Changes to the Singapore Tax Incentive Schemes for Funds 2024

This article provides an overview of the recent developments in relation to the Singapore Tax Incentive Schemes for Funds.

The Monetary Authority of Singapore (MAS) [1] has recently announced in a circular (FDD Cir 10/2024) (the Circular) the extension of the tax incentive schemes for funds (Section 13D, 13O and 13U) until 31 December 2029, along with updated criteria for these schemes. Approved funds can enjoy tax exemption for the life of the fund, provided it meets the relevant conditions for the basis period.

Refinement to the schemes

MAS has been continually supporting Singapore’s asset management industry by adopting a pragmatic approach to calibrating tax incentives and regularly reviewing them to ensure they remain relevant to the industry. The 13D/O/U schemes play a key role in incentivizing funds in Singapore, granting tax exemption for specified income (SI) in respect of any Designated Investment (DI) derived by the fund. Changes to the tax incentive schemes outlined in the Circular aim to ensure substance in Singapore, which has been an area of focus in recent years.

We append below some of the key updated conditions which will take effect from 1 January 2025. Please note that these apply to non-Single Family Office funds (i.e., fund vehicles that do not hold assets for or on behalf of a single family, which have separate requirements).

Section 13O tax incentive scheme:

• The fund is not required to be a newly set up company, which allows existing investment vehicles to apply for 13O.
• Investment Professional (IP) requirement: The fund must be managed by a Singapore fund management company (FMC) that employs at least two IPs.
• Assets Under Management (AUM): The fund must have at least S$5 million in AUM comprising investments in DI.
• Introduction of the Section 13OA scheme for Singapore Limited Partnerships (LP): Tax exemption will be applied at the partnership level, and the qualifying conditions will be similar to the qualifying conditions under 13O.

Section 13U tax incentive scheme:

• AUM: The fund must have at least S$50 million in AUM comprising investments in DI at the point of application and maintain the same as at the end of each financial year (FY).
• For Special Purpose Vehicles (SPVs) and trading feeder funds, the fund is not required to fulfill the 13U conditions (i.e., AUM and business spending requirements) on a multiplication basis.
• The minimum fund size must now be met at the end of each FY, rather than only at the point of application.

For all 13O/13OA/13U, the following will apply:

• The fund is no longer required to seek MAS approval for a change in investment strategy but must notify MAS of such changes.
• The following tiered local business spending (LBS) will apply for each FY:

• Existing approved funds will have a grace period to meet these new conditions, while new funds will be given time to comply with them, subject to conditions.
• Introduction of “closed-end fund” treatment
  • Funds with 13O/OA/U awards commencing on or after 1 January 2025 may voluntarily opt in for a special treatment that waives the annual AUM requirement from the sixth incentive year and allows LBS requirement to be met on a cumulative basis up to the tenth incentive year, and waived from the eleventh incentive year.
  • Existing 13O/OA/U funds may opt into the treatment; however, this would entail the revocation of the existing incentive award and require application for a new award.
  • Election of the “closed-end fund” treatment is irrevocable.

Section 13D tax incentive scheme:

The 13D scheme will remain a self-administered tax incentive with a new requirement to be managed by a Singapore FMC that employs at least one IP.

Other aspects:

• Goods and Services Tax (GST) remission and Withholding Tax (WHT) exemptions will similarly be extended until 31 December 2029.
• Existing funds with awards commencing prior to 1 January 2025 will be given a grace period to fulfil the updated conditions.
• Sufficient time will be provided for new applicants to fulfil the updated conditions.
• The definition of AUM shall refer to the value of investments held by the fund that qualify as DI (as opposed to the net asset value of the fund).

Our thoughts 

Overall, the changes align with Singapore’s ongoing efforts to incentivize funds with economic substance, offering greater flexibility, which is particularly evident with the introduction of new treatments such as the Section 13OA scheme and closed-end fund treatment. These updates will support smaller funds, especially private equity and venture capital funds, for which the qualifying conditions may have been challenging to meet in practice.

Furthermore, the removal of MAS approval for changes in the investment strategy reflects a practical change, as fund managers often need to adjust their strategies based on market conditions. This will certainly reduce administrative burdens and expedite decision-making which is essential in volatile markets.

In summary, the changes are largely positive and forward-looking, and we appreciate MAS’s responsiveness to industry feedback, which highlights its ongoing commitment to fostering the growth of Singapore’s asset and wealth management sector. The extension of these schemes will not only offer long-term certainty for Singapore-managed funds but also ensure their meaningful contribution to Singapore’s economy, further enhancing Singapore’s position as a global financial center.

We would be pleased to speak to you about the Singapore Tax Incentive Schemes for Funds and how the recent developments may impact you. Feel free to reach out to us.

[1]https://www.mas.gov.sg/

https://www.alvarezandmarsal.com/insights/changes-singapore-tax-incentive-schemes-funds-2024