Nature of Investment Holding Companies

An investment holding company refers to a company that owns investments such as properties and shares for long term investment and derives investment income ("non-trade income") such as dividend, interest or rental income. The company's principal activity is that of investment holding.

An investment holding company is different from an investment dealing company. An investment dealing company refers to a company that owns investments such as properties and shares as a form of trading stock to derive trade income from the purchase and sale of these investments, e.g. gain on sale of real properties and shares. Unlike an investment holding company, the company's principal activity is that of investment dealing.

Basis of Assessment for Investment Holding Companies

Assessment on Financial Year Basis -  All investment income of investment holding companies is assessed on a financial year basis.

For details, please refer to Simplification of Income Tax Rules and Procedures - Assessment of Non-Trade Income and Deduction of Approved Donations on an Accounting Year Basis" (e-Tax Guide, 125KB).

Deductible Expenses for Investment Holding Companies

Deductible expenses are expenses that are attributed to the investment income. These may be incurred directly, indirectly, or in accordance with statutory and regulatory provisions.

Direct Expenses

These are expenses directly incurred to earn investment income and are deductible against the respective source of investment income.

Some examples are:

  • Cost of collecting rent (for rental properties)
  • Interest expenses (on loan taken to acquire investments such as shares and property)
  • Insurance (for rental properties)
  • MCST management fees (for rental properties)
  • Property tax (for rental properties)
  • Repair and maintenance (for rental properties)

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

For details, please refer to Non-Deductible Expenses for Investment Holding Companies (below).

Indirect Expenses

Generally, indirect expenses incurred are not deductible. However, as a concession, indirect expenses not exceeding 5% of the company's gross chargeable investment income is deductible.

Some examples are:

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

Statutory and Regulatory Expenses

These are expenses incurred in accordance with statutory and regulatory provisions, such as the Companies Act. Some examples are:

  • Accounting fees
  • Annual listing fees
  • Audit fees
  • Bank charges
  • Income tax service fees
  • Printing and stationery
  • Secretarial fees

The deduction of statutory and regulatory expenses was previously allowed as an administrative concession. To support efforts to comply with statutory and regulatory requirements and to provide tax certainty on the deductibility of such expenses, a specific deduction under Section 14X of the Income Tax Act was introduced with effect from YA 2014.

For details of qualifying statutory and regulatory expenses that are deductible, please refer to Tax Treatment of Business Expenses and the Deduction for Statutory and Regulatory Expenses (243KB).

Non-Deductible Expenses for Investment Holding Companies

Capital Expenses and Expenses on Non-Income Producing Investments

Expenses that are capital in nature and expenses attributable to investments that do not produce any income are not deductible. Some examples are:

  • Cost of new assets for the investment property such as refrigerator, air-conditioner, washing machine, furniture and fittings.

The cost to acquire the initial new assets is capital in nature and not deductible. The subsequent cost of replacing the assets is deductible for properties already yielding investment income, as the expense is for an income-producing investment.

  • Stamp duty and legal fees incurred for the purchase of investments

Stamp duty and legal fees incurred for the purchase of investments are capital in
nature and therefore not deductible.

  • Interest expense incurred to acquire shares that have not yielded dividends

When shares have not yielded any dividends, they are non-income producing investments. Any expense incurred before the investment produces income is not deductible.

  • Commission, advertising, legal costs incurred to secure the first tenancy

These expenses are incurred to acquire a new source of income. They are not incurred in the production of income.

As a concession, if the investment holding company acquires another property, the commission, advertising and legal costs incurred to secure the first tenant for the additional property can be deducted against the rental income of that property.

Excess Expenses from One Source of Investment

Expenses are deductible against their source of income. For instance, property tax expenses incurred on an investment property is deductible against the rental income generated by the same property.

When the expenses are more than the income the investment produces, the excess expenses from this source of investment should not be used to offset the income from another investment.

Excess expenses from one source of investment are not deductible against another income from another source of investment. For example, any excess of expenses over rental income cannot be deducted against dividend or interest income.

Tax Deductions/Claims and Investment Holding Companies

Capital Allowance Claims

An investment holding company is not entitled to claim capital allowance as it is not carrying on a trade or business. Only fixed assets purchased to replace existing fixed assets can be claimed as deductible expenses.

Unutilised Losses

Investment holding companies cannot carry forward any unutilised losses to offset the income of future years of assessment.

Group Relief Claims

Investment holding companies cannot transfer (to other companies in the same group) current year unutilised losses arising from excess of expenses over investment income under the Group Relief system.

Investment holding companies may transfer current year unutilised Industrial Building Allowance, Land Intensification Allowance and donations to other companies in the same group under Group Relief system.

Tax Exemptions and Investment Holding Companies

Investment holding companies incorporated after 25 Feb 2013 are not eligible to claim Tax Exemption for New Start-up Companies .

Investment holding companies will still be eligible for partial tax exemption. For details, please refer to Corporate Tax Rates, Corporate Income Tax Rebates, Tax Exemption Schemes and SME Cash Grant.

Tax Computation for Investment Holding Companies

For details, please refer to the Basic Format of Tax Computation for An Investment Holding Company (61KB).

  • Does an investment holding company need to file Estimated Chargeable income (ECI)?

    With effect from YA 2009, investment holding companies are required to file ECI within three months from their financial year end.

    However, investment holding company can qualify for the Waiver of Requirement to File ECI and will not need to file their ECI for the particular YA if their ECI is nil and if they meet the following annual revenue thresholds: 

    • - Annual revenue not exceeding $1 million for companies with financial years ending in or before Jun 2017; or
    • - Annual revenue not exceeding $5 million for companies with financial years ending in or after Jul 2017.

    If the company's ECI is more than zero, it will be required to file its ECI regardless of annual revenue.

    Please refer to Companies That Do Not Need to Submit ECI for more details.

  • Is income distribution from Real Estate Investment Trusts (REITs) taxable?

    The nature, tax treatment and applicable period/ Year of Assessment (YA) of each REIT distribution are reflected in the Annual Distribution Statement issued by the Central Depository Pte Ltd (CDP). 

    A REIT distribution is taxable in the relevant YA as reflected in the CDP statement, unless stated otherwise (e.g. distribution is tax-exempt or distribution is a return of capital). Where the distribution is taxable, the company is required to report the gross income indicated in the CDP statement, as taxable income in the Income Tax Return for the relevant YA.

    For more information on the tax treatment of REIT distributions, please refer to the e-Tax Guide 'Income Tax Treatment of Real Estate Investment Trusts (Third Edition)' (refer to the section on Tax Treatment of the Unit Holder).

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