Singapore is an attractive location for basing funds in the Asia Pacific Region as well as for fund managers. The ease of doing business in the city-state, along with the favorable taxation of investment funds in Singapore are among the top reasons why the fund management industry has been developing at a significant rate.
The experts at our accounting firm in Singapore highlight the main issues that need to be taken into consideration regarding the taxation regime for funds. Funds are subject to an attractive incentive scheme and also to the low corporate income tax rate that is generally applicable in Singapore.
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The main taxes on investments in Singapore
The Singapore tax authorities favor both individuals and companies making investments through a low taxation level, but also through exemptions and deductions. As a matter of fact, Singapore is one of the world’s states which offers a great number of incentives.
Those deriving income from various investments must pay the income tax which depends on the type of investment, but also on the account of residency.
The following types of investments are subject to taxation in Singapore:
- income derived from real estate sale or rental;
- income from fixed deposits in local banks;
- income obtained from shares and/or unit trusts (dividends).
In the last category also enters income obtained from Real Estate Investment Trusts (REITs), however, this is exempt from taxation under certain circumstances. The distribution of dividends obtained by individuals is subject to the income tax if they are derived through a partnership or if they resulted from a trade, profession or business.
Another aspect to consider when it comes to the taxation of Singapore investment funds is the levy imposed on fund managers.
Taxation of investments can be explained by our accountants in Singapore who can also offer consultancy on other tax-related matters.
Tax regimes applicable to fund managers in Singapore
Setting up an investment fund in Singapore brings many benefits, among which several exemptions from taxation applied to the managers. For these to be obtained, a fund manager must fall under one of the following tax regimes:
- the basic fund regime;
- the offshore regime;
- the resident fund regime;
- the enhanced-tier fund scheme.
Under the basic tax regime, an investment fund can have a Singapore natural person as a manager, however, he or she must establish a presence in the city-state. The fund manager will be subject to taxation on the income and other gains obtained from his or her activities in Singapore even if the investment fund is created abroad. If a double tax treaty with Singapore is in place, the manager can benefit from the provisions of the respective agreement in relation of the types of incomes falling under its incidence.
The offshore fund regime applies to investment funds registered in offshore jurisdictions and managed from Singapore (the manager must have a taxable structure set up in the city-state) can benefit from income tax exemptions from certain investments if the fund is set up as a prescribed person (the fund in registered abroad by a majority of foreign owners).
Under this regime, each investor in the fund is also subject to a few requirements in order to obtain various tax exemptions. Such benefits are available for investments like stocks, shares, derivatives and securities. An investor must be a Singapore resident and own less than 30% of the fund in order to obtain the tax advantages offered under the offshore fund regime.
The Singapore resident fund scheme was created in order to encourage managers to establish themselves in the city-state while offering them the same tax benefits as those available under the offshore fund regime. The main advantage of this program is that Singapore has a wide network of double tax treaties which now encompasses more than 80 countries. In order to benefit from this scheme, the fund manager must obtain authorization from the Monetary Authority. Also, the fund must be created through a corporate vehicle and its management must be based and performed in Singapore.
The last tax regime applicable to investment funds is the enhanced-tier fund scheme which provides for tax exemptions for income and gains obtained from specific investments. This is one of the most flexible approach to the taxation of fund managers in Singapore as there are no restrictions on how much of the fund must be owned by Singapore-resident investors. However, the fund must obtain authorization from the Monetary Authority and must have a minimum size of 50 million SGD.
Our accounting firm in Singapore has extensive experience in handling complex taxation matters and if you need assistance, you can rely on us anytime.
What is the tax framework for funds and fund managers in Singapore?
Singapore’s fund and fund management industry is regulated by the Securities and Futures Act and entities, such as partnerships or limited liability companies that are engaged in these types of activities are required to register with the Monetary Authority of Singapore as a Registered Fund Management Company.
Singapore-based fund managers are subject to taxation as certain types of income and gains may be considered Singapore-sourced and thus liable to the usual taxation rates. The following apply a 17% corporate income tax rate or a 0-20% personal income tax rate. In general, income derived by individuals from real estate investment trusts (REITs) is not subject to income tax. However, this does not apply when the distribution is derived by individuals through a Singapore partnership or from carrying out a business, profession or trade.
Companies may seek our accounting services in Singapore in order to receive complete and personalized information on the types of income from funds that are taxable for fund management companies.
What are the tax incentives for investment funds in Singapore?
Funds in Singapore may be subject to tax exemption during their entire duration when they meet the conditions to qualify in one of the tax incentive schemes for this purpose, as of 31 March 2019.
The list below highlights the main tax incentive schemes for Singapore funds:
- The offshore fund tax exemption scheme: for companies, trusts or individuals, for example, a limited partnership in Singapore.
- The onshore fund tax exemption scheme: for a Singapore company that is a resident company and the onshore fund benefits Singapore investors 100%.
- The enhanced tier fund tax exemption scheme: for companies, trusts and limited partnerships (subject to conditions), with no restrictions on the fund’s residence.
- The fund manager scheme: this scheme may be subject to restrictions; however, it does apply to Singapore-based fund managers.
An accountant in Singapore from our team can provide investors with more detailed information about the tax exemption schemes according to the type of fund.
What are the main conditions for tax incentive schemes for Singapore funds?
The three main tax exemption schemes, the offshore, onshore and enhanced tier exemption schemes are the ones that present different levels of interest to investors, as they may apply in their condition.
The offshore fund tax exemption scheme applies to funds that are not 100% owned by Singapore investors (directly or indirectly) and those that are non-tax residents in Singapore, with no established presence in the city-state.
For the onshore fund tax exemption scheme, a relevant condition is that the fund expenditure needs to be at least 200,000 SGD a year and that the fund administrator needs to be based in Singapore.
The enhanced tier fund tax exemption scheme also has a condition for a minimum fund expenditure of 200,000 SGD per year and the fund administrator needs to be Singapore-based in those situations in which the fund is formed as a resident Singapore company.
The onshore fund tax exemption scheme also allows access to the Singapore double tax treaty network while the enhanced tier fund tax exemption scheme allows access only in certain cases.
Our team of accountants in Singapore can provide investors with more information, such as the reporting requirements for each of these schemes.
While other offshore jurisdictions, such as the Cayman Islands, remain attractive for their zero-tax policies, Singapore retains its position as one of the most attractive destinations for fund managers, due to its tax regime for funds.
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Fund management regulatory framework in Singapore
Fund managers must obtain one of the following licenses with the Singapore Monetary Authority:
- capital markets services (CMS) license with a minimum base capital of 250,000 SGD;
- licensed fund management company (LFMC) with a minimum base capital of 500,000 SGD or 1 million SGD depending on the structure of the investment fund;
- registered fund management company (RFMC) with a minimum base capital of 250,000 SGD.
Investors can contact our accountants in Singapore for complete information on the tax framework for funds and fund managers. Our accountants can also perform audits for your company. A departmental level activity that is a part of the main activities of a business is the focus of administrative internal control reviews. Typically, areas including payroll and benefits, cash management, inventory and equipment security, grants and contracts, and financial reporting are reviewed. Our auditors in Singapore can also help in such cases.
You can also contact us for complete accounting services for resident and non-resident companies as well as professional assistance for all tax-related matters, from GST registration in Singapore to payroll services.