The Singapore Value Proposition
For Singapore to attain the incredible trajectory it is now safely impressing on the world at large, its financial sector (Banks, Fund Management Companies , Venture funds, Financial Advisors, etc) has, over the years, been consistently setting the standards of financial regulation and strict supervision. The Monetary Authority of Singapore (MAS) set out to establish a high regulatory yardstick to ensure that the relevant risks faced by all stakeholders are adequately mitigated and in effect to ensure the sustainability of the industry. This promulgates the Asian story, and Singapore is right in the middle of it all.
The Fund Management Company (FMC) in Singapore
Singapore’s success as an international financial centre is premised on its robust supervisory framework and pro-business environment. Supplemented by an extremely attractive tax environment for budding businesses, Singapore’s mature infrastructure and government support for the wealth management sector continue to be attractive to fund managers who intend on establishing a presence in Singapore. These factors have attracted leading financial institutions and global investors to operate with confidence in Singapore.
Fund Management continues to be one of the main Regulated Activities in Singapore, with approximately 900 Fund Management Companies in existence.
Regulatory framework for Fund Managers
FMC’s are divided into two main categories, Registered Fund Management Companies (RFMC) and Capital Markets Services Licence (CMSL). The former is subject to less stringent compliance requirements and oversight whereas the latter would be deemed to be a full license and would have stricter preconditions before being granted to an applicant.
A summary of the key requirements and ongoing compliance for Licensing or Registration as per the table below.
|Requirements||Licensed FMC’s-Retail||Licensed FMCs -Accredited Investor (A/I)||RFMC|
|Amount of Assets under Management||Above S$250 million||Above S$250 million||Maximum of S$250 million|
|The number of Directors & Experience||Minimum of 3 Directors with at least 2 with more than 5 years relevant experience, and 1 with more than 10 years relevant experience. At least 1 must be Executive and Singapore-resident.||Minimum of 2 Directors with more than 5 years relevant industry experience. At least 1 must be Executive and Singapore-resident.||Minimum of 2 Directors with more than 5 years relevant industry experience. At least 1 must be Executive and Singapore-resident.|
|Minimum Base Capital Requirements||S$500,000 or S$1 million||S$250,000||S$250,000|
|Investor Type||All investors – no limitation||Limited to Qualified Investors||Limited to Qualified Investors|
|Number of Investors||No Limits- All type of investors||No Limits- All type of investors||Maximum of 30 investors (which may include up to 15 funds)|
|Compliance Arrangements||Full time, independent compliance function||This function can be outsourced if the AUM is less than S$1 b.||Can be outsourced as per complexity and scale of business|
|Professional Indemnity Insurance||Compulsory, coverage proportionate to AUM||Encouraged to be maintained||Encouraged to be maintained|
|Reporting requirements||Annual and Quarterly||Annual and Quarterly||Annual|
|Risk-Based Capital Requirements||120% of Operational Risk Requirements||120% of Operational Risk Requirements||None|
| Qualified investors: Accredited Investors, Collective Investment Schemes offered in Singapore only to Accredited Investors and Closed-end funds whose holders are Accredited Investors only. Accredited investors are individuals whose net personal assets exceed S$2 million or equivalent in value or whose income in the preceding year is not less than $300,000, or corporations with net assets exceeding S$10 million or equivalent in value.|
Fit and Proper – An FMC should satisfy MAS that its shareholders, directors, representatives and employees, as well as the FMC itself, are fit and proper, in accordance with the Guidelines on Fit and Proper Criteria issued by MAS.
Tax regimes for funds and fund managers
Singapore is a vital location for managers of private equity, real estate and hedge funds to be based in, especially for investments in the Asia Pacific region. Singapore is also increasingly being used as a preferred location for fund vehicles (funds).
The splendid growth of the fund management industry in Singapore can be accredited to several factors, including the ease of doing business in Singapore and attractive tax incentives for funds and fund managers. Outside of the traditional offshore funds’ jurisdictions such as the Cayman Islands, Singapore is viewed as having one of the most attractive regulatory and tax regimes for funds and fund managers.
