For investment holding companies

An investment holding company refers to a company whose principal activity is that of investment holding. It owns investments such as properties and shares for long term investment and derives investment income such as dividend, interest or rental.

What is the basis of assessment?

From Year of Assessment (YA) 2009 onwards, all investment income of a company is assessed on an accounting year basis. For details, please refer to the Supplementary e-tax guide "Simplification of Income Tax rules and procedures - Assessment of Non-Trade Income and Deduction of Approved Donations on an Accounting Year Basis" (125KB).

Prior to YA 2005, investment income is assessed on a preceding calendar year basis, that is, from 1 Jan to 31 Dec of the year preceding the YA, regardless of the financial year end of the company.

Effective from YA 2005, an administrative concession is granted to all companies with an accounting year that does not end on 31 Dec to have their investment income assessed on a preceding accounting year basis. Under the concession, Singapore franked dividends continue to be assessed on a preceding calendar year basis. For more details, please refer to the e-Tax Guide "Assessment of Non-Trade Income and Deduction of Approved Donations on an Accounting Year Basis" (127KB).

What are the deductible expenses?

Expenses that are attributable to the investment income taxable in Singapore are deductible.

Examples of the deductible expenses are:

• Statutory expenses
  Expenses incurred in accordance with statutory provisions, such as the Companies Act, are deductible:

  Examples of statutory expenses:

  • Audit fee
  • Accounting fee
  • Secretarial fee
  • Income tax service fees
  • Basic printing and stationery
  • Bank charges
  • Annual listing fees
    
• Direct expenses
  Revenue expenses directly incurred to earn investment income are deductible against the respective source of investment income.

  Examples of direct expenses are:

  • Interest expenses (on loan taken to acquire the investment, e.g.shares or properties)
  • Property tax (for rental properties)
  • Insurance (for rental properties)
  • Repair and maintenance (for rental properties)
  • MCST management fees (for rental properties)
  • Cost of collecting rent (for rental properties)

  Expenses incurred before the investment commences to produce income are not deductible expenses. For example, interest incurred on loan taken to acquire shares or properties that have not commence to derive any dividend or rental income is not deductible.

• Indirect expenses

  Indirect expenses incurred are not deductible. However, as a concession, an amount not exceeding 5% of the gross investment income that is chargeable to tax is deductible.

  Examples of such indirect expenses are:
  • Directors' fees
  • Office rental
  • Office telephone charges
  • Office water and light
  • Staff salaries, allowances, bonus and approved provident fund contributions
  • Transport expenses (exclude motor vehicle expenses on "S"-plate cars which are not deductible)
  • General expenses
  • Administrative and management fees

What are the non-deductible expenses or claims?

• Capital expenses and expenses attributable to non-income producing investments are not deductible.

  Examples are:

  • Stamp duty and legal fees incurred for the purchase of investments
  • Cost of new assets such as refrigerator, air-conditioner, washing machine, furniture and fittings for the investment property. However, replacement cost for fixed assets are deductible expenses.
  • Interest expense incurred to acquire shares that did not yield dividends
  • Commission, advertising, legal costs incurred to secure the first tenancy.  Such expenses are incurred to acquire a new source of income and are not incurred in the production of income.
• Excess of expenses over the income received from one source of investment cannot be claimed against the surplus arising from another source of investment

  Example:
  Any excess of expenses attributable to rental income cannot be deducted against dividend or interest income.

• An investment holding company is not entitled to claim capital allowances as it is not carrying on a trade or business. However, fixed assets purchased can be claimed on a replacement basis as deductible expenses.
• Any unutilised losses cannot be carried forward to be deducted against the income for a subsequent YA
• An investment holding company cannot transfer under the Group Relief  system, its current year unutilised losses arising from excess of expenses over investment income.  However, current year unutilised industrial building allowances / land intensification allowances and donations may be transferred  under the group relief system.
• An investment holding company incorporated after 25 Feb 2013 is not eligible to claim the tax exemption for new start-up companies.  The company will still enjoy the partial tax exemption.  For details on the partial tax exemption, please refer to Tax Rates and Tax Exemption Schemes.

How to prepare tax computation for an investment holding company?

Please refer to the "Basic Format of Tax Computation for An Investment Holding Company" (24KB).