2024 IRAS Indicative Margins for Related Party Loan

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2024 IRAS Indicative Margins for Related Party Loan

What are Singapore’s Indicative Margins?

Since 2017, the Inland Revenue Authority of Singapore (“IRAS”) has introduced indicative margins for related party loans to approximate an arm’s length interest rate. The indicative margin recommended by IRAS are market interest rate to be adopted by Singapore taxpayers for related party loans not exceeding SGD15 million.
Generally, the IRAS publishes the indicative margins at the beginning of each calendar year.

As of 2022, the IRAS no longer publishes indicative margins to be added to Interbank Offered Rates (“IBORs”) (i.e. such as the Singapore Inter-Bank Offered Rate (“SIBOR”) or the London Inter-Bank Offered Rate (“LIBOR”)). Given that IBORs were phased out in 2022, the IRAS has been publishing the indicative margins to be added to Risk-Free Rates (“RFRs”) (i.e. such as Singapore Overnight Rate Average (“SORA”), Secured Overnight Financing Rate (“SOFR”), Sterling Overnight Index Average (“SONIA”)) that have replaced the IBORs.

What is the indicative margin for 2024?

Table 1 below reflects the indicative margin for related party loans published by IRAS that should be added to the base reference rates (i.e., IBORs/ RFRs). The new indicative margin published for 2024 by IRAS is updated as per the table below.

Period	Indicative margin
1 Jan 2020 to 31 Dec 2020	+ 200 bps (2.00%)
1 Jan 2021 to 31 Dec 2021	+ 275 bps (2.75%)
1 Jan 2022 to 31 Dec 2022	+ 180 bps (1.80%)
1 Jan 2023 to 31 Dec 2023	+ 230 bps (2.30%)
1 Jan 2024 to 31 Dec 2024	+ 220 bps (2.20%)

What to look out for?

Related party loan thresholds should be based on the amount of loan committed (i.e. not loan utilised).

The indicative margin applies to both Singapore-dollar denominated and foreign currency denominated related party loans. To determine the threshold (i.e. in SGD), the prevailing exchange rate at the time the loans are obtained or provided should be considered.

IRAS’ indicative margin is not mandatory. It is an alternative to performing a detailed transfer pricing analysis for determining the arm’s length interest rates.

It is recommended for legacy-related party IBOR loans to be renegotiated to RFRs as the base rate.

Table 2 below depicts an example of the application of indicative margins on base rate from 2020 to 2024.

Table 2: Application of indicative margins on base rate for the period 2020 to 2024

Period	Base rate (SIBOR / SORA)	Base rate (SIBOR[1] / SORA[2]) (%)	IRAS’ indicative margin	Applicable interest rate (%)
1 Jan 2020 to 31 Dec 2020	SIBOR 3-months	0.40542	+ 200 bps (2.00%)	2.41
1 Jan 2021 to 31 Dec 2021	SIBOR 3-months	0.4375	+ 275 bps (2.75%)	3.19
1 Jan 2022 to 31 Dec 2022	Compound SORA 3-months	3.0294	+ 180 bps (1.80%)	4.83
1 Jan 2023 to 31 Dec 2023	Compound SORA 3-months	3.7018	+ 230 bps (2.30%)	6.00
1 Jan 2024 to 31 Dec 2024	Compound SORA 3-months	3.7063	+ 220 bps (2.20%)	5.91

*Note: SIBOR 3-months/ Compound SORA 3-months rates are as of 31 December of each year except 2024 where the latest published data is available as of January 2024.

Whilst there is a slight reduction in IRAS’ indicative margin of 10 bps from 2023 to 2024, the overall interest rates point towards an increasing trend over the period 2020 to 2024. As such, taxpayers with loans negotiated on a fixed interest rate, particularly low fixed interest rates, should consider revisiting the terms and conditions of the arrangement (i.e. interest rates applied) to ensure it is still reflective of the current market conditions.

Examples

Example 1 (Threshold based on loan committed)

Company A obtained a facility of SGD25 million from a related party. Company A has utilised SGD10 million of the loan. Company A cannot apply indicative margin although the loan amount utilised is less than SGD15 million.

Example 2 (Foreign currency denominated loans)

Company B provided a loan to a related party amounting to USD14 million. The exchange rate at the time the loan was provided was USD1: SGD1.32. The loan amount in SGD equivalent is approximately SGD18.6 million. Given that the loan amount has exceeded the SGD15 million threshold, Company B cannot apply the indicative margin.

[1] Information on SIBOR extracted from the Association of Banks in Singapore (“ABS”), https://www.abs.org.sg/benchmark-rates/rates-sibor#

[1] Information on SORA extracted from Monetary Authority of Singapore,

https://eservices.mas.gov.sg/Statistics/dir/DomesticInterestRates.aspx

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