Introduction
On 1 October 2024, the Monetary Authority of Singapore (“MAS”) announced that the Sections 13D, 13O and 13U of the Income Tax Act (“ITA”) will be extended until 31 December 20291, amongst a number of other changes which will take effect from 1 January 2025 (the “October 2024 Announcement”). On the same day of the announcement, the Screening Report requirement for all new tax incentive applications also took effect. Singapore continues to be a choice destination for high net worth individuals to set up family offices, as the number of single family offices (“SFOs”) in Singapore grew 3.5 times to 1,400 by the end of 2023, from just 400 SFOs that were awarded MAS tax incentives in 2020.2 The first 8 months of 2024 saw another 250 to reach 1,650 SFOs, and the government expects the number of new SFOs for 2024 to surpass the 300 that was added in 2023.3 The October 2024 Announcement is undoubtedly part of MAS’s series of regular updates to ensure that the regulatory framework for wealth management continues to be robust to cater for the growth and sustainability of family offices here.

KEY CHANGES – October 2024 Announcement
Revisions were made to the conditions for the schemes, particularly the requirements in relation to the use of existing entities for S13O applications, revised economic criteria for new and existing S13O and S13U non-SFO funds concerning hiring of investment professionals (“IPs”), minimum assets under management (“AUM”) and minimum local business spending (“LBS”), removal of economic criteria for SPV or trading feeder fund for S13U fund structures, revised economic criteria for S13D funds, investment strategies for S13O and S13U funds, the simplification of how AUM is computed, waiver of the 30/50 rule for S13O and S13D funds for certain investors, a new closed-end fund option, and clarification on whether real estate investment funds are considered Designated Investments4 (“DI”).

Use of existing entities for S13O applications
Currently, funds looking to apply for the S13O tax incentive scheme typically have to be newly incorporated entities to fulfil the S13O requirement that the fund cannot be an enti-ty that previously operated a business in Singapore, where that business generated income that was not tax-exempt. This condition will be lifted to allow funds with existing investments at the time of application to apply for the S13O scheme. For the avoidance of doubt, all investments acquired by the S13O fund must be obtained on market terms and conditions, regardless of whether it was acquired before or after the approval of its S13O application.

Revised economic criteria for new and existing S13O non-SFO funds
Non-SFO funds are managed by licensed fund management companies (“FMCs”) as the assets in such funds are not owned or controlled by one family. From next year onwards, licensed FMCs managing S13O non-SFO funds must employ at least 2 full-time IPs who are either portfolio managers, research analysts or traders and earning more than S$3,500 per month. Additionally, the S13O non-SFO fund must maintain at least S$5 million AUM in DI as at the end of each financial year (“FY”). A tiered minimum annual LBS requirement according to the AUM in DI will also replace the current Total Business Spending requirement of S$200,000 per annum.

Existing S13O non-SFO funds that have been awarded before 1 January 2025 must fulfil the revised economic criteria from FY ending in 2027 (Year of Assessment 2028) (inclusive) to enjoy tax exemption in the corresponding year of assessment (“YA“).

On a separate but related note, the S13O scheme would be available for funds registered as a limited partnership under the new S13OA of the ITA from 1 January 2025. The revised economic criteria for new and existing S13O non-SFO funds outlined above, as well as the 30/50 rule (as described below), would be applicable to S13OA funds. S13OA was introduced to cater for smaller private equity and venture capital funds, commonly structured as LPs, to avail themselves of the tax exemption on specified income derived from DIs provided all relevant conditions are met.

Revised economic criteria for new and existing S13U non-SFO funds
S13U non-SFO funds will be required to have at least S$50 million of AUM in DI at the point of application, and must maintain this as at the end of each FY to enjoy S13U exemption for the corresponding YA. Additionally, the minimum LBS requirement is tiered according to the AUM in DI, similar to the requirement for S13O non-SFO funds as shown in TABLE 1 above. There is no change to the current requirement that the FMC must hire at least 3 IPs.

Existing S13U non-SFO funds that have been awarded before 1 January 2025 must fulfil the revised AUM requirement as at the end of each FY, and fulfil the revised LBS criteria in each FY with effect from FY ending in 2027 (YA 2028) (inclusive) to enjoy tax exemption in the corresponding YA.

Removal of economic criteria for SPV or trading feeder fund for S13U fund structures
Currently, a S13U structure incurs an additional S$50 million of AUM at the point of application and an additional S$200,000 LBS annually for every additional SPV or trading feeder fund in the structure. These requirements would be removed from 1 January 2025 so that the S13U structure is subjected to the same AUM and LBS requirements as a standalone S13U fund in their respective S13U awards, as if the S13U structure is a single fund entity regardless of any trading feeder funds or SPVs in the S13U structure.

