Singapore has a growing reputation as an asset management and funds domicile hub; therefore, in the 2019 Singapore Budget, tax changes were made to support further and incentivize Singapore’s local fund industry.
Over the last few years, there have been more family offices being established in Singapore. According to a PWC report, Singapore is being seen as a jurisdiction of choice for a family office’s set-up. Some examples from the news are the family office for the Haidilao founders, hedge fund billionaire Ray Dalio’s family office, and James Dyson’s family office.
The Singapore government has been proactive in promoting Singapore as the preferred location for family offices. The government introduced tax incentive schemes that would allow for an exemption from Singapore tax on almost all the investment gains from family offices’ investment funds.
The two central policies that will be discussed in the article is as follows:
- Onshore Fund Tax Incentive Scheme (13R)
- Enhanced-Tier Fund Tax Incentive Scheme (13X)
What Are the 13R and 13X Schemes?
The Monetary Authority of Singapore (MAS) administers the 13R and 13X schemes under the Singapore Income Tax Act (SITA).
- 13R Scheme is designed to facilitate the domiciliation of funds into Singapore and to attract the funds of non-Singapore investors.
- 13X Scheme aims to provide enhanced flexibility for Singapore-based funds to source for investment mandates. The 13X Scheme has no restrictions or financial penalties on the investments made by Singapore resident persons.
Features of 13R and 13X Schemes
The difference between 13R and 13X Scheme is mainly whether the fund’s residence, legal form or investors are offshore/onshore as shown in table 1.
One small note to readers, which many will overlook is the fund expenditure. 13X would require a minimum of S$200,000 local business spending while 13R only requires a minimum of S$200,000 business spending (including overseas business)
Onshore Fund Tax Incentive Scheme (Section 13R) Enhanced-Tier Fund Tax Incentive Scheme (Section 13 X)
Fund Size No Restriction Min of S$50 million
Fund Administrator Singapore-based with capital market services (“CMS”) license or expressly exempted from holding CMS license
Fund’s Residence Singapore Tax Resident Can be offshore or onshore
Fund’s Legal Form Company Incorporated in Singapore Company, Trust, Limited Partnerships
Shareholding/Investors Must not be 100% owned by Singapore investors
(Non-qualifying investors have to pay financial penalty to IRAS)*
No restrictions on Singapore investors
Fund Expenditure Min S$200,000 business spending Min S$200,000 local business spending
Reporting Requirement Annual statement to investors
Tax filing to IRAS for non-qualifying investors
Distinctive Features Can be applied to onshore and offshore limited partnerships as well as companies
Applicable for Master Feeder structure
Access to Singapore Double Tax Treaty network (currently over 60 treaties in force)
Income Tax Filing Annual Tax Returns to IRAS
Number of Employment Passes (EP) One Three
Approving Authority Requires MAS approval for tax exemption scheme to apply
Benefits from 13R and 13X
As the title of the article suggests, the key benefit of 13R & 13X is that it exempts tax on the specified income derived from the designated investment. This is attractive for a family office that wishes to locate in Singapore but is worried about tax concerns. Apart from tax exemption benefits, 13R and 13X Schemes also gives investors access to Singapore employment pass (EP) – 1EP under 13R and 3EP under 13X. An employment pass certainly gives one the flexibility to travel in and out of the country without entry visas as well as greater flexibility in the Singapore business community.
13R and 13X Relationship with VCC
The tax incentives under the 13R and 13X Schemes are also applicable for Variable Capital Companies (VCCs), a corporate vehicle that gives investment funds high flexibility for collective investment schemes. This adds to the tax benefits that VCCs enjoys. ENVYSION Wealth is familiar with setting up a VCC for family offices and you can read more in our VCC article.
How can Envysion Wealth help you?
However, the eligibility for the tax incentive under 13R and 13X is done on a case-by-case basis. There is certain information required by MAS which include:
- Activities carried out by the family office
- Information on the family whose assets will be managed by the office family
- Names of shareholders and directors of the family office
- Relationship between family office to investment fund vehicle and beneficiaries
Envysion has the experience and the right partners in applying for your 13R or 13X tax incentive and to help our clients out with any administrative documentation needed. We also have an investment advisory team to fulfill any fund management needs. We also bring expertise in other related fields as part of the overall family office setup. At Envysion, we are dedicated to your success, helping you fulfill your needs.