The Singapore Budget 2024 marks a strategic move in enhancing the city-state's position as a financial hub with the extension and refinement of its various Fund Tax Incentive Schemes.
It was announced that the Offshore Fund Tax Incentive Scheme (Section 13D of the Income Tax Act 1947 ("ITA")), the Resident Fund Tax Incentive Scheme (Section 13O of the ITA) and the Enhanced-tier Fund Tax Incentive Scheme (Section 13U of the ITA) that was slated to sunset on 31 December 2024 will be extended by five years until 31 December 2029. As part of the extension, qualifying funds will continue to enjoy the withholding tax exemption on interest and other qualifying payments made to non-resident persons (excluding permanent establishments in Singapore) and Goods and Services Tax remission for prescribed funds managed by prescribed fund managers in Singapore.
Extension of Section 13O Scheme to Singapore limited partnerships
One key enhancement to the Resident Fund Tax Incentive Scheme with effect from 1 January 2025 is the extension of the scheme to limited partnerships registered in Singapore that are generally tax transparent for Singapore income tax purposes. This extension could potentially allow feeder and parallel funds constituted as Singapore limited partnerships with a fund size of less than S$50 million at the point of application to be exempted under the Resident Fund Tax Incentive Scheme. Under the current regime, it is common for feeder and parallel funds constituted as Singapore limited partnerships to apply for exemption under the Enhanced-tier Fund Tax Incentive Scheme.
Revised economic criteria for qualifying funds
It was also announced that the economic criteria for qualifying funds under the fund tax incentive schemes would be revised with effect from 1 January 2025 with more details to be released by the third quarter of 2024. Some possible revisions are, inter alia, the introduction of a minimum fund size to the Resident Fund Tax Incentive Scheme and/ or a step up or increase in business spending commitments by qualifying funds. Be that as it may, these changes should not be retrospective and should only apply to funds that submit their final Resident Fund Tax Incentive Scheme or Enhanced-tier Fund Tax Incentive Scheme applications on or after 1 January 2025.
However, funds that are currently relying on the self-executing Offshore Fund Scheme for exemption may be subject to the revised economic criteria and changes (if no grandfathering) with effect from 1 January 2025 and hence should consider applying for exemption under the Enhanced-tier Fund Tax Incentive Scheme for certainty.
The inclusion of offshore funds in the foreshadowed revisions to the economic criteria for qualifying funds is notable because offshore funds are presently exempt from tax without any economic criteria — no minimum AUM, no minimum fund expenditure, no application to or approval from the MAS being necessary at all.
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