Tax Exemption

Singapore offers attractive tax exemption schemes for family offices, particularly under the 13O and 13U tax incentive schemes, governed by the Monetary Authority of Singapore (MAS). Here’s a breakdown of how they work:

13O (formerly 13R) — For Singapore-Based Funds

This is suitable for family offices managing funds incorporated and resident in Singapore.

Key Requirements (as of 2024):

Minimum AUM: SGD 20 million
Fund must be managed by a Singapore-based fund management company (FMC).
Local Spending Requirement:
- Starts at SGD 200,000 per year, increasing based on AUM.
Investment Professionals:
- At least 2 investment professionals (can be family members with relevant experience).
Investment Scope: Wide range of permissible investments including equities, bonds, derivatives, and private equity.

13U (formerly 13X) — For Both Onshore and Offshore Funds

This scheme is more flexible and targets larger, more sophisticated family offices.

Key Requirements:

Minimum AUM: SGD 50 million
Can be incorporated outside Singapore.
Managed by a Singapore-based FMC.
Local Spending Requirement:
- Minimum SGD 500,000 per year.
Investment Professionals: At least 3 investment professionals.
Wider investment mandate.

A Singapore SFO can be used as part of the personal planning of HNW family members.

A Singapore SFO may sponsor employment passes and may even be used as part of an application for permanent residency by HNW family members under the Global Investor Programme which is administered by the EDB.

The SFO structures in Singapore are typically designed to be exempt from regulation under local securities law. This avoids the need for the SFO to obtain a licence or become registered to provide fund management services to the investment vehicles held by a HNW family.

There are two exemptions which are typically relied upon:

1. Exemption for ‘related corporations’ which applies automatically
2. Application to the MAS for an exemption from regulation

The MAS may grant this exemption where an SFO only manages assets which are held by members of the same family.

An SFO which is either licensed to provide fund management services, or is exempt from licensing, is considered to be a fund manager for the purposes of Singapore’s fund tax incentives. These are established by specific provisions in the Singapore Income Tax Act 1947 (“ITA”). These incentives provide an exemption from Singapore tax on income and gains made in relation to most types of financial assets. Notably, this tax exemption does not apply to income or gains from Singapore real estate and certain other financial assets which confer an indirect ownership interest in Singapore real estate.

As of January 1, 2025, Singapore has implemented significant updates to its fund tax incentive schemes—Sections 13O, 13U, and the newly introduced 13OA—affecting both Single Family Offices (SFOs) and non-SFO funds.

Section 13O (Onshore Resident Funds)

Minimum Assets Under Management (AUM): Funds must maintain a minimum AUM of SGD 5 million in Designated Investments (DI) by the end of each financial year. Previously, there was no minimum AUM requirement.
Investment Professionals (IPs): The fund’s Singapore-based manager must employ at least two investment professionals throughout the fund’s basis period.
Local Business Spending (LBS): A new tiered LBS requirement has been introduced:
- AUM < SGD 250 million: SGD 200,000
- SGD 250 million ≤ AUM < SGD 2 billion: SGD 300,000
- AUM ≥ SGD 2 billion: SGD 500,000
Removal of New Company Condition: Funds applying under Section 13O no longer need to be newly set up, allowing existing funds to qualify for incentives.

Section 13U (Enhanced Tier Funds)

Minimum AUM: Funds must maintain a minimum AUM of SGD 50 million in DI at the end of each financial year.
Investment Professionals: The fund manager must employ at least three investment professionals.
Local Business Spending (LBS): Similar to Section 13O, a tiered LBS requirement applies based on the fund’s AUM
- AUM < SGD 250 million: SGD 200,000
- SGD 250 million ≤ AUM < SGD 2 billion: SGD 300,000
- AUM ≥ SGD 2 billion: SGD 500,000
Structural Simplifications: For funds structured with special purpose vehicles (SPVs) or trading feeders, AUM and LBS requirements will now be applied at the single-fund entity level, reducing administrative complexity.

Section 13OA (Limited Partnerships)

Introduction of Section 13OA: This new scheme extends tax incentives to Singapore Limited Partnerships (LPs), particularly benefiting small private equity and venture capital funds.
Economic Criteria: The incentive conditions mirror those of the existing Section 13O framework, including minimum AUM and LBS requirements.

Transitional Arrangements

Grace Periods: Funds with awards commencing prior to January 1, 2025, are granted grace periods to fulfil the updated economic criteria. Specifically, such funds are required to meet the new AUM, IP, and LBS requirements from the financial year ending in 2027 (Year of Assessment 2028).

Common Benefits (for Both):

Tax Exemption on specified income from designated investments (e.g., dividends, interest, capital gains).
No capital gains tax in Singapore.
No withholding tax on foreign-sourced income.

Other Considerations:

Application to MAS is required before commencing operations.
Annual reporting and compliance requirements.
Use of Variable Capital Companies (VCCs) is increasingly popular for structuring family office funds.

Variable Capital Companies (VCCs) are a powerful and flexible corporate structure introduced by Singapore in 2020, designed specifically for investment funds—including those used by family offices.

The key benefits of using a VCC:

1. Flexible Capital Structure

Shares in a VCC can be redeemed without shareholder approval, allowing easy entry and exit for investors.
The VCC’s paid-up capital is always equal to its net asset value (NAV), which simplifies fund accounting.

2. Umbrella Structure with Sub-Funds

A single VCC can host multiple sub-funds, each with segregated assets and liabilities.
Great for cost efficiency and ease of administration (e.g., multiple strategies or family member portfolios under one roof).

Perfect for multi-generational or multi-branch family office setups.

3. Tax Incentives Compatibility

VCCs can qualify for the 13O and 13U tax exemption schemes.
Also eligible for Singapore’s tax treaties (depending on structuring), which can minimise withholding tax on foreign income.

4. Privacy

Unlike traditional companies, VCCs do not need to publicly disclose shareholders or financials.
Only the regulator (MAS/ACRA) sees this information, offering strong confidentiality.

5. Regulatory Credibility

As a regulated structure, VCCs offer international investor confidence.
Recognised by fund managers, banks, and administrators worldwide as a legit alternative to traditional offshore fund vehicles.

6. Use of Fund Manager

Every VCC must be managed by a Singapore-licensed or exempt fund manager, making it easy for family offices that already have or plan to set up a licensed fund management entity.

7. Operational Efficiency

Sub-funds can share the same service providers (e.g., auditors, administrators), reducing costs and complexity.
Great for scaling without setting up multiple legal entities.

Considerations:

Set-up costs and regulatory requirements (e.g., AML/CFT compliance) are higher than a normal private limited company.
Must appoint a VCC-approved fund administrator and auditor.

If you’re planning to structure a family office or investment fund, a VCC + 13O or 13U combo is one of the most efficient and elegant structures in Singapore. If you need assistance in evaluating how these changes affect your family office or require guidance on structuring your fund to comply with the new regulations, feel free to contact us.