The MAS issues a new circular on the tax exemption scheme for qualifying family-owned investment holding companies

July/August 2008

The Monetary Authority of Singapore (MAS) issued a circular on 23 June 2008 to provide details of the tax exemption scheme for family-owned investment holding companies (FIHCs) introduced during the 2008 Budget Speech.

The scheme allows a qualifying FIHC to enjoy tax exemption on income that would otherwise have been exempt if derived or received directly by an individual. It facilitates the making of investments by individuals through the use of companies as investment vehicles, and allows individuals greater flexibility in their wealth and succession planning.

Income qualifying for exemption under the scheme are Singapore-sourced investment income accrued or derived on or after 1 April 2008 and foreign-sourced income received in Singapore on or after 1 April 2008. Correspondingly, the FIHC will not be allowed to deduct excess expenses attributable to this exempt income against other income of the FIHC; such expenses will be disregarded.

In order to qualify for the exemption, the FIHC must:

  • be incorporated before 1 April 2013;
  • be principally engaged in investment holding/making;
  • be wholly-owned, either directly or beneficially through a trust, nominee company or another FIHC, by individuals who are 'connected persons' under the Trust Companies Act;
  • transact with related parties on an arm’s length basis.
  • not have been carrying on a business in Singapore that was not/would not have been tax exempt if not for the transfer of shares to the qualifying shareholders, unless the transfer was transacted at market terms and conditions.

In addition, the transfer of assets to the FIHC must be at market terms and conditions or transferred from a business carried on in Singapore that was or would have been similarly tax exempt on the income from those assets.

This scheme is self-administering and requires no application or approval from MAS. However, the FIHC will have to meet all the qualifying conditions of the scheme and to fulfil annual reporting requirements - an annual tax return to the Inland Revenue Authority of Singapore (IRAS) and an annual declaration to both IRAS and the MAS confirming that the qualifying conditions have been met.

The FIHC can continue to enjoy the tax exemption as long as it meets the qualifying criteria above. Failure to meet the specified conditions in any basis period beginning after 1 April 2013 will result in the FIHC being permanently excluded from the scheme. However, if the failure takes place in a basis period beginning before 1 April 2013, the FIHC would only be denied exemption for that basis period; its tax exempt status for subsequent basis periods beginning before 1 April 2013 would not be affected.

For further details, please call your usual PricewaterhouseCoopers contact.