Singapore is becoming an increasingly attractive destination for fund managers with a pan-Asian strategy and those looking to distinguish themselves from their North Asia-focused peers.
The absence of capital gains tax and an extensive tax treaty network are two reasons for this. Singapore has more than 70 double taxation agreements with other countries, including key Asian investment destinations such as Australia, China and India. Pan-Asian investment funds typically establish Singapore investment holding and special purpose structures, allowing access to the treaties. Depending on investor preference, this is often paired with one or more parallel and feeder funds established onshore and offshore.
Managers that qualify for the Financial Sector Incentive for Fund Managers enjoy a concessionary tax rate of 10 percent for fund management and investment advisory services. Safe harbors for Singapore-domiciled vehicles and offshore funds which are managed on a discretionary basis from the country are also available. The Resident Fund Scheme, Enhanced Tier Fund Scheme and Offshore Fund Scheme allow a wide range of specified income from an extensive list of designated investments to be exempt from Singapore tax. Furthermore, Goods and Services Tax remission on the supply of services from a Singapore fund manager is available for offshore funds that qualify for these schemes.
Singapore has also committed to implementing the Common Reporting Standard to standardize the exchange of financial account information between jurisdictions for tax purposes. Among Asian jurisdictions, bilateral agreements to facilitate CRS have already been agreed with Australia, Japan and South Korea, with the first exchange of financial information expected to take place by September 2018.
The range of vehicles available to managers continues to grow. The Singapore limited partnership was introduced in 2009, providing an alternative to the Cayman Islands exempted limited partnership. The Monetary Authority of Singapore is also widely expected to issue its consultation paper on the impending introduction of a variable capital company. With the OECD’s base erosion and profit shifting initiatives placing greater scrutiny on substance (see p.40), the two-pronged approach of an attractive fund domicile and base of operations for managers promises to be a winning strategy.
There is a strong desire from MAS to ensure that Singapore remains a competitive place to do business. It announced in November 2016 that it was looking to ease the regulatory regime for venture capital fund managers. This would involve simplifying and shortening the authorization process for new VC fund managers, exempting them from certain business conduct requirements, and easing qualifying conditions for tax incentives. The MAS aims to introduce these measures by July 2017.
While there have been growing pains integrating the region’s individual markets, there remains potential in a collective market. With rising levels of Asian wealth, Singapore fund managers are planning to market products to retail and/or accredited investors across the region under the Asia Region Funds Passport, and remain optimistic that the principle of neutral tax treatment for passported funds will eventually be adopted given that this principle is fundamental to the success of the ARFP.
Singapore’s relatively stable political outlook, progressive regulatory environment, accessible fiscal incentives, double taxation treaty network and steadfast commitment to regional economic integration appears to be a winning formula for fund managers operating pan-Asian strategies. ?