Tax Incentive for Funds and Fund Management Company in Singapore
Tax Incentive for Funds and Fund Management Company in Singapore
Both Singapore and Hong Kong are popular location for fund managers of private equity, real estate and hedge funds to be based in. The outstanding growth in Singapore’s fund management industry can be attributed to several factors, including the ease of doing business in Singapore and attractive taxes incentives for funds and fund managers.
Tax Incentive Scheme in Singapore for Funds
Normally, a person in Singapore who manages a fund (whether onshore or offshore) will create a taxable presence for the fund in Singapore. In the absence of a tax treaty or tax incentive, income and gains of the fund due to the activities of a Singapore fund manager will potentially be taxed in Singapore even if the fund is not incorporated in Singapore. However, there are tax incentive schemes applicable to funds managed by fund managers in Singapore under which “specific income” derived by the fund from “designated investments” is exempt from tax. The list of designated investments cover a wide range of investments, including stocks, shares, securities and derivative, but excluding the immovable property in Singapore.
To qualify for the tax incentive schemes, the fund manager must be registered with Monetary Authority of Singapore (MAS) or hold a capital markets services (CMS) licence. The following are the three tax incentive schemes for funds:
- The Offshore Fund Tax Exemption Scheme (Section 13CA)
- The Onshore Fund Tax Exemption Scheme (Section 13R)
- The Enhanced Tier Fund Tax Exemption Scheme (Section 13X)
The key feature and conditions of these tax incentive scheme are summaries below.
| Item | Section 13CA | Section 13R | Section 13X |
| Fund’s Legal Form | Companies, trusts and individual | Company incorporated in Singapore | Company, trust and limited partnerships |
| Fund’s Residence | Non-tax resident of Singapore with
no presence in Singapore (other than the Singapore fund manager and/or Singapore-based trustee if the fund is organised as a trust). |
Must be tax resident of Singapore. | Can be offshore or onshore |
| Fund Manager | Singapore-based and registered with the MAS or holding a CMS license | Singapore-based and registered with MAS or holding a CMS license | Singapore-based and registered with MAS or holding a CMS license |
| Additional Requirement | N.A | At least SGD200,000 business spending per year, using Singapore -based fund administrator, no change in investment strategy after approval | Minimum fund size of SGD50million, at least SGD200,000 local business spending per year, using Singapore based fund administrator if fund is a Singapore incorporated and resident company, no change in investment strategy after approval |
| Investors | Non-qualifying investors (i.e Singapore non-individuals investing above a certain percentage in the fund) would need to pay a penalty to the Singapore tax authority | Non-qualifying investors(i.e. Singapore non-individuals investing above a certain percentage in the fund) would need to pay a penalty to the Singapore tax authority | No restrictions |
| Approval Requirement | Not required | Required approval from MAS | Required approval from MAS |
| Distinctive Features | No approval needed form MAS | Able to access Singapore Double Tax Treaty network | Can apply to both onshore and offshore limited partnerships as well as companies |
Fund Management Incentive
The Financial Sector Incentive for fund managers, the FSI-FM award, aim to promote fund management activities in Singapore. The award provides a concessionary rate of 10% for fund management and investment advisory activities, subject to certain condition being met. For a new applicant to qualify for a minimum 5 years award, the qualifying conditions are:
- Must be registered with or licensed by the MAS to carry out fund management or investment advisory activities in Singapore under the Securities and Futures Act;
- Must have minimum assets under management of at least SGD250 million; and
- Must have at least three professional staff engaged in fund management or investment advisory services. “Professional” is defined as a person that earns more than SGD3,500 per month, and is engaged substantially in the FSI qualifying activity (e.g portfolio manager, research analysts and traders)
MAS may also take into consideration factors such as growth targets for assets under management, business spending and the number of professional employed by the applicant.