Singapore, along with Hong Kong and perhaps Shanghai, is a leading asset management hub for institutional investors and fund managers looking to tap into the opportunities in the region. Singapore is increasingly pulling ahead as the premier place for fund management especially with the introduction of the Variable Capital Companies Act. We explained about the Variable Capital Companies Act 2018 in a previous article which can be found here:
The Variable Capital Companies Act 2018
One of the main consideration for setting up a fund in a certain country would be the tax treatment and incentives. As the Monetary Authority of Singapore (MAS) and relevant industry regulators try to position Singapore as the premier regional fund domiciliation hub, tax treatments and incentives would be one of the main attractive factors for funds and fund managers to consider setting up in Singapore. There are namely two forms of income, the fee income earned by the fund manager for carrying out their job and the income and gains derived by the fund itself. To qualify for the following tax treatments and incentives, the fund management companies need to be registered with MAS and hold a Capital Market Services (CMS) license.
The tax treatments of funds are spelt out in sections 13CA and 13R of the Singapore Income Tax Act.
Offshore tax exemptions:
13CA mentions about the Exemption of income of prescribed persons arising from funds managed by fund manager in Singapore. It deals with companies and trusts whereby the fund is not a tax resident of Singapore with no presence in Singapore other than the fund manager or trustee is the fund is a trust. The fund must not be wholly beneficially owned by Singapore investors. The fund manager must be Singapore based and holding a CMS license. Only non-qualifying investors (i.e. Singapore non-individuals with investments above a certain percentage) would need to pay a penalty based on a formula prescribed in the Income Tax Act. Annual statements are required to be sent to investors and non-qualifying investors will need to file taxes with the Inland Revenue Authority of Singapore (IRAS). However, the fund itself will not need to file taxes with IRAS.
Onshore tax exemptions:
13R mentions about the Exemption of income of company incorporated and resident in Singapore arising from funds managed by fund manager in Singapore. It deals with companies that are incorporated in Singapore and are tax residents of Singapore. This onshore fund must not be wholly owned by Singapore investors. The fund manager must be Singapore based and holding a CMS license. Only non-qualifying investors (i.e. Singapore non-individuals with investments above a certain percentage) would need to pay a penalty based on a formula prescribed in the Income Tax Act. The annual fund expenditure needs to be at least SGD$200,000. Annual statements are required to be sent to investors and non-qualifying investors will need to file taxes with the Inland Revenue Authority of Singapore (IRAS). The fund will have to file taxes with IRAS.
On top of the exemptions laid out in these sections, the Financial Sector Incentive (FSI) scheme also reduces the income taxes on the fee income earned by the fund manager from the typical corporate tax rate of 17% to 10%. The qualifying criteria for this scheme would be that:
- the fund manager must hold a CMS license;
- the fund manager must employ at least three experienced investment professionals with a monthly salary of at least SGD$3,500;
- the fund must have assets under management of at least SGD$250 million.
With the introduction of the Variable Capital Companies Act, we foresee that there will be more offshore funds looking to domicile in Singapore. If you would like to set up a Variable Capital Company, we have the relevant expertise to assist you. You can drop us an email at [email protected].
When in doubt, seek legal advice or consult an experienced ACRA Filing Agent.
Yours Sincerely,
The editorial team at Singapore Secretary Services
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