ITA1947 § 26 — Profits of insurers

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§ 26 — Profits of insurers

26.—(1) Subject to sections 34A, 34AA and 34AAA, this section has effect despite anything to the contrary in this Act, except that nothing in this section affects the chargeability to tax of any income of an insurer under section 10.[39/2017]

[Act 33 of 2022 wef 04/11/2022]

Separate accounts to be maintained for various businesses

(2) An insurer must maintain separate accounts for income derived by it from carrying on each of the following businesses:(a)

onshore life business;

(b)

offshore life business;

(c)

the business (other than the business of life assurance) of insuring and reinsuring onshore risks;

(d)

the business (other than the business of life assurance) of insuring and reinsuring offshore risks.[39/2017]

Insurers other than life insurers

(3) In the case of an insurer whether mutual or proprietary (other than a life insurer) where the gains or profits accrue in part outside Singapore, the gains or profits on which tax is payable are to be ascertained by —(a)

taking the gross premiums and interest and other income received or receivable in Singapore (less any premiums returned to the insured and premiums paid on reinsurances);

(b)

either —(i)

deducting from the balance so arrived at the net increase between the beginning and ending values of the period for which the gains or profits are ascertained, of the liabilities of the insurer in respect of policies other than life policies, both values being determined in accordance with the Insurance Act 1966 after deducting any liability in respect of reinsurance ceded to a reinsurer; or

(ii)

adding to the balance so arrived at the net decrease between the beginning and ending values of the period for which the gains or profits are ascertained, of the liabilities of the insurer in respect of policies other than life policies, both values being determined in accordance with the Insurance Act 1966 after deducting any liability in respect of reinsurance ceded to a reinsurer; and

(c)

[Deleted by Act 39 of 2017]

(d)

from the net amount so arrived at, deducting the actual losses (less the amount recovered in respect thereof under reinsurance), the distribution expenses and management expenses incurred in the production of the income referred to in paragraph (a) and, in respect of a branch in Singapore, a fair proportion of the expenses of its head office.[39/2017; 32/2019]

(4) For the purposes of subsection (3), in ascertaining the gains or profits derived by an insurer from carrying on the business (other than the business of life assurance) of insuring and reinsuring any risks for the purposes of any concessionary rate of tax or exemption from tax prescribed by regulations made under section 43C —(a)

no income other than underwriting income or income from such dividends, interest and gains or profits realised from the sale of investments as may be specified in those regulations is to be included;

(b)

income in respect of dividends, interest and gains or profits realised from the sale of investments must be apportioned in such manner as may be prescribed by those regulations; and

(c)

any item of expenditure not directly attributable to that business must be apportioned in such manner as may be prescribed by those regulations.[39/2017]

(5) For the purposes of subsection (3)(b), if, during the period for which the gains or profits are ascertained, any insurance business (excluding life business) is transferred by or to the insurer, then —(a)

in a case where the business is transferred by the insurer, the liabilities of the insurer immediately before the date of the transfer, in respect of policies that form part of that business, are to be added to the ending value mentioned in that provision; and

(b)

in a case where the business is transferred to the insurer, the liabilities of the transferor immediately before the date of the transfer, in respect of policies that form part of that business, are to be added to the beginning value mentioned in that provision.[39/2017]

Life insurers

(6) In the case of a life insurer, whether mutual or proprietary, the gains or profits on which tax is payable are to be ascertained by taking the aggregate of —(a)

in the case of insurance funds established and maintained for Singapore policies, the amount computed in the following manner:(i)

taking the amount allocated out of the participating fund by way of bonus to the participating policies in accordance with section 16(7)(b) of the Insurance Act 1966;

(ii)

adding thereto the amount allocated to the surplus account of the participating fund in accordance with section 16(7)(c) of the Insurance Act 1966;

(iii)

deducting from the balance so arrived at any receipt of the participating fund which is not chargeable to tax and adding thereto any expense of the participating fund which is not deductible for the purposes of this Act;

(iv)

adding thereto the amount relating to investment income earned on assets representing the balance in the surplus account of the participating fund, after deducting any receipt which is not chargeable to tax and not allowing as a deduction any expense which is not deductible for the purposes of this Act;

(iva)

adding thereto an amount allocated to the surplus account of the participating fund by the insurer in accordance with regulations made under section 16(8) of the Insurance Act 1966, being an amount that does not exceed 1/9th of the tax payable at the rate under section 43(9) on the amount mentioned in sub‑paragraph (i);

