What is an Investment Holding Company
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 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.
All investment income of your investment holding company is assessed on a financial year basis. As a guide to work out the income that is chargeable to tax for your investment holding company, you may refer to the following templates:
Expenses that are attributed to the investment income may be deductible. These may be incurred in the course of your company’s operations or in accordance with statutory and regulatory provisions.
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. For example, interest incurred on a loan taken to acquire shares or properties that have not commenced to produce any dividend or rental income is 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
Learn more about statutory and regulatory expenses that are deductible.
Other Allowable Expenses
Other than statutory and regulatory expenses and direct expenses, in some cases, your investment holding company may incur the following expenses:
- Administrative and management fees
- Directors' fees
- General expenses
- Office rental
- Office telephone charges
- Office utility charges
- Staff salaries, allowances, bonus and approved provident fund contributions
- Transport expenses (excluding motor vehicle expenses on S-plated cars which are not deductible)
As your investment holding company is not carrying on a trade and derives only non-trade income, only a reasonable amount of such other expenses is allowable. As a guide, the total amount of such expenses allowable should not exceed 5% of your company’s gross investment income.
Deductions/ Claims Not Allowed
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.
Excess Expenses from 1 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 exceed the income generated by the investment, the excess expenses from this source of investment are not deductible against income from another source of investment. For example, any excess of expenses over rental income cannot be deducted against dividend or interest income.
As a concession, the deficit arising from a block of shares may be set-off against the net dividend income from other blocks of shares within the same group. Learn more about the concessionary ‘group’ tax treatment for dividend income.
Capital Allowance Claims
Your investment holding company is not entitled to claim capital allowances 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.
Your investment holding company cannot carry forward any unutilised losses to set-off the income of future Years of Assessment (YAs).
Group Relief Claims
Your investment holding company cannot transfer (to other companies in the same group) current year unutilised losses arising from the excess of expenses over investment income under the Group Relief system.
Tax Exemption for New Start-Up Companies
Your investment holding company is not eligible to claim the tax exemption for new start-up companies.
However, your company is still eligible for the partial tax exemption. Learn more about the partial tax exemption scheme.
Does my investment holding company need to file Estimated Chargeable income (ECI)?
Your investment holding company is required to file ECI within 3 months from its financial year end.
However, your company can qualify for the ECI filing waiver if both criteria are met:
- Annual revenue is $5 million or below for the financial year; and
- ECI is nil for the YA.
Learn whether your company needs to file ECI.
Is income distribution from Real Estate Investment Trusts (REITs) taxable for my investment holding company?
The nature, tax treatment and applicable period/ 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, your company is required to report the gross income indicated in the CDP statement, as taxable income in the Corporate Income Tax Return for the relevant YA.
Learn more about the income tax treatment of REITs (PDF, 590KB) (refer to the section on Tax Treatment of the Unit Holder).
Are expenses incurred to secure the first tenant for a new property deductible for my investment holding company?
Expenses incurred in securing leases of immovable properties are capital in nature and hence, not deductible.
Prior to YA 2022
For the first property acquired by your investment holding company, all expenses incurred to secure the first tenant for the property cannot be deducted against the rental income of that property.
As a concession, if your investment holding company acquires another property, the commission, advertising, legal fees and stamp duty incurred to secure the first tenant for the additional property can be deducted against the rental income of that property.
With effect from YA 2022
Section 14ZE of the Income Tax Act 1947 provides that a deduction may be given for certain expenses incurred to grant, renew or extend a lease1 of an immovable property that is deriving rental income taxable under Section 10(1)(f).
Hence, for the first and any additional property acquired by your investment holding company, the commission, advertising, legal fees and stamp duty incurred to secure the first tenant for the property can now be deducted against the rental income of that property, subject to Section 14ZE.
1 Section 14ZE does not apply to the following specified leases:
- Any lease, or any renewal or extension of a lease for a term that (excluding any option for the renewal or extension of the lease) exceeds 3 years;
- Any acquisition, grant, novation, transfer or assignment of a lease because of any acquisition, sale, transfer or restructuring of any business; or
- A lease under an arrangement where the immovable property is sold by and leased back to the seller of the immovable property.