Qualifying Debt Securities Scheme Extension and Refinements

By Shaun Zheng

As economies around the world recover from the aftermath of the COVID-19 pandemic, governments and corporates will continue and / or start embarking on their (new) growth strategies, and with that, the need to seek financing for their expansion programmes. Running in parallel, global investors will be seeking out investment opportunities that are appropriately priced.

With S$232 billion of debt issued in 2021 and with new debt issuances growing 4% year-on-year, the capital market, specifically the debt market, continues to be a key development area for Singapore where borrowers can be offered a stable source of funding for long-term funds and to provide sophisticated investors of today with an alternative investment option. This will help cushion our financial system from shocks associated with an over-reliance on short-term capital flows and over-dependence on bank lending.

The tax incentive that is considered one of the most instrumental to the development of Singapore’s debt capital markets is the QDS regime, which was introduced sometime back in 1998.

A principal feature of the regime was the introduction of a favourable tax treatment for interest derived by investors – prescribed income from QDS derived by any body of persons or a company operating in Singapore is subject to tax at a concessionary tax rate of 10%. More particularly, the removal of withholding tax on interest derived by non-residents was crucial in allowing local debt issuers seeking financing to tap into the international capital markets. Since then, the QDS scheme has over time, been embedded into other incentives that were introduced to encourage other financial activities such as the asset securitisation incentive.

Broadly, QDS refers to:-

  • Singapore Government Securities that are issued during the period from 28 February 1998 to 31 December 2023 (both dates inclusive);
  • Bonds, notes, commercial papers and certificate of deposits (collectively referred to as “debt securities”), which are arranged in accordance with the Income Tax (Qualifying Debt Securities) Regulations (hereinafter referred to as the “substantially arranged” condition) and issued during the period from 28 February 1998 to 31 December 2023 (both dates inclusive); and
  • Insurance-Linked Securities (“ILS”) that are debt securities and issued by Special Purpose Reinsurance Vehicles licensed under the Insurance Act 1966 during the period from 20 December 2018 to 31 December 2023 (both dates inclusive) and where at least 20% of the costs incurred in issuing ILS are for expenses paid to (and hence attributable to revenue earned by) entities in Singapore, if the ILS are unable to meet the “substantially arranged” condition.


Deputy Prime Minister and Minister for Finance, Mr Lawrence Wong, delivered his Budget Statement for the Financial Year 2023 on Tuesday, 14 February 2023 to which he had mentioned, amongst others, that the country will continue to support the development of Singapore’s debt market. To this end, the QDS Scheme, which was originally slated to expire on 1 January 2024, has now been extended for a further 5 years until 31 December 2028 together with the following refinements:-

Changes to the “substantially arranged” condition

The requirements that a QDS has to be substantially arranged by Financial Sector Incentive – Bond Market (“FSI-BM”) companies, Financial Sector Incentive – Capital Market (“FSI-CM”) companies and /  or Financial Sector Incentive – Standard Tier (“FSI-ST”) companies will be widened to include the following entities holding the relevant licenses (collectively, the “specified licensed entities”):-

  • Any bank or merchant bank licensed under the Banking Act 1970;
  • Any finance company licensed under the Finance Companies Act 1967;
  • An entity that holds a Capital Markets Services Licence under the Securities and Futures Act 2001 to carry out the regulated activities such as advising on corporate finance or dealing in capital markets products (securities).


With the abovementioned change and with effect from 15 February 2023, the “substantially arranged” condition has been refined as follows and they are set out broadly as follows:-

  • Where the debt securities are issued during the period from 15 February 2023 to 31 December 2028 (both dates inclusive) under a programme:-
    1. The programme is wholly arranged by specified licensed entities;
    2. Where the debt securities are issued by a new issuer that joins an existing programme which does not satisfy the requirement in sub-paragraph (a)(i) above, the participation of the new issuer in the programme is arranged by specified licensed entities; or
    3. Where the debt securities are issued under a tranche of a programme, which does not satisfy any of the 2 requirements in sub-paragraphs (a)(i) and (a)(ii) above, more than half of the debt securities issued under that tranche must be distributed by specified licensed entities.


  • Where the debt securities are issued during the period from 15 February 2023 to 31 December 2028 (both dates inclusive) and are not issued under a programme:-
    1. More than half of the lead managers for that issue must be specified licensed entities; or
    2. Where the requirement in sub-paragraph (b)(i) above is not met,
      1. More than half of the gross revenue from arranging the issue must be attributable to specified licensed entities and more than half of the staff of the specified licensed entities arranging the issue are based in Singapore, if the issuer of the debt securities is a Singapore-based issuer; or
      2. More than half of the debt securities issued under the issue must be distributed by specified licensed entities, if the issuer of the debt securities is not a Singapore-based issuer.


Qualifying income

With effect from 15 February 2023, the scope of qualifying income under the QDS scheme will be streamlined and clarified where all payments made by the issuer of the QDS on the redemption of QDDS upon its maturity or on the early redemption of QDS are qualifying income. It was noted that the Singapore Income Tax Act will be amended in due course to reflect this.

The above refinements are clear attempts to continue cementing Singapore into a hub for the issuance, arranging and trading of debt securities, apart from enhancing its role as an international financial centre. Historically, on the supply side, the small domestic market of Singapore severely limits the amount of funds that its government and local corporations would need. The expansion of the “substantially arranged” condition would serve to alleviate the captive market issue and would potentially lead to a bigger free float of such instruments since other larger financial institutions such as banks can now be involved by partnering up with companies with the FSI-BM/CM/ST, which should help increase its liquidity in the secondary market. Coupling with the streamlining of the definitions of qualifying income based on certain common (clear) trigger events such as (early) redemption of the QDS would make for easier read for investors and tax practitioners alike to have better clarity and certainty as to how receipts arising from the ownership of QDS should be taxed / tax exempted.


View the full article in PDF here.



Tax Advisory Specialists

Edwin Leow
Head of Tax
Shaun Zheng
Asset Management and
Private Wealth Services Tax Lead


Share this Article

Recent Articles