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.
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.
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:
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.
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:
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.
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.
There are no registration, notarization or reporting requirements in relation to loan agreements.
The following documents (among others) are chargeable with stamp duty under the Singapore Stamp Duties Act:
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:
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.
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  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.
Yes. The order of payment of those claims is set out in the answer to question 1 of the “If things go wrong” section.
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:
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.
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).
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 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:
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.