Inter-company loans and founder advances in Singapore, explained

Key figures

• 1 July 2015 Private companies, other than subsidiaries of public companies, leave the financial assistance prohibition

• +1.80% IRAS indicative margin over the benchmark rate for related party loans in 2026

• S$15m Loan ceiling for pricing at the IRAS indicative margin

• S$10m Gross revenue threshold for mandatory transfer pricing documentation

• 5% Surcharge on any IRAS transfer pricing adjustment

• 15th day Of the second month after payment, the deadline for withholding tax on interest paid abroad

Contents

1. The legal map

2. Financial assistance

3. Directors’ duties

4. Founder advances

5. Transfer pricing

6. Withholding tax

7. Documentation

Lending inside a private group is legally easy, explaining it later is not. Three audiences test a related party loan after the fact: (1) Investors in due diligence; (2) Liquidators after a failure; (3) IRAS at any time. Each asks a different question of the same paper.

1. The legal map

Three bodies of law govern a related party loan, and each operates on its own. Company law decides whether the loan is permitted. Directors’ duties decide whether it was proper. Tax law decides how it is priced and taxed. Passing one test proves nothing about the others.

Sections 162 and 163 do not apply to an exempt private company. Exempt private companies in Singapore, explained sets out who qualifies and what the status covers.

2. Financial assistance

A Singapore private company may finance the purchase of its own shares or its holding company’s shares. The prohibition ended on 1 July 2015. No approval procedure replaced it.

Financial assistance means lending money, giving security or guaranteeing a debt to fund that purchase. Since the 2015 reforms, section 76 of the Companies Act 1967 applies only to public companies and their subsidiaries. A private subsidiary of a public company stays inside the rule.

A company still caught by section 76 has to fit the transaction within a statutory exception. One covers assistance that does not materially prejudice the company, its shareholders or its ability to pay its creditors.

The 2015 reform removed a prohibition. It left directors’ duties untouched. Assistance that does not serve the company giving it remains a breach of duty, whatever section 76 says.

3. Directors’ duties

As insolvency approaches, a founder’s own loan becomes the most dangerous debt the company can repay. A liquidator can recover the payment from the founder personally.

Every loan is judged from the side of the company making it. Section 157(1) requires a director to act honestly and use reasonable diligence. Section 157(2) prohibits an officer from using the position, or information gained through it, to gain an advantage or to harm the company. A breach makes the officer liable for any profit made or loss caused, and is a criminal offence. Benefit to the group counts only through benefit to the lender. Each company has its own creditors.

The Court of Appeal set the framework in Foo Kian Beng v OP3 International Pte Ltd in 2024. It identified three financial states. The duty shifts with each.

Ranking explains the danger. In a liquidation, an unsecured founder loan ranks alongside every other unsecured debt. It has no priority. Repaying it ahead of the others creates one. Under the Insolvency, Restructuring and Dissolution Act 2018, a liquidator can set aside a payment that prefers one creditor over the rest. For a director or other connected person, the look-back period is two years and the intention to prefer is presumed. The repayment comes back.

Venture investors and lenders often go further and require the founder loan to be subordinated in writing. Subordination puts it behind other creditors by contract. Last in line.

Note

Solvency changes the question

Near insolvency, a founder repaying himself is the first transaction a liquidator examines.

Case in point

OP3 International

Mr Foo was the sole director and shareholder of OP3 International. In May 2015 a client sued the company for about S$1.8 million over defective fit-out works. With that claim pending, OP3 paid Mr Foo about S$2.8 million in dividends and repaid about S$820,746 of his own loans to it. OP3 lost the claim, did not pay and was wound up in April 2020. The liquidator sued Mr Foo to recover the payments. The Court of Appeal dismissed his appeal, found he had not acted honestly or reasonably, and refused him relief under section 391. His loan. His company. Still recoverable.

4. Founder advances

Money moving from a founder to the company is unregulated. Money moving the other way is restricted, and writing it off can turn a loan into an unlawful dividend.

A founder or director can lend to the company without statutory approval. The terms are contractual. Unwritten loans fail due diligence. An investor reads an undocumented advance as a loan, a capital contribution or a prepayment for shares, and each carries a different cap table consequence.

