13D Tax Exemption

13D Tax Exemption | Bestar

Singapore's 13D Tax Exemption Explained

When discussing "13D tax exemption," it's crucial to understand that this refers to a specific provision within Singapore's Income Tax Act. Here's a breakdown of what that entails:

• Singapore's Tax Incentive Schemes:

  
  

  • Singapore has implemented tax incentive schemes to attract and foster the growth of its fund management industry. Sections 13O, 13U, and 13D of the Income Tax Act are key components of this strategy.

    
    

• Section 13D: Offshore Fund Tax Incentive Scheme:

  
  

  • This section provides tax exemptions for "specified income" derived from "designated investments" by non-resident funds managed by Singapore-based fund managers.

  • Essentially, it aims to incentivize offshore funds to be managed through Singapore.

  • A key aspect of section 13D is that unlike sections 13O and 13U, there is no application required to the Monetary Authority of Singapore(MAS).

    
    

• Key Features:

  
  

  • Tax Exemption: Qualifying income is exempt from Singapore income tax.

  • "Prescribed Person": Generally, this refers to a fund that is not a Singapore tax resident and is not wholly owned by Singaporean entities.

  • "Designated Investments": This covers a wide range of assets, including equities, bonds, and derivatives.

  • "Specified Income": This typically refers to income that is not derived from a business carried on in Singapore.

  • No Minimum 1  Requirements: There are generally no minimum fund size or local expenditure requirements.   

    1. www.bestar-sg.com

    www.bestar-sg.com

In essence, the 13D tax exemption is a tool used by Singapore to attract offshore funds to utilize Singapore based fund managers, by offering those funds exemption from Singapore income tax on qualifying income.

More Comprehensive Understanding of 13D Tax Exemption

It's important to delve deeper into the nuances of Singapore's Section 13D tax exemption. Here's a more detailed breakdown:

Key Aspects of Section 13D:

• Focus on Offshore Funds:

  
  

  • This scheme is specifically designed to attract offshore funds, meaning those that are not tax residents of Singapore. This is a critical distinction from other Singaporean fund incentive schemes that may target onshore funds.

    
    

• "Prescribed Person" Definition:

  
  

  • The "prescribed person" status is central to eligibility. This generally refers to a fund that is:

    • Not a Singapore tax resident.

    • Not wholly owned by Singaporean entities.

      
      

• "Designated Investments" and "Specified Income":

  
  

  • The tax exemption applies to "specified income" derived from "designated investments." This encompasses a broad range of financial instruments, including:

    • Equities

    • Bonds

    • Derivatives

    • Certain real estate investments

  • "Specified income" typically refers to income that is not generated from a business operating within Singapore.

    
    

• Absence of Minimum Requirements:

  
  

  • A significant advantage of the 13D scheme is the lack of stringent minimum requirements, such as minimum fund size or local expenditure thresholds. This makes it accessible to a wider range of funds.

    
    

• Fund Manager Requirements:

  • The fund must be managed by a fund manager that is licensed or approved by the Monetary Authority of Singapore (MAS). This is important for regulatory oversite.

    
    

• Recent Updates:

  
  

  • It is very important to keep up to date with the newest changes to the Singaporean tax laws. As there have been recent updates to the tax incentive schemes.

    
    

• Self-Assessment Scheme:

  
  

  • Section 13D is a self-administered/self-assessment scheme. This is different from the 13O and 13U schemes which require applications to the MAS.

Important Considerations:

• Compliance:

  • Funds must adhere to all relevant regulations to maintain their tax-exempt status.

    
    

• Tax Implications in Other Jurisdictions:

  
  

  • While Singapore may grant a tax exemption, funds may still be subject to taxation in their home jurisdictions.

It's important to understand the evolving landscape of Singapore's fund tax incentive schemes, particularly the 13D Scheme. Here's a breakdown of the key information, along with some context:

Key Points Regarding the 13D Scheme:

• Current Status:

  
  

  • Currently, the 13D Scheme operates without specified economic conditions. This means that, for the time being, there are fewer stringent requirements compared to other schemes like 13O and 13U.

    
    

• Future Changes (YA 2028):

  
  

  • However, this is set to change. With effect from the Year of Assessment (YA) 2028 (which corresponds to the financial year ending 2027), a new requirement will be introduced.

  • Specifically, 13D funds will be mandated to be managed or advised by a Singapore Fund Management Company (SG FMC) that employs at least one Investment Professional (IP).

  • Notably, unlike the 13O and 13U schemes, there are no minimum salary requirements for this IP.

    
    

• Economic substance:

  
  

  • The introduction of the requirement of the SG FMC employing at least one IP, is to ensure that section 13D funds have a minimum level of economic substance in Singapore.

Implications:

• This change signifies Singapore's ongoing efforts to ensure that its tax incentive schemes contribute to the growth of its domestic fund management industry.

• By requiring the employment of investment professionals, the government aims to foster the development of local expertise and create jobs within the sector.

• It is very important to stay up to date on these changes, as Singapore frequently refines it's tax laws.

In essence, while the 13D Scheme currently enjoys relatively lenient conditions, funds should prepare for the upcoming changes in YA 2028.

How Bestar can Help

Navigating the complexities of Singapore's tax incentive schemes, particularly Section 13D, requires a deep understanding of tax laws and regulations. Here's how Bestar can be invaluable:

Key Benefits of Professional Tax Advice:

• Eligibility Assessment:

  • Bestar can accurately assess whether a fund meets the specific eligibility criteria for Section 13D, including the "prescribed person" status, "designated investments," and "specified income" requirements.   

  • We can identify potential issues that could affect eligibility and provide solutions to ensure compliance.   

• Tax Structuring:

  • Bestar can help structure the fund in a way that maximizes tax benefits while minimizing tax liabilities.

  • We can advise on investment strategies that align with the Section 13D requirements and optimize tax outcomes.   

• Compliance Guidance:

  • Bestar can provide guidance on complying with the specific requirements of Section 13D, including reporting obligations, transfer pricing rules, and other relevant regulations.   

  • We can keep clients informed of any changes to the scheme or related regulations, ensuring ongoing compliance.   

• Tax Return Preparation:

  • We can assist in preparing and filing accurate tax returns and reports with the Inland Revenue Authority of Singapore (IRAS), helping to avoid penalties and interest charges.   

• Tax Planning:

  • Bestar can develop long-term tax planning strategies to minimize the fund's overall tax burden and optimize returns.   

  • We can advise on tax-efficient exit strategies.

• Risk Mitigation:

  • Tax laws are subject to change, and professional advice helps mitigate the risk of non-compliance and potential tax liabilities.   

• Maximizing Benefits:

  • Bestar possesses in depth knowledge of the tax laws, and can help to ensure that funds are able to take full advantage of all available tax incentives.

• Staying up to date:

  • Singapore frequently updates tax laws, and especially in regards to fund management. Bestar stays up to date on these changes.   

In essence, Bestar provides peace of mind and ensures that funds can operate within the legal framework while optimizing their tax positions.

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