(ivb)

adding thereto any amount (other than the amounts mentioned in sub‑paragraphs (iv) and (iva)) allocated to the surplus account of the participating fund by the insurer in accordance with regulations made under section 16(8) of the Insurance Act 1966, but excluding any portion that is not chargeable to tax;

(v)

adding thereto the balance so arrived at the onshore life insurance surplus in relation to the non‑participating fund and the investment‑linked fund;

(b)

in the case of shareholders’ fund established in Singapore, the income therein less any expenses (including management expenses) incurred in the production of such income; and

(c)

in the case of insurance funds established and maintained for offshore policies, the amount computed in the following manner:(i)

taking the amount allocated out of the participating fund by way of bonus to the participating policies in accordance with section 16(7)(b) of the Insurance Act 1966;

(ii)

adding thereto the amount allocated to the surplus account of the participating fund in accordance with section 16(7)(c) of the Insurance Act 1966;

(iii)

deducting from the balance so arrived at any receipt of the participating fund which is not chargeable to tax and adding thereto any expense of the participating fund which is not deductible for the purposes of this Act;

(iv)

adding thereto the amount relating to investment income earned on assets representing the balance in the surplus account of the participating fund, after deducting any receipt which is not chargeable to tax and not allowing as a deduction any expense which is not deductible for the purposes of this Act;

(iva)

adding thereto an amount allocated to the surplus account of the participating fund by the insurer in accordance with regulations made under section 16(8) of the Insurance Act 1966, being an amount that does not exceed 1/9th of the tax payable at the rate under section 43(9) on the amount mentioned in sub‑paragraph (i);

(ivb)

adding thereto any amount (other than the amounts mentioned in sub‑paragraphs (iv) and (iva)) allocated to the surplus account of the participating fund by the insurer in accordance with regulations made under section 16(8) of the Insurance Act 1966, but excluding any portion that is not chargeable to tax;

(v)

adding thereto the offshore life insurance surplus in relation to the non‑participating fund and the investment‑linked fund.[39/2017; 27/2021]

(7) Despite subsection (6), where a life insurer is approved under section 43C before 1 June 2017 and its income is subject to tax at the concessionary rate by regulations made under section 43C(1)(a), the following paragraphs apply for the purposes of ascertaining that income:(a)

only such part of the following income as may be specified in those regulations is to be included:(i)

the amount in relation to insurance funds established and maintained for offshore policies, computed in the following manner:(A)

taking the amount allocated out of the participating fund by way of bonus to the participating policies in accordance with section 16(7)(b) of the Insurance Act 1966;

(B)

adding thereto the amount allocated to the surplus account of the participating fund in accordance with section 16(7)(c) of the Insurance Act 1966;

(C)

deducting from the balance so arrived at any receipt of the participating fund which is not chargeable to tax and adding thereto any expense of the participating fund which is not deductible for the purposes of this Act;

(D)

adding thereto the amount relating to investment income earned on assets representing the balance in the surplus account of the participating fund, after deducting any receipt which is not chargeable to tax and not allowing as a deduction any expense which is not deductible for the purposes of this Act;

(DA)

adding thereto an amount allocated to the surplus account of the participating fund by the insurer in accordance with regulations made under section 16(8) of the Insurance Act 1966, being an amount that does not exceed 1/9th of the tax payable at the rate under section 43(9) on the amount mentioned in sub‑paragraph (A);

(DB)

adding thereto any amount (other than the amounts mentioned in sub‑paragraphs (D) and (DA)) allocated to the surplus account of the participating fund by the insurer in accordance with regulations made under section 16(8) of the Insurance Act 1966, but excluding any portion that is not chargeable to tax;

(E)

adding thereto the offshore life insurance surplus in relation to the non‑participating fund and the investment‑linked fund; and

(ii)

the income of the shareholders’ fund established in Singapore as is attributable to the offshore life business; and

(b)

the income referred to in paragraph (a) and any item of expenditure not directly incurred in the production of such income must be apportioned in such manner as may be prescribed by those regulations.[39/2017; 27/2021]

(7A) Despite subsection (6), where a life insurer is approved under section 43C on or after 1 June 2017 and its income is subject to tax at a concessionary rate by regulations made under section 43C(1)(aa), the following paragraphs apply for the purposes of ascertaining that income:(a)

only such part of the following income relating to reinsurance policies as may be specified in those regulations may be included:(i)

the onshore life insurance surplus, and offshore life insurance surplus (as the case may be), of the insurer;

