Updates on Fund Tax Incentive Schemes – Section 13D Scheme

The asset management industry was priming for key changes to be announced when the Budget 2024 was read by then Deputy Prime Minister, Mr. Lawrence Wong.

On 1 October 2024, a swathe of changes was announced, with enhancements and refinements to the existing Singapore fund tax exemption schemes (“tax incentives”) to come into effect from 1 January 2025 for existing incentive holders along with new applicants on or after 1 January 2025.

We are pleased to set out the salient changes to the tax incentives, beginning with the obvious!

The tax incentives will be extended for the next 5 years (i.e. until 31 December 2029)
The Goods and Services Tax (“GST”) remission and Withholding Tax (“WHT”) exemption on interest and other qualifying payments made to non-residents are also extended to 31 December 2029.
Funds covered under the tax incentives will continue to enjoy the tax exemptions conferred for the life of the funds on the premise that they continue to meet the conditions throughout their lifespan.
Closer to the sunset date, as with previous observations, the Government will conduct a review of the tax incentives to assess the relevance and usefulness of the tax incentives before deciding to extend and / or refine them beyond 31 December 2029.

We will be releasing a series of the stipulated changes to the various tax incentives in the course of the week!

Section 13D Scheme
(Exemption of income of prescribed persons arising from funds managed by a fund manager in Singapore)

The Section 13D Scheme will remain as a self-administered / self-assessment scheme.

Under the Sections 13O/OA/U Schemes, the definition of a FMC was consistently provided and defined where one must either hold a capital markets services license for the regulated activity of fund management under the Securities and Futures Act 2001 (“SFA”), or is exempt from the requirement to hold such a license under the SFA, or is approved by the Minister or such other person he may appoint. An example of a FMC that is exempt from such a requirement to hold such a license is a SFO.

As at the date of writing, it is unclear as to whether the definition of a FMC as prescribed above for the purposes of the Sections 13O/OA/U Schemes will apply in the context of a Section 13D Fund. Clarification is sought and we await further updates from the Monetary Authority of Singapore.

In brief, if the intention is for Section 13D Funds to be managed and advised directly solely by a licensed FMC, SFOs may have to start rejigging their fund management / advisory arrangements by out-sourcing/ sub-delegating them to these licensed FMCs, which will invariably add on to the costs in managing their own assets (i.e. Section 13D funds) and also inadvertently serve as a dampener to aspiring principals / wealth creators to continue pursuing their fund management journey (most of whom under this category may not necessarily have the AUM required to meet the conditions under the prevailing Sections 13O/OA/U Schemes but working towards there).

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[1] Investment professional refers to portfolio managers, research analyst and traders who are engaging substantially in the qualifying activity and management of the fund.

[2] Investors who, either alone or together with their associates, on the relevant day, beneficially own the total value of issued securities of the S13D fund (being a company) or the total value of the S13D fund (being a trust fund), as the case may be, the value of which is more than the following prescribed percentage:

a) where the S13D fund has less than 10 investors, 30%; or

b) where the S13D fund has at least 10 investors, 50%,

will be regarded as non-qualifying investors for the purposes of the scheme and are liable to pay to the Comptroller of Income Tax (“CIT”) a financial penalty.

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