified purposes) to an individual who is a citizen of Singapore or a permanent resident unless he has an annual income of at least SGD 20,000 at the time of the application for the unsecured credit facility.
  • There are set limits in relation to a bank’s permissible exposure to a single counterparty group.
  • Certain restrictions on banks intending to grant credit facilities for the purchase of residential property, or that are secured by residential property. These restrictions include, among others, a limit on the total credit facilities and the tenure of credit facilities that may be granted, prohibitions on interest-only loans and loans involving, or giving effect to, interest absorption schemes, requirements in relation to checks to be conducted with credit bureaus (and the Housing Development Board, if relevant) and a requirement that the borrower also serves as a mortgagor in relation to the residential property used to secure the relevant credit facility.
  • The implementation of the Total Debt Servicing Ratio (TDSR) framework which requires financial institutions to take into consideration any other outstanding debt obligations when granting property loans to a borrower. Under the TDSR framework, credit facilities that may be granted by financial institutions to individuals (including sole proprietorships and vehicles set up by an individual solely to purchase the property) must not exceed a TDSR threshold of 60%.

Ultimately, the restrictions, if any, that may apply to a particular lender or group of lenders entering into credit transactions depend on the particular circumstances of that transaction. As stated above, the licensing status of the lender, the type of transaction being entered into and the type of borrower involved are some of the considerations that may be relevant in determining the restrictions that may apply, but they do not represent an exhaustive list of factors.

4. Are there any exchange controls that will apply to payments to be made in foreign currencies or to foreign lenders?


5. Is there any requirement to deduct or withhold tax from any amounts to be paid or repaid to a lender (whether domestic or foreign)? If so, at what rate must tax be deducted and from what kinds of payment?

Under Section 12(6) read with Sections 45/45A of the Income Tax Act, the following payments are subject to Singapore withholding tax if they are made to a non-Singapore resident unless any specific exemptions apply:

  • interest, commission, fees or any other payment in connection with any loan or indebtedness that is:
    • borne, directly or indirectly, by a person resident in Singapore or a permanent establishment in Singapore except in respect of any business carried on outside Singapore through a permanent establishment outside Singapore or any immovable property situated outside Singapore
    • deductible against any income accruing in or derived from Singapore
  • any income derived from loans if the funds provided by those loans are brought into, or used, in Singapore

Notwithstanding the above, payments liable to be made to a branch in Singapore of a nonresident company are exempt from withholding tax.

Under the Income Tax Act, a "resident of Singapore," in relation to a company or body of persons, is defined as a company or body of persons where the control and management of said company or body of persons' business is exercised in Singapore.

The domestic withholding tax rate for interest payments that are neither derived from any trade or business carried on in Singapore nor effectively connected with any permanent establishment in Singapore is 15%. This may be reduced under the applicable tax treaties, subject to the requisite conditions for treaty benefits being met.

6. Are there any “thin capitalization” or other rules that may limit the extent to which interest payments may be deducted for tax purposes?

There are no thin capitalization rules in Singapore. The deductibility of interest expenses incurred in relation to a loan generally depends on the purpose of the loan. Further, transactions between related parties should be on an arm’s length basis.

7. Are there any registration, notarization or reporting requirements in relation to the loan documents?

There are no registration, notarization or reporting requirements in relation to loan agreements.

8. Are there any stamp, documentary, registration, notarization or other taxes, duties or fees chargeable in relation to the loan documents? If yes, what are the amounts and when are they payable?

The following documents (among others) are chargeable with stamp duty under the Singapore Stamp Duties Act:

  • loan agreements that contain security trust provisions in respect of trust property that includes immovable property situated in Singapore and/or shares
  • security documents that create security over immovable property situated in Singapore and/or shares and are not signed under hand only

This is subject to the general rule that instruments relating exclusively to things to be done outside Singapore are exempt from stamp duty.

A nominal stamp duty of SGD 10 would apply to a loan agreement containing a security trust provision that is chargeable with stamp duty.

Ad valorem duty subject to a maximum of SGD 500 would apply to a security document chargeable with stamp duty, at the following rates:

  • for a security (other than an equitable mortgage) for the payment or repayment of money, 0.4% of the amount of the said money
  • for an equitable mortgage for the payment or repayment of money, 0.2% of the amount of said money

Stamp duty has to be paid within 14 days of execution if it is executed in Singapore, or within 30 days after it is received in Singapore, if it is executed only outside Singapore. Please note that specific rules as to when an instrument is executed or received may apply if the instrument is an electronic instrument for stamp duty purposes, and this will depend on the relevant facts and circumstances.

