Corporations often organise themselves into multiple holding companies, subsidiaries and associate companies to reflect the structure of their business and to limit liabilities. In an effort to encourage risk taking and enterprise, the Government introduced the loss transfer system of group relief with effect from YA2003. A group consists of a Singapore-incorporated parent company and all its Singapore-incorporated subsidiaries. Two Singapore-incorporated companies are members of a group if one is 75% owned by the other or both are 75% owned by another Singapore-incorporated company. The Singapore-incorporated companies must also have the same accounting period to qualify for group relief.
Once the required conditions are met, a loss making company may elect to transfer its current year unutilised losses and donations, as well as current year unabsorbed capital allowances to another company in the group. However, current year unutilised investment allowances are not transferrable. Investment allowance is given as an incentive to companies to engage in certain projects and accordingly they should only be offset against profits arising from that project.
Foreign losses are also not transferrable for purpose of group relief. As the scope of our corporate tax system is territorial, foreign-sourced income is not taxed in Singapore unless remitted to Singapore. If foreign-sourced losses are allowed to set off locally-sourced profits, and yet foreign-sourced profits are not taxed domestically, it would mean that foreign ventures are being subsidised by domestic tax revenue. Also, any holdings by non-Singapore incorporated companies will be ignored for group relief purposes. This will serve to make our group relief system simpler as complicated rules might need to be set up if non Singapore-incorporated companies are allowed.
For more details on the conditions and administrative procedures of this loss-transfer system of group relief, please refer to IRAS' e-tax guide on the group relief system (published on 6 Sep 2011), which can be found on IRAS’ website.