New tax framework outlined in Singapore Budget 2018 next step in enhancing country’s position as a fund management and domiciliation hub.
Earlier this year, the government announced their annual budget here in Singapore. Whilst there were measures announced that affect many different aspects of Singaporean life, from defence and security to healthcare and the elderly, one of the key areas to look back on is the changes to tax and incentives regimes for corporations, and in particular, the asset management industry.
Late last year, the Singapore government opened up a public consultation on the creation of a new type of company called a Singapore Variable Capital Company (S-VACC). This type of company would make it easier for asset managers domiciled here to operate and save costs by removing the requirement to make shareholder lists or financial statements publicly available, not being subject to various solvency requirements, and allowing entry into and exit from the fund at its net asset value, amongst other benefits.
The S-VACC sought to address the lack of corporate vehicle that catered to hedge funds, real estate funds, mutual funds or private equity, which caused many fund companies to pool their funds elsewhere but establish their trading or investment company in Singapore.
The recent Singapore Budget has moved the creation of the S-VACC a step closer with the introduction of a new tax framework. Whilst more details will be released in October, we know that an S-VACC will now be treated as one entity for tax purposes, and so only needs to file one tax return – particularly useful for S-VACCs with multiple sub funds or share classes.
Additionally, the budget did extend a current tax exemption to S-VACCs, previously only for qualifying funds, that offered a 10% concessionary tax rate for fund managers under the Financial Sector Incentive (FSI) scheme, and the existing GST remission for funds. This will help Singapore attract more foreign funds and improve the overall competitiveness of the city state as an asset management hub.
Another update coming out of the 2018 budget was the tax treatment of Singapore-listed real estate investment trusts (S-Reits) and Reit ETFs. As of July 1, 2018, the tax transparency treatment currently enjoyed by S-Reits will be extended to the exchange traded funds (ETFs) invested in these Reits, ensuring tax treatment parity. This will improve Singapore's status as a hub for Reit listing and spur the growth of the Reit sector.
To date, only three Reit ETF are listed in Singapore, but now that investors will enjoy more return on their investment thanks to the tax transparency treatment, we should see a broader investor base for S-Reits as they will be able to invest through Reit ETFs.
These measures are a step in the right direction for Singapore, and we believe that it will position the city as a centre for managing and domiciling investment fund, which in turn will generate additional spin-off benefits for the industry.
The views expressed in this column are the author's own and do not necessarily reflect this publication's view, and this article is not edited by Singapore Business Review. The author was not remunerated for this article.
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Alain Esseiva is Co-Founder and CEO of Alpadis Group, bringing with him over 30 years of combined experience in wealth planning and fiduciary services. Alain heads the Singapore and Hong Kong offices of Alpadis Group, where he provides multi-jurisdictional corporate and bespoke wealth preservation services across the region.