(ii)

the income of the shareholders’ fund established in Singapore attributable to the insurer’s onshore life reinsurance business and offshore life reinsurance business, as the case may be;

(b)

the income in paragraph (a) and any item of expenditure not directly incurred in the production of such income must be apportioned in the manner prescribed (if any) by those regulations.[39/2017]

(8) In ascertaining the gains or profits of a life insurer whether mutual or proprietary —(a)

the Comptroller must determine the manner and extent to which —(i)

any allowances under section 19, 19A, 20, 21, 22 or 23 and expenses and donations allowable under this Act are to be deducted; and

(ii)

any losses incurred by the insurer may be deducted under section 37;

(aa)

allowances under section 19, 19A, 20, 21, 22 or 23 or losses or donations allowable under section 37 may be deducted against any part of the income of the insurer from a participating fund that is apportioned to policyholders in accordance with regulations made under section 43(9) or 43C if, and only if, the allowances, losses or donations are —(i)

allowances, losses or donations in respect of such income; or

(ii)

allowances, losses or donations in respect of any income of the insurer from another participating fund that is also apportioned to policyholders in accordance with those regulations;

(b)

the allowances under section 19, 19A, 20, 21, 22 or 23 or the losses or donations under section 37 in respect of such part of the income of the insurer from a participating fund as is apportioned to policyholders of the insurer in accordance with regulations made under section 43(9) or 43C in any year of assessment —(i)

is only available for deduction against any part of the insurer’s income from any participating fund that is apportioned to policyholders in accordance with regulations made under section 43(9) or 43C for that year of assessment, as the case may be; and

(ii)

the balance of such allowances, losses or donations under sub‑paragraph (i) may, subject to section 23 or 37 (as the case may be), only be deducted against any part of the insurer’s income from any participating fund that is apportioned to policyholders in accordance with regulations made under section 43(9) or 43C, for any subsequent year of assessment;

(c)

section 37A applies, with the necessary modifications, in relation to the deduction of allowances under section 19, 19A, 20, 21, 22 or 23 or the losses or donations under section 37 in respect of such part of the income of the insurer (being a company) as is subject to tax at the rate of tax under section 43(1)(a) and of such part of the income of the insurer (being a company) as is apportioned to the shareholders of the insurer in accordance with regulations made under section 43C; and for the purpose of such application any reference in section 37A to income of a company subject to tax at a lower rate of tax or income of the company subject to tax at a lower rate of tax (as the case may be) is a reference to such part of the income of the insurer as is apportioned to the shareholders of the insurer in accordance with regulations made under section 43C; and

(d)

in a case where, immediately before the life insurer ceases business permanently without transferring the business to any person in Singapore, there is an amount remaining in the participating fund which is not allocated by way of bonus to any participating policy, the Comptroller may make such adjustment to the tax liability of the life insurer as the Comptroller thinks fit.[27/2021]

Composite insurers

(9) In the case of an insurer carrying on life insurance business in conjunction with any other insurance business, the assessment of the gains or profits on which tax is payable must be made in one sum, but the gains or profits arising from the life insurance business are to be computed in accordance with subsections (6), (7), (7A) and (8) as if such life insurance business were a separate business from the other insurance business carried on by the insurer.[39/2017]

(10) For the purposes of this section, the Minister may make regulations —(a)

to provide for such transitional, supplementary and consequential matters as the Minister may consider necessary or expedient; and

(b)

generally to give effect to or for carrying out the purposes of this section.

(11) Despite the amendment of this section by the Income Tax (Amendment) Act 2007, section 26 in force immediately before the amendment applies to the income of an insurer derived before the year of assessment 2006.

Definitions

(12) In this section, and section 43C (except in relation to the definition of “insurer”) —“accident and health policy” has the meaning given by the Insurance Act 1966;

“income of the shareholders’ fund” means —(a)

gains or profits on the sale of investments of the shareholders’ fund, whether derived from Singapore or elsewhere; and

(b)

investment income and other income of the shareholders’ fund derived from Singapore or received in Singapore from outside Singapore;

“insurer” means —(a)

a company licensed under the Insurance Act 1966 to carry on insurance business in Singapore; or

(b)

a person (including a partnership) permitted under the Insurance Act 1966 to carry on insurance business in Singapore under a foreign insurer scheme;

“investment‑linked fund” means an insurance fund for investment‑linked policies established and maintained under section 16(2) of the Insurance Act 1966;

