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 could be members
of the same 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.
Foreign losses may not be transferred
for purpose of group relief. As the scope of our corporate
tax system is territorial, foreign income is not taxed
in Singapore unless remitted to Singapore. If foreign
losses are allowed to set off local profits, and yet
foreign profits are not taxed domestically, it would
mean that foreign ventures are being subsidised from
domestic tax revenue. Also, to start conservatively,
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.
Once the required conditions are
met, a loss making company may elect to transfer its
current year losses and current year unabsorbed capital
allowances to another group company. However, current
year unutilised investment allowances may not be transferred.
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.
For more details on the conditions
and administrative procedures of this loss-transfer
system of group relief, please refer to IRAS' circular
of 23rd Oct 2002. This circular is available at IRAS'
website.
