As a fund manager or investor, one of your primary objectives is achieving tax neutrality for your fund.
This means avoiding the imposition of taxes on income and gains and withholding taxes on profit repatriation and return of capital.
In the past, this has typically been achieved by setting up a fund in a jurisdiction with a favourable tax regime or using a tax-transparent structure.
However, the key considerations relating to funding formation have evolved in recent years, with an increasing focus on ensuring that the fund structure considers tax implications at the investment level.
The complexity of fund structuring can vary depending on the asset class, with hedge funds typically having relatively simple structures.
On the other hand, funds investing in hard assets like real estate and infrastructure tend to be more complex due to the various tax considerations at different levels.
Let us look at why Singapore may be a suitable location for setting up and structuring your fund, and what you will need to consider when doing so.
Why Choose Fund Structuring in Singapore?
There has been a trend towards onshoring funds in Singapore recently, which can be attributed to several factors explored below:
Firstly, setting up and maintaining funds in traditional tax haven countries like the Cayman Islands has become significantly more expensive due to increased regulations.
This makes it more cost-competitive to set up funds in countries such as Singapore, which offer government-issued grants to enhance attractiveness.
The Shift Away From Traditional Fund Structures
Secondly, institutional investors like sovereign wealth and pension funds are increasingly moving away from traditional fund structures due to potential reputational risks.
Some family offices and ultra-high-net-worth individuals (UHNWIs) also avoid such structures due to the fear of being labelled as tax evaders.
A Stable Political and Economic Landscape
Thirdly, some investors seek greater operational transparency and control, which can be achieved through onshoring their funds.
By setting up funds in Singapore, investors can easily meet their compliance obligations and access a network of financial services professionals who are knowledgeable and experienced in the local market.
Singapore has become a popular destination for fund managers due to its stable political and economic environment, strong regulatory framework and deep talent pool. It is also a major financial hub in the Asia-Pacific region, with a network of over 90 double taxation avoidance agreements.
These factors, along with the country’s attractive tax regime, make it an appealing location for fund managers. Singapore’s corporate tax rate is 17%, and there is no capital gains tax.
Related Read: 5 Ways to File Your Corporate Income Tax in Singapore Accurately »
In addition, several tax incentives are available for funds, including the Financial Sector Incentive–Fund Management (FSI-FM) scheme. If you are a qualifying fund management company, you can enjoy a concessionary tax rate of 10%.
Considerations for Setting Up a Fund in Singapore
When considering whether to set up a fund in Singapore, there are several main considerations to keep in mind.
Firstly, you need to decide on the legal form of your fund. The most common options for funds in Singapore are companies, including:
- The recent Singapore Variable Capital Company (VCC)
Related Read: Setting Up a Limited Company by Guarantee? Read This Guide »
Each of these has its own advantages and disadvantages, and the best choice for your fund will depend on your specific circumstances and goals.
Next, you will need to consider the regulatory environment in which your investment fund will operate.
Singapore has a well-established and respected regulatory regime for fund management. Its asset management industry has become an international hub for investors and fund managers.
The Monetary Authority of Singapore (MAS) regulates the industry with a risk-based approach. It means that the level of regulation is proportionate to the risks a fund poses.
The regulatory framework in Singapore is designed to protect investors’ interests and ensure the financial system’s integrity.
Another key consideration is the taxation of your fund. As mentioned earlier, Singapore has a favourable tax regime for funds, with a corporate tax rate of 17% and no capital gains tax.
There are also several tax incentive schemes available for funds, including the:
- FSI-FM 10% tax concession
- Enhanced-Tier Fund Tax Incentive Scheme
- Singapore Resident Fund Scheme, which provide for tax exemptions on certain income or gains derived from the funds
In addition to these general considerations, you will also need to consider your fund’s specific requirements, such as the type of assets it will invest in and the investors it will target.
You may also consider fund governance, risk management and investor protection issues.
What is Next for Setting Up a Fund in Singapore?
Overall, Singapore is a highly attractive fund structuring location for fund management companies and investors.
It has a stable political and economic environment, strong regulatory framework, deep talent pool, and attractive tax regime.
It is also a major financial hub in the Asia-Pacific region, which can be beneficial for fund managers looking to tap into the region’s growth.
Related Read: Agility and Resilience: Singapore as a Regional Business HQ Destination »
However, it is important to consider all relevant factors carefully before deciding whether Singapore is the right location for your fund.
If you are considering setting up a fund in Singapore, our team of fund structuring experts can help you navigate the process and ensure that your fund is structured appropriately and cost-effectively.
We offer a range of fund structuring services, including:
- Assistance with the selection of the legal form of the fund
- Advice on regulatory and compliance matters
- Support with the application for tax incentives
Contact us to learn more about how we can help you set up a successful fund structure in Singapore.
Contact our team
- Fund structuring is a way of managing investments that involves creating different types of funds for various purposes.
- You can engage InCorp’s fund structuring team to assist you in establishing and structuring your investment fund in Singapore.
- Aside from being a stable financial hub, Singapore offers a multitude of fund set up and structuring benefits, such as tax incentives and concessionary rates.