“investment‑linked policies”, “non‑participating policies” and “participating policies” have the meanings given by the First Schedule to the Insurance Act 1966;

“life insurance fund” means the insurance fund established and maintained by an insurer under section 16(1) of the Insurance Act 1966 for its life business;

“life policy” has the meaning given by the Insurance Act 1966;

“non‑participating fund” means an insurance fund established and maintained under section 16(3) of the Insurance Act 1966 which comprises wholly of non‑participating policies;

“offshore life business” means the business of insuring or reinsuring the liability of a life policy, or accident and health policy, of any life insurance fund, not being a Singapore policy within the meaning of the Insurance Act 1966;

“offshore life insurance surplus”, in relation to the non‑participating fund and the investment‑linked fund of an insurer, means the amount ascertained —(a)

by taking the aggregate of —(i)

the gross premiums (including consideration paid or payable for the purchase of annuities) from offshore non‑participating and offshore investment‑linked policies of any life insurance fund (less any premiums returned to the insured and premiums paid or payable on reinsurance);

(ii)

the net decrease between the beginning and ending values of the policy liabilities of any life insurance fund relating to offshore non‑participating and offshore investment‑linked policies of the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer; and

(iii)

the investment income and gains or profits derived from the sale of investments and other income, whether derived from Singapore or elsewhere, of any life insurance fund relating to offshore non‑participating and offshore investment‑linked policies; and

(b)

by deducting from that aggregate —(i)

distribution expenses and management expenses incurred in the production of the income referred to in paragraph (a) and, in respect of a branch in Singapore, a fair proportion of the expenses of its head office;

(ii)

policy moneys paid or payable in respect of offshore non‑participating and offshore investment‑linked policies (less any amount recovered or recoverable in respect thereof under reinsurance);

(iii)

moneys paid or payable on the surrender of offshore non‑participating and offshore investment‑linked policies; and

(iv)

the net increase between the beginning and ending values of the policy liabilities of any life insurance fund relating to offshore non‑participating and offshore investment‑linked policies of the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

“offshore life insurance surplus”, in relation to an insurer under subsection (7A)(a)(i), means the amount ascertained by taking the following steps:(a)

add the following:(i)

the gross premiums (including consideration paid or payable for the purchase of annuities) from its offshore non‑participating reinsurance policies of any life insurance fund (less any premiums returned to the insured and premiums paid or payable on reinsurance);

(ii)

the net decrease between the beginning and ending values of the policy liabilities of the part of any life insurance fund relating to its offshore non‑participating reinsurance policies for the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

(iii)

the investment income and gains or profits derived from the sale of investments and other income, whether derived from Singapore or elsewhere, of the part of any life insurance fund relating to its offshore non‑participating reinsurance policies;

(b)

subtract from the total under paragraph (a), all of the following:(i)

distribution expenses and management expenses incurred in the production of the income in paragraph (a) and, in respect of a branch in Singapore, a fair proportion of the expenses of its head office;

(ii)

policy moneys paid or payable in respect of its offshore non‑participating reinsurance policies (less any amount recovered or recoverable in respect of those policies under reinsurance);

(iii)

moneys paid or payable on the surrender of its offshore non‑participating reinsurance policies;

(iv)

the net increase between the beginning and ending values of the policy liabilities of the part of any life insurance fund relating to its offshore non‑participating reinsurance policies for the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

“offshore life reinsurance business” means the business of reinsuring the liability of a life policy, or an accident and health policy, of any life insurance fund, not being a Singapore policy within the meaning of the Insurance Act 1966;

“offshore risk” means a risk or liability that is insured by a policy of any general insurance fund established and maintained under the Insurance Act 1966, not being a Singapore policy within the meaning of that Act;

“onshore life business” means the business of insuring or reinsuring the liability of a life policy, or accident and health policy, of any life insurance fund, being a Singapore policy within the meaning of the Insurance Act 1966;

“onshore life insurance surplus”, in relation to an insurer under subsection (7A)(a)(i), means the amount ascertained by taking the following steps:(a)

add the following:(i)

the gross premiums (including consideration paid or payable for the purchase of annuities) from its Singapore non‑participating reinsurance policies of any life insurance fund (less any premiums returned to the insured and premiums paid or payable on reinsurance);

(ii)

the net decrease between the beginning and ending values of the policy liabilities of the part of any life insurance fund relating to its Singapore non‑participating reinsurance policies for the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

