Other BriefingsTax Incentive Requirements for Family Offices in Singapore
We demonstrate the key requirements to qualifying for income tax exemption for family offices in Singapore.
Singapore provides three main income tax exemptions related to family funds, which are regulated under the Income Tax Act of 1947. These are:
- Offshore Fund Exemption Scheme 13D;
- Onshore Fund Incentive Scheme 13O; and
- Enhanced Tier Tax Incentive Scheme 13U.
These three schemes offer tax exemptions on specific income derived from designated investments. The Monetary Authority of Singapore (MAS) announced new stricter criteria for family offices to receive tax incentives in Singapore.
Offshore Fund Exemption Scheme 13D
Under Section 13D of the Income Tax Act, an offshore fund managed by a Singapore-based fund manager will be exempt from tax on income if the fund is a ‘prescribed person’. To qualify as a ‘prescribed person,’ the fund must not be a resident in Singapore and not 100 percent owned by a Singaporean.
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Offshore Fund Exemption Scheme 13D |
|
|
Fund’s legal form |
Companies, trusts, and individuals |
|
Jurisdiction of incorporation |
Non-Singapore tax residence, having no presence in Singapore |
|
Fund manager |
Must be based in Singapore and hold a Capital Markets Services license |
|
Investors |
100 percent by Singapore persons.
Financial penalties apply to non-qualifying persons such as Singapore non-individuals investing above a certain percentage in the fund) |
|
Minimum assets under management |
No restrictions |
|
Minimum annual business spending |
No restrictions |
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Minimum number of professional employees |
None |
|
Local investments |
None |
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MAS approval |
None required |
|
Use of Singapore tax treaties |
No |
|
Singapore Variable Capital Company eligibility |
No |
Onshore Fund Incentive Scheme 13O
The Section 13O scheme exempts specified income from investments in stocks, shares, bonds, treasury bills, bills of exchange, exchange-traded funds, etc. As such, the scheme aims to encourage the establishment of fund vehicles in Singapore.
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Onshore Fund Exemption Scheme 13O |
|
|
Fund’s legal form |
A company incorporated in Singapore |
|
Jurisdiction of incorporation |
Singapore |
|
Fund manager |
Must be based in Singapore and hold a Capital Markets Services license |
|
Investors |
100 percent by Singapore persons.
Financial penalties apply to non-qualifying persons, such as Singapore non-individuals investing above a certain percentage in the fund) |
|
Minimum assets under management (AUM) |
S$20 million (US$14.7 million) |
|
Minimum annual business spending |
S$200,000 (US$147,000) in local business spending |
|
Minimum number of professional employees |
Must have at least two investment professionals (IP). The family office employs IPs as portfolio managers, research analysts, or traders.
They must earn at least S$3,500 (US$2,586) per month and must have the relevant work experience and academic qualifications. |
|
Local investments |
Invest at least 10 percent of AUM or S$10 million (US$7.3 million) in the following:
1. Equities listed on Singapore-licensed exchanges; 2. Qualifying debt securities; 3. Climate-related investments; 4. Blended finance structures; 5. Non-listed funds distributed by Singapore-licensed/registered financial institutions; and 6. Investments in non-listed Singapore-incorporated companies with a significant presence in Singapore. |
|
MAS approval |
Yes |
|
Use of Singapore tax treaties |
Yes |
|
Singapore Variable Capital Company eligibility |
Yes – Singapore incorporated VCCs |
Enhanced Tier Tax Incentive Scheme 13U
The Section 13U scheme also provides a tax exemption on income on designated investments and applies to both offshore and onshore funds. There is no restriction on the percentage of Singaporean investors in the fund and there are few restrictions on the fund’s choice of jurisdiction.
|
Enhanced Tier Tax Incentive Scheme 13U |
|
|
Fund’s legal form |
Company, trust, limited partnership |
|
Jurisdiction of incorporation |
No restrictions |
|
Fund manager |
Must be based in Singapore and hold a Capital Markets Services license |
|
Investors |
No restrictions |
|
Minimum assets under management (AUM) |
S$50 million (US$36.9 million) |
|
Minimum annual business spending |
S$500,000 (US$369,000) in local business spending |
|
Minimum number of professional employees |
Must have at least three investment professionals. The family office employs IPs as portfolio managers, research analysts, or traders.
They must earn at least S$3,500 (US$2,586) per month and must have the relevant work experience and academic qualifications. |
|
Local investments |
Invest at least 10 percent of AUM or S$10 million (US$7.3 million) in the following:
1. Equities listed on Singapore-licensed exchanges; 2. Qualifying debt securities; 3. Climate-related investments; 4. Blended finance structures; 5. Non-listed funds distributed by Singapore-licensed/registered financial institutions; and 6. Investments in non-listed Singapore-incorporated companies with a significant presence in Singapore. |
|
MAS approval |
Yes |
|
Use of Singapore tax treaties |
Yes |
|
Singapore Variable Capital Company eligibility |
Yes – Singapore incorporated VCCs. |
Encouraging SFOs to conduct philanthropic activities
MAS also introduced the Philanthropy Tax Incentive Scheme in its 2023 Budget, which will be implemented on January 1, 2024. The scheme aims to encourage giving overseas using a Singapore family office as a base. Eligible applicants can receive up to a 100 percent tax deduction, capped at 40 percent of the donor’s income.
To encourage local philanthropic activities, MAS will recognize donations to local charities as part of normal business spending.
Through these criteria, Singapore aims to deepen the professionalism and quality of the family offices sector. Further, these criteria will also improve the transparency of family offices in the country since they sometimes have been misused for activities other than fund management under the current requirements.
Hiring professionals for family offices in Singapore
Family offices in Singapore are obligated to hire local investment professionals (IP) to be eligible for tax incentives. Investment professionals are research analysts, traders, and portfolio managers who must earn at least S$3,500 (US$2,586) per month. The investment professional must be a Singaporean tax resident to be considered an IP.
Single-family offices applying for the Onshore Fund Exemption Scheme 13O must have at least two IPs. The family office will be given a one-year grace period to fulfill this requirement. For single-family offices applying for the Enhanced Tier Tax Incentive Scheme 13U, they must hire at least three IPs, with at least one being a non-family member.
It is advisable for family offices to apply for the Offshore Fund Exemption Scheme 13D to have at least one IP to substantiate the fact that the local IP can provide the investment management services of the family office.
“Singapore’s family offices tax incentives, such as 13O and 13U, offer foreign investors a clear path to tax efficiency while driving local impact. With requirements for local talent and climate-friendly investments, Singapore stands out as the go-to hub for investors looking to grow and make a difference” says David Stepat, Dezan Shira & Associates’ Country Director Singapore Office.
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ASEAN Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Jakarta, Indonesia; Singapore; Hanoi, Ho Chi Minh City, and Da Nang in Vietnam; besides our practices in China, Hong Kong SAR, India, Italy, Germany, and USA. We also have partner firms in Malaysia, Bangladesh, the Philippines, Thailand, and Australia.
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