The Tax Exposure of Funds Managed by a Singapore Fund Manager
Singapore based fund managers that manage funds may be liable to tax in Singapore due to territorial activity. The fund manager may create a taxable presence in Singapore for the fund (whether onshore or offshore) and, therefore, certain income and gains derived by the fund may be considered as Singapore-sourced and liable to tax in Singapore. However, this tax liability could be eliminated under Singapore’s tax incentive schemes for funds, provided that certain conditions are met.
Synopsis of Tax Incentive Schemes in Singapore for Funds
There are three main tax exemption schemes available to funds managed by fund managers in Singapore under which “Specified Income” (including gains) derived by the fund from “Designated Investments” is exempt from tax. All funds that are subject to any of the tax incentive schemes as at 31 March 2019 may enjoy the tax exemption for the life of the fund, subject to the funds continuing to meet the relevant conditions of each scheme.
Fund Management Company set-up options
Funds in Singapore can either be set up as companies, unit trusts or limited partnerships.
The preferred structure for funds investing into Asia remains the private limited company (“PTE LTD.”) as Singapore’s tax treaties only apply to companies. Opting for the PTE LTD structure requires compliance with the Singapore Companies Act. In practice, this means that:
- The fund has to make annual filings to both the registrar (ACRA) and the tax authorities (IRAS)
- Any subscriptions or redemptions from the fund need to follow the requirements of company law
- Certain information about the fund is publicly available
- Investors invest into funds structured as companies usually via redeemable preference shares, with the promoters of the fund holding the ordinary shares.
- Upon issuance or redemption of preference shares, companies must prepare the relevant resolutions and update the details with ACRA
Mutual Funds often elect to form as a Unit Trust, which offers the advantage of not being governed by the Singapore Companies Act. However, there is the need to appoint an Approved Trustee of a Unit Trust, a form of Collective Investment Scheme (CIS), possibly increasing the cost of running the structure.
Limited Partnerships are a popular vehicle for funds worldwide. In Singapore these are governed by the Limited Partnership Act. Limited Partnerships offer fewer annual compliance requirements and less public disclosure than companies. However, Singapore’s tax treaties do not apply to limited partnerships
Benefits of Establishing in Singapore
Singapore’s strong infrastructure and attractive tax system have developed it into a leading fund management center, where institutions can handle fund operations with a presence and substance in Singapore for the following reasons:
- Competitive and transparent tax system
- Extensive tax treaty network worldwide
- Territorial tax system
- No capital gains tax
- Tax exemptions specifically for the fund industry
- Numerous other tax incentives available to all Singapore companies
- OECD whitelist
- Strong regulatory environment and investor protection
- Ease of doing business
- Effective legal system
- Skilled local workforce
- English as the first language
- Hub for a vast number of financial institutions and service providers.
Disclaimer: The information contained in this document is for general reference only. While all reasonable care has been taken in the preparation of this document, TokenUp Technology cannot accept any liability for any action taken as a result of reading its contents without consulting us with regard to relevant factors.
Your Market-Entry Solution
TokenUp Technology provides the full spectrum of services for Fund Managers compliance. Our dedicated regulatory compliance team comes with extensive knowledge, diverse experience and ability to react fast. This enables clients to rely on us in this manner so much so that we are an extension of their team.
We can help the client in the following:
- Setting up your business – We will incorporate the appropriate structure
- License Application– We analyse your business type and help you put a regulated business plan together with your license application. We check all relevant documentation to be provided to the MAS prior to submission of your license Application
- Policy and procedure- We ensure that your policies and procedures are adequately set up to complement your business strategy.
- Risk Management & Corporate Governance– We set up your Risk Management Framework & Compliance Monitoring Plan to ensure that the implemented policies and procedures are executed accordingly.
- Ongoing Compliance– Our team will be at your fingertips to ensure that any queries or questions relating to your compliance technicalities are resolved.