SINGAPORE – Building on the momentum from the Singapore government’s announcement on the Singapore Variable Capital Company (S-VACC) framework to further strengthen the country as an asset management and funds domicile hub in the previous year, the recent boost to tax incentives for funds has been viewed as the country’s concerted efforts to support its leading position. The few but significant changes to tax incentives in the Income Tax Act (ITA) were delivered in the Singapore Budget by Minister for Finance Mr. Heng Swee Keat in February 2019.
It comes as no surprise that the three main fund tax exemptions related to qualifying funds, i.e. Sections 13CA, 13R and 13X of ITA, were extended before lapsing after 31 March 2019, and suitably refined to increase liberalisation and grant greater flexibility. These tax concessions are extended till 31 December 2024.
Basic-tier funds: Removal of 100 percent Singapore persons requirement
Previously, Section 13CA (relating to offshore funds) and 13R (a Singapore-Resident fund scheme) require that a fund must not have 100 percent of the value of its issued securities beneficially owned, directly or indirectly, by Singapore persons. This provides fund managers with greater flexibility in raising funds from Singapore investors, while making the scheme more relevant for private wealth structures for Singapore families. The removal of this requirement will be effective from Year of Assessment (YA) 2020.
Enhanced-tier funds: Expansion and liberalisation to Master-SPV structures
The enhanced tier fund scheme was enhanced to (i) include co-investments, non-company special purpose vehicles (SPVs) and more than two tiers of SPVs, (ii) allow debt and credit funds to access the “committed capital concession”, and (iii) include managed accounts. These changes were made to increase the attractiveness of the 13X scheme, but not without conditions, i.e. where the co-investors must be incentivised entities or foreign investors. The onus falls on fund managers to ensure that the co-investors do not run afoul of the requirements or risk losing their exemption status for the fund structure. These enhancements apply on and after 19 February 2019.
Expanding the list for Specified Income and Designated Investments
The list of designated investments (DI) was expanded by removing the counter-party and currency restrictions, and including investments such as credit facilities and advances, and Islamic financial products that are commercial equivalents of DI. The condition for unit trusts to wholly invest in DI was removed. Additionally, the list of specified income (SI) was enhanced to include income in the form of payments that fall within the ambit of section 12(6) of the ITA. These enhancements apply to income derived on and after 19 February 2019.
The expansion of the exhaustive list for DIs reaffirmed the government’s commitment to the scheme, although the burdensome task of considering each and every asset held by an incentivised fund within the list can be greatly reduced if there is a switch to an exclusionary list, not dissimilar to the definition of SI.
Furthermore, qualifying non-resident funds under sections 13CA and 13X will be able to avail themselves of the 10 percent concessionary tax rate applicable to qualifying non-resident non-individuals when investing in Singapore-listed real estate investment trusts (S-REITs) and real estate investment trusts exchange-traded funds (REITs ETFs) made during the period 1 July 2019 to 31 December 2025.
Although light on tax-related changes, the budget 2019 has refined its competitive tax regime to help Singapore attract and retain investments. Securing greater flexibility in the regulatory and tax frameworks, together with simplified compliance requirements, are certainly welcomed by the fund management industry.
About the Authors
Vicky Wang is Strategic Communications and Research Intern at DesFran. With a strong interest in global finance and economics, she produces articles covering corporate finance and regulations. Vicky is currently pursuing a bachelor’s degree in Business Administration (Strategic & Management Consulting) with a double major in Economics at Emory University in the United States.
Joyce Sun is Strategic Communications and Research Intern at DesFran. Joyce enjoys learning as she writes financial news blurbs and editorials involving financial regulatory developments due to her keen interests in equities and finance-related topics. She is a final year honours student at the National University of Singapore hoping to pursue a career in the finance industry, and to continue developing her knowledge in investments.