Fund incentives under
Sections 13CA, 13R and 13X

Budget note: Fund incentives under Sections  13CA, 13R and 13X

Enhanced but not extended

The latest budget announced several enhancements to the existing tax exemption framework for investment funds under Sections 13CA, 13R and 13X of the Singapore Income Tax Act (Cap 134) (“SITA”). The tax exemptions under Section 13R will be extended to Singapore Variable Capital Companies  (“S-VACCs”) and the exemptions under Section 13X will be extended to fund vehicles constituted in all forms.

However, there is no extension to the expiry of the tax exemptions. Under the current regime, the person intending to benefit from these exemptions must obtain approval or qualify (depending on the requirements of the specific tax incentive) for the exemptions before 31 March 2019 in order to enjoy the benefits of these exemptions.

What’s next?

Funds will continue to remain as an important part of the Singapore economy and it is likely that Singapore will continue to provide tax and other incentives to attract such activity to Singapore. This commitment can be seen in the extension of related tax incentives, such as the Financial Sector Incentive Scheme (“FSI”).

Given the commitment to this segment of the economy, it would be reasonable to expect the tax exemptions will be extended in the Budget next year. However, it could also be modified, perhaps such that a tax incentive is provided, with a low rate of tax, rather than having exemptions being available. It may also be possible that the regimes may be modified to take into account recent changes, such as the increasing importance of cryptocurrencies.

What should we do now?

We believe this is a good time for clients to consider setting up fund and family office structures and applying for tax exemptions for a confluence of factors:

• Global tax transparency means that assets will surface and it is better to have them in a structure providing tax exemption than to rely on avoiding detection;
• The vehicles that can be used as part of the structures is now broader than ever, giving clients more options than before; and
• This may be the final chance to benefit from these exemptions.

There is limited downside in exploring the setting up of these fund and family office structures, but missing the boat now may make it difficult to obtain such benefits in the future. Of course, every client’s situation is different. Please feel free to reach out to us so that we can better understand and advise you on the challenges you may face.