Tax Incentive Requirements for Family Offices in Singapore

Posted by Written by Ayman Falak Medina Reading Time: 4 minutes

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.

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

Minimum number of professional employees

None

Local investments

None

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.

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.

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