Lending to a director is a restricted transaction under section 162. The section covers loans, quasi-loans, guarantees and credit transactions. A quasi-loan is the company paying a director’s bills on the understanding that the director will repay. A non-exempt company cannot enter into one, subject to narrow exceptions. Section 163 extends control to loans to a company in which the directors together hold 20% or more of the votes, which need prior shareholder approval. Exempt private companies sit outside both sections.

The label does not survive a write-off: Where the company lends to a founder who is also a shareholder and then forgives the debt, it has handed value to a shareholder and received nothing back. Courts look at the substance of a transfer, not its name. A gratuitous transfer of company value to a shareholder is a distribution. A disguised dividend. Section 403 permits dividends only out of profits. A director who wilfully pays or permits a dividend without profits commits an offence and is personally liable to creditors for the excess.

Tax follows separately. For a founder who is also an employee or director, IRAS can treat a forgiven loan as income from employment.

Case in point

The forgiven drawings

A founder who is also the majority shareholder draws S$300,000 from an exempt private company over two years, booked as a loan. Section 162 does not apply, because the company is exempt. The company carries accumulated losses. At year end the board writes the balance off. The S$300,000 is now a transfer of value to a shareholder with no profits behind it. If the company later fails, the directors who approved the write-off face the creditors under section 403.

A write-off in the other direction raises a tax question, not a company law one. A founder or holding company that waives a loan to the company does not automatically create taxable income for it. IRAS looks at the character of the loan and what it financed. In Advance Ruling Summary No. 15/2026, issued on 1 September 2026, IRAS treated the waiver of a working capital loan from a holding company as capital in nature and not taxable. A loan of a different character could fall the other way. Waivers trigger tax events. Not always tax.

Capitalising the loan replaces the waiver analysis with a share issue. That needs shareholder approval under section 161 and a return of allotment lodged with ACRA. Share issues and transfers in Singapore, explained sets out the steps.

Note

Waive or capitalise

A waiver is tested on the loan’s character. A capitalisation is a share issue, with ACRA filings.

5. Transfer pricing

Domestic interest-free loans are now safe. Cross-border interest-free loans are not, and the cost lands on the lender’s own interest deduction.

Section 34D of the Income Tax Act 1947 requires related party transactions to be priced at arm’s length, on the terms unrelated parties would agree. Where pricing departs from that standard, IRAS can adjust taxable profits and add a 5% surcharge on the adjustment, whether or not additional tax results. Surcharge regardless.

IRAS’s 8th edition transfer pricing guidelines, issued on 19 November 2025, carve out domestic loans. For a loan between Singapore related parties made on or after 1 January 2025, where neither party is in the business of lending, IRAS makes no adjustment and requires no documentation. Zero interest included.

Cross-border loans follow different rules. An outbound interest-free loan draws no adjustment, because no interest would be received in Singapore in any event. The cost sits elsewhere. Where the Singapore lender borrowed to fund the outbound loan, IRAS disallows the deduction for its own interest expense while the loan is a passive source of income. Interest out. Nothing in. No deduction. An inbound interest-free loan draws no imputed interest, so there is no deduction for the borrower and no withholding tax.

Every other related party loan needs an arm’s length rate. IRAS accepts a full transfer pricing analysis or, for loans of up to S$15 million, its published indicative margin. For 2026 the margin is 1.80% above the benchmark rate for the loan’s currency.

Documentation is a separate obligation. A company with gross revenue above S$10 million must prepare transfer pricing documentation by the filing date of its tax return. Exemptions apply, including one for a related party loan of up to S$15 million priced at the indicative margin. Failure to prepare documentation is an offence carrying a fine of up to S$10,000.

Case in point

The holding company loan

A Singapore holding company raises equity and lends S$2 million to its Indonesian operating subsidiary. Neither company is in the business of lending. Interest-free and funded from equity, the loan draws no transfer pricing adjustment in Singapore. Fund the same loan from a bank facility and the parent loses its deduction for the interest on that facility while the loan earns nothing. Charge interest and the rate must be arm’s length, which under the 2026 indicative margin means 1.80% above the benchmark rate for the loan’s currency. Indonesian tax rules govern the other end.