9. Does the law recognize the subordination of the debt that a debtor owes to one creditor to that which the debtor owes to another creditor? If yes, how is this usually effected?

Generally, subordination of debts is effected by way of contract.

There is no legislation in Singapore in relation to the validity of contractual subordination in the event of the insolvency of the debtor company. Therefore, case law will determine the position in Singapore in relation to this question.

In the 2006 English case of Re SSSL Realisations (2002) Ltd (in liquidation) and another company [2006] EWCA Civ 7, the English Court of Appeal gave weight to the commercial expectation of the parties and held that “if group companies enter into subordination agreements of this nature with their creditors while solvent, they and their creditors should be held to the bargain when the event for which the agreement was intended to provide (insolvency) occurs.”

The court held that a subordination agreement is valid and binding. It is likely that the Singapore courts would adopt the same position.

10. Are there any classes of unsecured and unsubordinated creditor whose claims against a debtor would rank equally with or above those of the debtor’s other unsecured and unsubordinated creditors (e.g., the claims of employees and tax authorities or the claims of creditors under particular kinds of instrument)? If yes, what classes of creditors are preferred?

Yes. The order of payment of those claims is set out in the answer to question 1 of the “If things go wrong” section. 

11. Are there any consumer protection or similar laws that apply if credit is made available to individuals or other classes of debtor? If yes, what laws are applicable?

Singapore’s consumer protection regime is made up of generic consumer laws supplemented by industry specific requirements. The relevant governing legislation for consumer protection is set out in the Sale of Goods Act (Cap. 393), the Unfair Contract Terms Act (Cap. 396) and the Consumer Protection (Fair Trading) Act (Cap. 52A).

The Consumer Protection (Fair Trading) Act was amended in 2009 to govern unfair practices in relation to all financial products and financial services regulated by the MAS and also all commodity trading under the Commodity Trading Act (Cap. 48A). The ambit of the Consumer Protection (Fair Trading) Act covers:

  • all banking activities under the Banking Act
  • financial products provided by a financial adviser under the Financial Advisers Act
  • activities relating to dealing in securities, fund management, marketing collective investment schemes and trading in futures and leveraged foreign exchange under the Securities and Futures Act

The MAS, as the central bank, also maintains tight supervision on consumer products offered in the financial market. Certain more complex products such as structured deposits, structured notes and unit trusts are categorized as Specified Investment Products (SIPs). Customers will have to pass certain knowledge assessments before they are allowed to trade in SIPs.

12. Are there any prohibitions or limitations on the extent to which a company can give financial assistance for the purchase of: (a) its own shares or those of any affiliated company; or (b) assets owned by it or any affiliated company?

Private companies
As of 1 July 2015, there is no prohibition in relation to financial assistance being given by private companies (other than private companies which are subsidiaries of public companies).

Public companies
The Companies Act (Cap. 50) prohibits a public company (or its subsidiary) from providing financial assistance for the acquisition of its own shares, and the shares of its holding company.

There is, however, an exception in the Companies Act and the giving of financial assistance is not prohibited if:

  • the giving of the financial assistance does not materially prejudice:
    • the interests of the company or its shareholders
    • the company’s ability to pay its creditors
  •  the board of directors of the company passes a resolution that:
    • the company should give the financial assistance
    • the terms and conditions under which the financial assistance is proposed to be given are fair and reasonable to the company
  • the directors’ resolution sets out, in full, the grounds for the directors’ conclusions and those resolutions are lodged by the company with the Accounting and Corporate Regulatory Authority known as ACRA.

The Companies Act also contains a further list of transactions that are expressly carved out from the financial assistance prohibition.

If the above exception and carve outs do not apply, prohibited financial assistance may still be allowed if it is “whitewashed” under the prescribed “whitewash” procedures. There are generally three “whitewash” methods as follows:

  • director-approved financial assistance
  • shareholder-approved financial assistance
  • a court-sanctioned whitewash procedure

If there is a breach of the prohibition in relation to financial assistance in the Companies Act, each officer of the company in default is guilty of an offense and liable on conviction to a fine not exceeding SGD 20,000 and/or to imprisonment for a term not exceeding three years.