Tax Incentive Schemes for Funds

Overview

To offer a conducive investing environment for Singapore-based fund managers, the Singapore government has created various tax incentive schemes for funds under sections 13D, 13O and 13U (“S13D”, “S13O” and “S13U” respectively) of the Income Tax Act 1947 (“ITA”) to provide tax exemption to fund vehicles that are

managed by Singapore-based fund managers, subject to the fulfilment of the schemes’ conditions throughout the relevant period.

The tax exemption is granted in respect of specified income (“SI”) derived by the fund vehicles from funds managed by a fund manager in respect of designated investments (“DI”). Such qualifying funds are also entitled to enjoy withholding tax (“WHT”) exemption and Goods and Services Tax (“GST”) remission.

As part of the 2024 Budget statement, the Minister of Finance has announced the extension and revision of the tax incentive schemes for funds managed by Singapore-based fund managers:

Extension of the Tax Incentive Schemes for Funds

a. Application of Section 13U, Section 13O and Section 13D (collectively, the “Tax Incentive Schemes”) have been extended till 31 December 2029.

b. GST remission will continue be available for qualifying funds

c. Withholding Tax (“WHT”) exemption will continue to apply to interest and other qualifying payments made to non-residents by qualifying funds

d. Tax Incentive Schemes will be available throughout the life of the fund

Changes to Section 13O scheme

a. Removal of the condition that a fund must be a newly set-up company – it is, however, advisable to make any investments only after the application of S13O has been submitted to MAS.

b. S13O incentivised funds must be managed or advised directly throughout each basis period relating to any YA by a fund management company (“FMC”) in Singapore that has employed at least 2 investments professionals (“IPs”)

c. New minimum AUM requirement of S$ 5million at the end of each financial year.

d. New tiered-based Local Business Spending (“LBS”)

AUM in DI as at the end of the FY(S$)	Minimum LBS for the FY (S$)
AUM < 250 million	200,000
250 million ≤ AUM < 2 billion	300,000
AUM ≥ 2 billion	500,000

e. Allowing funds to change its investments strategy due to bona fide commercial reasons

f. Introduction of new S13OA scheme for Limited Partnership (“LP”) funds – where GPs will be held responsible for meeting the incentive conditions

Changes to Section 13U scheme

a. S13U funds will now be required to have at least S$50 million of AUM (where AUM = fair value of the investments) in the DI at the point of application and must maintain S$50 million of AUM in such DI as at the end of each financial year to avail of the S13U exemption for the corresponding YA.

b. Removal of additional minimum AUM and LBS requirements in respect of a SPV or trading feeder fund for S13U fund structures – S13U funds will only need to meet the minimum AUM requirement of S$ 50m and its LBS, regardless of the number of trading feeders and SPVs in the structure.

c. New tiered-based Local Business Spending

AUM in DI as at the end of the FY(S$)	Minimum LBS for the FY (S$)
AUM < 250 million	200,000
250 million ≤ AUM < 2 billion	300,000
AUM ≥ 2 billion	500,000

d. Allowing funds to change its investments strategy due to bona fide commercial reasons

Changes to Section 13D scheme

a. S13D fund must be managed or advised directly by an FMC in Singapore with at least one investment professional

Introduction of a “close-ended fund” treatment for all tax incentive schemes

MAS recognises that closed-end funds may have declining LBS and AUM in the later part of their fixed lifespan. Accordingly, funds may voluntarily opt into a “closed-end fund” treatment with the following key features (including waiver of the AUM and LBS requirements after a specified period):

a. The annual AUM requirement will have to be met from the fund’s first incentive year to the fifth incentive year (inclusive) and will be waived from the sixth incentive year onwards.

b. The annual LBS condition will have to be met on a cumulative basis up to the tenth incentive year (inclusive) and will be waived from the eleventh incentive year onwards.

c. The fund is required to have its incentive award revoked with effect from the end of its divestment phase, or the day immediately after its 20th incentive year, whichever is earlier.

d. Election of “close-ended fund” is irrevocable

Funds wishing to avail of the closed-end fund treatment will be required to make a one-time election at the point of application for the S13O, S13OA or S13U award from 1 January 2025. The election, once made, is irrevocable (i.e. a fund cannot “switch” from the existing treatment to the closed-end fund treatment and vice

versa).

Existing S13O and S13U funds with awards commencing prior to 1 January 2025 may apply for “closed-end fund” treatment, and such an application would entail the revocation of the existing incentive award and the application for a new award.

Clarification that real estate investment funds constituted in any form are DI

MAS further clarifies that the DI list has been expanded to include real estate investment funds which are constituted in any form, including legal form which may be dissimilar to that in Singapore, or is a non-legal entity that is akin to an undertaking or a contractual arrangement.

Committed Capital Concession

The committed capital concession is still available for real estate, infrastructure, private equity (including a private equity fund of funds), debt or credit fund that operates on a committed capital concept; and is regarded to have met the AUM requirement if it has secured a committed capital of at least the required minimum fund size of S$50million at the point of application.

The below conditions are required to be fulfilled for each basis period for the fund’s committed capital to be recognised under the committed capital concession scheme:

a. The fund remains a real estate, an infrastructure, a private equity (or fund of funds), a debt or a credit fund;

b. The level of committed capital must be legally enforceable through a contract between the investor and the fund, and the fund manager should have recourse to recover any capital committed or to take the necessary remedial action in the event the investor defaults on its commitments;

c. The fund must demonstrate that a component of payments made to the fund manager is charged based on the committed capital (i.e. undrawn amounts included); and

d. With relations to LBS, minimum LBS shall correspond to the amount of committed capital or the actual AUM in the DI, whichever is higher.

Summary

Overall, the revision of the tax incentive schemes announced by the Minister of Finance during the 2024 Budget statement is a welcome change.

The changes emphasise on MAS’s commitment to continuously evolve and enhance its regime, enforcing substance requirements while also allowing Managers with better ease of operations through the expansion of S13O to include Limited Partnerships (“S13OA”); removal of the multiplier AUM and LBS requirement for trading feeder and SPV, a tiered base LBS and most importantly, the introduction of the “Close-ended-fund” treatment, to release such funds from the AUM requirements towards the end of life of fund.

How we can help

As an experienced operator in Singapore, we can assist to understand your structures and assessing the impact of the new tax incentive schemes requirements to your current operations.