Tax Incentives for Funds in Singapore

Singapore has steadily cemented its status as a powerhouse in the global financial sector, much of which can be attributed to its favorable tax policies designed to spur investment and fortify fund management endeavors.

In the heart of this bustling city-state lies a plethora of tax incentives set to revitalise the investment landscape, inviting fund managers to hone their strategies, magnify returns, and pull in capital from discerning investors worldwide. Here, we dissect two pivotal schemes - Section 13O and Section 13U - integral to maximizing fund potential in Singapore's vibrant financial ecosystem.

Section 13O: Onshore Fund Tax Incentive Scheme

The Section 13O scheme opens avenues for "approved companies" to relish tax exemptions on Specified Income (SI) accrued from Designated Investments (DI), managed by a Singapore-based fund manager. The spectrum of DIs encapsulates a variety of financial tools, encompassing investments including but not limited to stocks and securities.

The prerequisites for availing of these exemptions are stringent yet fair, mandating the fund to be tax-resident and operational predominantly from Singapore. Moreover, the managerial reins must be held by a local fund management entity, either holding a capital markets services license or exempted from it. The S13O scheme requires a Singapore based fund administrator and total expenditure of at least S$200,000 annually, without imposing a benchmark on the fund size.

However, the fund must not be 100% owned by Singapore residents.

Section 13U: Enhanced Tier Tax Incentive Scheme

Section 13U stands as an expansive incentive accommodating both onshore and offshore funds, thus fostering versatility across various fund frameworks. Similar to Section 13O, it grants exemptions on SI for approved entities, extending the benefits to fund investors during SI distributions.

This scheme necessitates a nod from the Monetary Authority of Singapore (MAS), establishing a minimal fund size of S$50 million during the application phase and stipulating an annual local business expenditure of at least S$200,000. A requisite to note is the employment of at least three full-time investment professionals for the Fund Manager. Furthermore, if the fund is incorporated or a tax resident in Singapore, it is required to appoint a Singapore based fund administrator.

An edge that Section 13U holds over 13O is the absence of financial penalties on non-"qualifying" investors, broadening the horizon for investor participation significantly.

Summary of key features and requirements of tax incentive schemes for funds in Singapore

	Section 13O	Section 13U
Fund’s Residence	Incorporated in Singapore	No restriction
Fund Manager	Based in Singapore and holds a Capital Market Services (CMS) License
Investors	Investors who do not meet the qualifying criteria (e.g., Singapore non-individuals investing beyond a specified threshold in the fund) will be subject to a financial penalty.	No restriction
Assets Under Management	No restriction	Minimum S$50 million at the time of application
Fund Expenses	Minimum S$200,000 in qualifying expenses in a financial year	Minimum S$200,000 in qualifying local business spending in a financial year
Fund Administrator	Based in Singapore	Based in Singapore if fund is incorporated in Singapore
Investment Professionals	Minimum 2	Minimum 3
Application	Application approved by MAS
Annual Declarations	Required
Income Tax Filing	Annual tax returns filing to IRAS

Navigating the intricate pathways of Singapore's tax regime demands expertise and foresight. At Prestige, we are committed to support fund managers in harnessing the full potential of these tax incentives, providing a clear blueprint on the tax implications and options for your fund. Our team pledges to align with your vision, ensuring a seamless journey that complies with regulatory stipulations.