Can a Singapore Company Carry Forward Tax Losses?

Singapore companies can generally carry forward unused tax losses indefinitely to reduce taxable income in future years, provided they meet the conditions set by the Inland Revenue Authority of Singapore (IRAS). However, changes in ownership can affect whether these losses remain available, particularly for foreign investors acquiring Singapore companies or restructuring subsidiaries.

What Tax Losses Can a Singapore Company Carry Forward?

A Singapore company may carry forward trading losses when its tax-deductible business expenses exceed its taxable trading income.

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Losses reported in financial statements are not always the same as tax losses. Some business expenses cannot be deducted for tax purposes, while other deductions are allowed under Singapore’s tax rules.

Other unused tax deductions are treated differently:

• Unused capital allowances: Tax deductions for qualifying business assets, such as machinery and equipment, can generally be carried forward indefinitely. The company must meet the shareholding test and continue the same trade or business.
• Unused approved donations: These can be carried forward for up to five Years of Assessment, subject to the relevant conditions.

What Conditions Must a Company Meet to Carry Forward Tax Losses?

To carry forward tax losses, a company must pass Singapore’s shareholding test. Shareholders who held shares at both comparison dates must collectively hold at least 50 percent of the company’s total issued shares at each date:

• The last day of the calendar year in which the losses arose.
• The first day of the Year of Assessment (YA) in which the losses are used.

The test also considers the company’s ultimate shareholders. A Singapore subsidiary may remain owned by the same overseas parent company, but if that parent is acquired by another business, the subsidiary may no longer meet the shareholding test.

If the company fails the test, it can apply to IRAS for a waiver. IRAS may approve the request if the ownership change occurred for genuine business reasons rather than to obtain a tax advantage. Other qualifying circumstances include nationalisation, privatisation, and certain public listings.

If IRAS grants a waiver, the company can only use the affected trading losses against profits from the same business.

Unlike unused capital allowances, ordinary trading losses do not generally require the company to continue operating the same business unless a waiver applies.

How Does a Singapore Company Use Carried-Forward Tax Losses?

A company must report its carried-forward losses, the amount used, and any remaining balance in its corporate income tax filings.

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IRAS sets an order for applying deductions. Unused capital allowances from previous years are applied before current-year capital allowances, followed by carried-forward trading losses and eligible donations. Capital allowances and trading losses are used against trading income before other income.

Consider a Singapore company with the following tax position:

At Singapore’s corporate income tax rate of 17 percent, the S$200,000 (US$156,000) deduction reduces the tax calculated before exemptions and rebates by S$34,000 (US$26,520). The actual tax saving depends on the company’s eligibility for tax exemptions and rebates.

Any eligible losses that cannot be used in the current year may be carried forward again.

What Happens to Tax Losses After a Company Acquisition or Restructuring?

Foreign investors acquiring a Singapore company should review its previous tax filings, the years in which losses arose, and its ownership history. Accumulated tax losses may offer little value if the transaction prevents the company from using them.

While carried-forward losses generally remain with the company that incurred them, Singapore’s group relief system allows qualifying Singapore-incorporated companies to transfer certain unused losses and tax deductions from the current year. The companies must have the same financial year end and meet the 75 percent ownership requirement, including the relevant rights to profits and assets.

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However, ownership through foreign-incorporated companies does not count towards the required group relationship. Two Singapore subsidiaries owned directly by the same foreign parent therefore do not automatically qualify for group relief.

Losses carried forward from previous years cannot be transferred through this system.

Protect Your Singapore Company’s Tax Position with Dezan Shira & Associates

Dezan Shira & Associates assists foreign investors with Singapore corporate income tax compliance, loss calculations, and tax planning. Contact us to assess your company’s available tax losses and their treatment under Singapore’s tax rules.

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