(iii)

the investment income and gains or profits derived from the sale of investments and other income, whether derived from Singapore or elsewhere, of the part of any life insurance fund relating to its Singapore non‑participating reinsurance policies;

(b)

subtract from the total under paragraph (a), all of the following:(i)

distribution expenses and management expenses incurred in the production of the income in paragraph (a) and, in respect of a branch in Singapore, a fair proportion of the expenses of its head office;

(ii)

policy moneys paid or payable in respect of its Singapore non‑participating reinsurance policies (less any amount recovered or recoverable in respect of those policies under reinsurance);

(iii)

moneys paid or payable on the surrender of its Singapore non‑participating reinsurance policies;

(iv)

the net increase between the beginning and ending values of the policy liabilities of the part of any life insurance fund relating to its Singapore non‑participating reinsurance policies for the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

“onshore life insurance surplus”, in relation to the non‑participating fund and the investment‑linked fund of an insurer, means the amount ascertained by taking the following steps:(a)

add the following:(i)

the gross premiums (including consideration paid or payable for the purchase of annuities) from Singapore non‑participating and Singapore investment‑linked policies of any life insurance fund (less any premiums returned to the insured and premiums paid or payable on reinsurance);

(ii)

the net decrease between the beginning and ending values of the policy liabilities of any life insurance fund relating to Singapore non‑participating and Singapore investment‑linked policies for the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

(iii)

the investment income and gains or profits derived from the sale of investments and other income, whether derived from Singapore or elsewhere, of any life insurance fund relating to Singapore non‑participating and Singapore investment‑linked policies;

(b)

subtract from the total under paragraph (a), all of the following:(i)

distribution expenses and management expenses incurred in the production of the income in paragraph (a) and, in respect of a branch in Singapore, a fair proportion of the expenses of its head office;

(ii)

policy moneys paid or payable in respect of Singapore non‑participating and Singapore investment‑linked policies (less any amount recovered or recoverable in respect of those policies under reinsurance);

(iii)

moneys paid or payable on the surrender of Singapore non‑participating and Singapore investment‑linked policies;

(iv)

the net increase between the beginning and ending values of the policy liabilities of any life insurance fund relating to Singapore non‑participating and Singapore investment‑linked policies for the period for which the gains or profits are ascertained, both values being determined in accordance with the Insurance Act 1966 and after deducting any liability in respect of reinsurance ceded to a reinsurer;

“onshore life reinsurance business” means the business of reinsuring the liability of —(a)

a life policy of any life insurance fund; or

(b)

an accident and health policy of any life insurance fund,

being a Singapore policy within the meaning of the Insurance Act 1966;

“onshore risk” means a risk or liability that is insured by a policy of a general insurance fund established and maintained under the Insurance Act 1966, being a Singapore policy within the meaning of that Act;

“participating fund” means an insurance fund established and maintained under section 16(3) of the Insurance Act 1966 which comprises wholly or partly of participating policies;

“policy liabilities”, in relation to the non‑participating fund and the investment‑linked fund of an insurer, means liabilities in respect of policies for which the non‑participating fund and investment‑linked fund are established and maintained under section 16 of the Insurance Act 1966, but excludes liabilities ceded to a reinsurer;

“policy moneys” has the meaning given by the Insurance Act 1966;

“reinsurer” has the meaning given by section 2 of the Insurance Act 1966;

“surplus account”, in relation to a participating fund of a life insurer, means the surplus account established and maintained under section 16(7)(a) of the Insurance Act 1966 as part of that fund.[39/2017; 32/2019]

(13) For the purposes of paragraphs (a)(ii) and (b)(iv) of both definitions of “onshore life insurance surplus”, and paragraphs (a)(ii) and (b)(iv) of both definitions of “offshore life insurance surplus” in subsection (12), if, during the period for which the gains or profits are ascertained, any life insurance business is transferred by or to the insurer, then —(a)

in a case where the business is transferred by the insurer, the liabilities of the insurer immediately before the date of the transfer, in respect of policies that form part of that business, are to be added to the ending value mentioned in each of those provisions; and

(b)

in a case where the business is transferred to the insurer, the liabilities of the transferor immediately before the date of the transfer, in respect of policies that form part of that business, are to be added to the beginning value mentioned in each of those provisions.[39/2017]

—(1) Subject to sections 34A, 34AA and 34AAA, this section has effect despite anything to the contrary in this Act, except that nothing in this section affects the chargeability to tax of any income of an insurer under section 10.[39/2017]