Written by Dave Lim Chia Chern
Singapore has various tax incentive schemes under the Income Tax Act (Cap 134) (“ITA”) in addition to other tax incentives for funds managed by single family offices. These incentives and schemes allow for offshore and onshore investment vehicles to be exempted from income tax on certain designated investments.
- Onshore Fund Tax Incentive Scheme (Section 13R)
- Enhanced-Tier Fund Tax Incentive Scheme (Section 13X)
- Goods and Services Tax (“GST”) remission for qualifying tax-exempted vehicles to recover GST incurred on expenses for the purpose of investment activities
- Withholding tax exemption on interest-related payments made by the qualifying tax-exempt vehicle (subject to certain conditions)
- Double Taxation Agreements (DTAs) are available to SFO who may be able to reduce or not pay withholding taxes on certain types of income
- No inheritance or capital gains tax
- Financial Sector Initiative – Fund Management (“FSI-FM”) Scheme
A summary of the the ITA’s Tax Incentive Schemes can be found as follows:
Singapore Tax Resident
Fund’s Legal Form
Company incorporated in Singapore
Companies, trust (certain exceptions apply here), and limited partnerships.
Must be based in Singapore and holding a capital market services (“CMS”) licence or expressly exempted from the same.
Non-qualifying investors (i.e. Singapore corporate investors who invest over a prescribed percentage) have to pay a penalty.
Assets under Management (“AUM”)
Min. of S$50 million
At least S$200,000 business spending in a year.
At least S$200,000 local business spending in a year.
MAS approval required
Changes in investment strategy are not allowed after approval from MAS has been obtained
Annual Statements to investors.
Income Tax Filing
Annual tax returns to IRAS.
Annual tax returns to IRAS
For the Monetary Authority of Singapore (“MAS”) to grant S13R or S13X tax incentive schemes (on a case-by-case basis), MAS would require the following information to consider the eligibility of the applicant single family office:
- Names of the shareholders and directors of the single family office;
- Description/information on the activities that will be carried out by the single family office;
- Description/information of the shareholding structure of the single family office;
- Description/information on how the single family office is related to the investment fund vehicle and the beneficiaries.
Successful applicants under the S13R and S13X schemes also allow family members who join the single family office as investment professionals to apply for Employment Pass in Singapore (one for S13R and three for S13X), which can offer a provisional solution pending permanent residency applications.
Successful applicants under the S13R and S13X schemes before 31 December 2024 can enjoy benefits of the scheme for the life of the fund, on condition that the continuing operational conditions for the entities are met.
SFOs established under the S13R and S13X scheme can also employ the new Variable Capital Company (“VCC”) structure which came into operation on 14 January 2020. A VCC can take the form of a free-standing fund or as an umbrella fund with two or more sub-funds. A VCC structure is deemed as a single company, with a single identity for tax functions, removing the need for multiple tax returns.
Notwithstanding the tax exemption schemes available to the fund vehicles, SFOs in Singapore could apply for a tax incentive under the Financial Sector Initiative for Fund Management which promotes and incentivizes fund management and the purveyance of investment advisory services in Singapore. Under this scheme, investment advisory and fund management activities are granted a reduced tax rate of 10% instead of the current corporate income tax rate of 17%), subject to meeting certain conditions and the approval of MAS.
The MAS provides exemptions for SFOs engaging in fund management and financial advisory activities from licensing and regulatory requirements. Under MAS’s exemptions, an SFO that engages in regulated activities will not need to be licensed if it provides its services to a “related corporation”. Examples of regulated activities include fund management and financial advisory. These exemptions may be granted on a case-to-case basis.
Furthermore, there are many administrative requirements necessary in setting up an SFO including the registration of the corporate vehicle(s), the opening of bank accounts, preparations of annual tax reporting, as well as other regulatory reporting requirements such as the Common Reporting Standards (“CRS”) and the Foreign Account Tax Compliance Act (“FATCA”).
Singapore’s growing status as a financial hub has become a preferred destination to set for well-heeled families to set up SFOs. The SFO structure should allow for effective family governance and smooth inter-generational transfers. Credence can assist with your vision of setting up an SFO and a VCC in Singapore, the application of tax incentives, support with the regulatory process and ongoing taxation or accounting requirements. Please feel free to contact us to find out more about setting up SFOs in Singapore.