The Inland Revenue Authority of Singapore (IRAS) has issued updated guidance on the tax treatment of interest-free or subsidised loans provided to company directors, effective for Year of Assessment (YA) 2024.
Key Change: New Benchmark Interest Rate
With effect from 1 April 2023, the method for calculating the taxable value of interest benefits conferred on directors through such loans has been revised. Employers must now compute this benefit using a benchmark rate comprising:
- 1.5% plus
- The 3-month Compounded Singapore Overnight Rate Average (SORA), as published by the Monetary Authority of Singapore (MAS).
Rate Application Periods & Examples
- The relevant SORA rates are fixed semi-annually based on MAS publications on 1 March and 1 September each year.
- For 1 April 2023 to 30 September 2023: The rate is 4.7% (1.5% + 3.2% SORA published 1 March 2023).
- For 1 October 2023 to 31 March 2024: The rate is 5.1% (1.5% + 3.6% SORA published 1 September 2023).
Calculation Methodology
- Monthly Basis: The interest benefit is calculated monthly.
- Formula:
(Applicable Annual Rate / 12) * Loan Outstanding at Month-End - Subsidised Loans: If the director pays interest at a subsidised rate (below the benchmark), the taxable benefit is the difference between the computed benchmark benefit and the actual interest paid by the director.
Employers are responsible for accurately calculating the monthly taxable interest benefit using the prescribed rates and methodology for any relevant loans outstanding on or after 1 April 2023. This amount constitutes a taxable employment benefit for the director.
Source: IRAS, 30 May 2024.