Revised economic criteria for S13D funds
A self-administered scheme that does not require an application to MAS, the S13D scheme grants tax exemption for specified income from DIs derived by prescribed persons who are non-residents or trust entities, provided all other conditions are met. Both SFO and non-SFO S13D funds are now required to be managed or advised directly by an FMC in Singapore with at least 1 full-time IP5 in each FY with effect from FY ending in 2027 (YA 2028) (inclusive) to avail of the tax exemption in the corresponding YA.

Investment Strategies For S13O And S13U Funds
As MAS recognises that changes in investment strategies for bona fide commercial reasons are common, it has removed the requirement that the S13O or S13U fund vehicle complies only with the investment strategy that has been approved by MAS. However, approved funds should continue to update MAS of any changes in investment strategy.

Simplified AUM Computation
The AUM has been generally computed as the Net Asset Value of the fund based on accounting convention. This means that when funds are transferred by the beneficial owner(s) to capitalise the fund, such transfers are typically recorded as a shareholder loan (and therefore, a liability) and would not be considered as part of the AUM. From 1 January 2025 onwards, such shareholder loans need not be taken into account as a liability, and the AUM would simply be the total value of DI that are held in the fund.

Waiver Of 30/50 Rule For S13O And S13D Funds
The 30/50 rule prescribes that a resident non-individual investor (i) may not own more than 30% of the fund if the fund has less than 10 investors, and (ii) may not own more than 50% of the fund if the fund has 10 or more investors. If the limit is breached and the investor does not fall into any of the exceptions as a “qualifying investor”6, the investor will be deemed as a non-qualifying investor and a financial penalty would be imposed on all the investment income derived by the non-qualifying investor from the S13O or S13D fund. With effect from YA 2025, this rule would be waived for trusts and unit trusts approved under the S13D scheme looking to invest in S13O or S13D funds.

Closed-End Fund Option For S13O, S13OA And S13U Non-SFO Funds
For applicants intending to have a fixed lifespan for their funds, the closed-end fund option can provide greater tax certainty with an investment horizon and defined timeframe to exit for a return on capital gains, similar to private equity and venture capital investments. As divestments occur during the fund’s lifespan, this option provides the following AUM and LBS concessions after the fund has been granted the incentive award:
i. the annual AUM requirement will be waived from the 6th year onwards; and
ii. the annual LBS requirement must be met cumulatively for the first 10 years and thereafter, waived from the 11th year onwards.

The incentive award will be revoked after the fund has been fully divested or the day immediately after its 20th year, whichever earlier. Aside from the waivers outlined under points (i) and (ii) above, all other applicable conditions under the S13O, S13OA and S13U schemes must be met. Existing S13O and S13U funds may apply for closed-end fund treatment, whereby the existing incentive award will be revoked for a fresh application to be submitted.

Real Estate Investment Funds As DIs
Currently, real estate investment trusts are recognised as DIs. The October 2024 Announcement seeks to provide clarification and affirm that real estate investment funds constituted in any form are considered DIs and as such, income derived from such real estate collective investment vehicles would be tax exempt. This broadens the scope of what is considered a DI where investment entities involving real estate is concerned, to cater for similar structures found in other countries and to keep up with the demands of the financial markets.

Screening Report Requirement w.e.f. 1 October 2024
Announced in December 2023, all new tax incentive applications by funds managed by SFOs must now be accompanied with a Screening Report prepared by a MAS-appointed Screening Service Provider7. The Screening Report would take about 14 days to complete and expands the scope of due diligence checks as MAS seeks to enhance its efforts in preventing money laundering, terrorism financing, corruption and fraud risks.

Conclusion
As Singapore’s financial landscape continues to evolve, the October 2024 Announcement is a testament to MAS’s commitment to ensure that the tax incentive schemes remain relevant whilst providing adequate support for the growth of Singapore’s asset and wealth management industry. The rising number of family offices in Singapore continue to help reinforce the country’s reputation as a trusted financial hub and supports job creation in Singapore, whether through the hiring of investment professionals for FMCs or through the need for more service providers in banking, legal and other related industries that are vital for the growth of family offices here.

SMTP’s Experience
As a private client firm, SMTP has helped many clients set up SFOs and successfully apply for tax incentives schemes over the years. The firm has years of experience in helping clients meet the requirements to get approval for the S13O or S13U incentive award for SFOs to benefit from statutory tax exemptions. Our Immigration and Family Offices department also has a wealth of experience in EP applications and renewals for investment professionals who are employed by the SFO, subsequent EP conversions to SPR, as well as the setting up of SFOs under the GIP for obtaining SPR status for families. Our lawyers work closely with clients and their advisors, adopting a tailored approach to address families’ specific needs and requirements.

Should you or your clients require any assistance or advice, please feel free to contact our Business Development Team to schedule a consultation.