Investment Holding Companies

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:

• Basic Format of Tax Computation for an Investment Holding Company (PDF, 579KB)
• Basic Format of Tax Computation for an Investment Holding Company that Also Provides Routine Support Services to its Related Parties (PDF, 224KB)

Deductions Allowed

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.

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. 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.

Unutilised Losses

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.

However, your company 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 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.

FAQs