6. Withholding tax

Interest paid to a lender outside Singapore carries Singapore withholding tax. The paying company collects it and answers for it.

The rate is 15% where the non-resident lender does not earn the interest through a business carried on in Singapore. A tax treaty can reduce it. The payer deducts the tax and pays it to IRAS by the 15th day of the second month after payment. Interest to a foreign parent triggers the obligation. So does interest to a founder living abroad. An interest-free inbound loan triggers nothing.

7. Documentation

Unwritten related party loans usually fail due diligence, invite reclassification by a liquidator and leave IRAS to essentially choose the price.

The agreement fixes the amount, currency, interest, repayment, ranking and governing law. Board minutes record why the loan serves the lending company, which is the question section 157 and OP3 turn on. Minutes written after the event persuade nobody.

Security adds a statutory filing. A registrable charge must be lodged with ACRA within 30 days of creation or it is void against the liquidator and creditors. Venture debt terms in Asia, explained covers the rule.

Auberique’s in-house team drafts inter-company loan agreements and the board resolutions behind them for companies. It prices loans on IRAS’s indicative basis and keeps the working. The file sits in the Auberique client portal before due diligence asks for it.

Common questions

Is financial assistance still prohibited for Singapore private companies?

Not since 1 July 2015, unless the private company is a subsidiary of a public company. Public companies and their subsidiaries remain inside section 76, with statutory exceptions, including assistance that does not materially prejudice the company, its shareholders or its ability to pay creditors.

Can a founder lend money to their own Singapore company?

Yes. A loan from a founder or director to the company needs no statutory approval, and its terms are contractual. Repaying it when the company is in financial difficulty is a different matter. A liquidator can challenge the repayment as a breach of duty or an unfair preference.

Can a liquidator recover a founder loan the company repaid?

Yes, in the right circumstances. Under the Insolvency, Restructuring and Dissolution Act 2018, a payment to a connected person within two years before insolvency can be set aside as an unfair preference, and the intention to prefer is presumed. In Foo Kian Beng v OP3 International, the liquidator recovered loan repayments and dividends from the sole director on a breach of duty claim.

Is a written-off loan to a founder treated as a dividend?

It can be. Where the founder is a shareholder, a write-off transfers company value to a shareholder for nothing, and courts look at substance over labels. A distribution needs profits under section 403. A director who wilfully pays a dividend without profits commits an offence and is liable to creditors for the excess.

Is a waived founder or shareholder loan taxable for the company?

Not automatically. IRAS looks at the character of the loan. In Advance Ruling Summary No. 15/2026 it treated the waiver of a working capital loan from a holding company as capital and not taxable. Converting the loan into shares instead is a share issue that needs shareholder approval and an ACRA filing.

Must an inter-company loan in Singapore carry interest?

Not always. IRAS makes no transfer pricing adjustment to a domestic related party loan entered into from 1 January 2025 where neither party is in the business of lending, even at zero interest. An outbound interest-free loan draws no adjustment, but interest on funds borrowed to make it is not deductible. Other related party loans need an arm’s length rate.

What is the IRAS indicative margin for related party loans in 2026?

1.80% above the benchmark interest rate for the loan’s currency, available for related party loans of up to S$15 million. A loan priced at the indicative margin is exempt from transfer pricing documentation.

Is withholding tax due on interest paid to an overseas parent company?

Yes. Interest paid to a non-resident bears Singapore withholding tax at 15% where the lender does not earn it through a business in Singapore. A tax treaty can reduce the rate. The tax is due to IRAS by the 15th day of the second month after payment. An interest-free inbound loan triggers none.

Auberique keeps the board resolutions, loan registers and charge filings behind intra-group funding for companies. Clients follow ACRA deadlines in the Auberique client portal.

About the author

Gavin McDaid is a practising solicitor (England and Wales) and former venture capitalist, with an LLM in Law and Technology from Queen’s University Belfast. He writes on company law, fundraising and governance in Singapore.