Setting Up an Investment Holding Company
Updated: Dec 27, 2021
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.
The sale and lease of properties in Singapore are subject to GST except for residential properties.
You may choose to voluntarily register for GST.
Charging and Collecting GST
Once you have registered for GST, you must charge GST on your supplies at the prevailing rate. This GST that is charged and collected is known as output tax. Output tax must be paid to IRAS.
The GST that you incur on business purchases and expenses is known as input tax. You can claim the input tax on your business purchases and expenses.
When purchasing from GST-registered suppliers, you may have incurred GST (input tax). You can claim input tax incurred.
As a GST-registered business:
You must submit your GST return to IRAS one month after the end of each quarterly prescribed accounting period.
You should report both your output tax and input tax in your GST return.
The difference between output tax and input tax is the net GST payable to IRAS or refunded by IRAS.
Deductible Expenses for Investment Holding Companies
Deductible expenses are expenses that are attributed to the investment income. These may be incurred in the course of the 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 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.
Statutory and Regulatory Expenses
These are expenses incurred in accordance with statutory and regulatory provisions. Some examples are:
Annual listing fees
Income tax service fees
Printing and stationery
Other than statutory and regulatory expenses and direct expenses, in some cases, an investment holding company may incur the following expenses:
Administrative and management fees
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)
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.
As an investment holding company is not carrying on a trade and derives only non-trade income, the total amount of such other expenses allowable should not exceed 5% of the company’s gross investment income.
Tax Exemptions for Investment Holding Companies
Investment holding companies will be eligible for partial tax exemption. They are not eligible to claim Tax Exemption for New Start-up Companies.
Bestar professionals can assist customers in the company setup, GST account registration and claiming of GST incurred on property purchase.
If you would like to know more, please contact Bestar.