New rules, bigger stakes inside Singapore's 2025 fund tax revamp

Singapore has sharpened the rules for its sought-after fund tax incentives, raising the bar for wealth managers and institutional investors tapping the city-state’s financial hub. The Ministry of Finance and the Monetary Authority of Singapore (MAS) have rolled out key amendments to the Section 13O and Section 13U schemes, which took effect January 1, 2025.‍

The overhaul heralds stricter economic thresholds for funds seeking tax exemptions, including higher minimum assets under management (AUM), increased local business spending, and tougher hiring requirements for investment professionals. The changes will have significant implications for family offices, private equity firms, and fund managers using Singapore as a base for their operations.‍

Lighthouse Canton’s IDEAs: Views & Insights breakdowns what the changes are—and what it means for the industry. ‍‍

What are section 13O and 13U tax incentives?‍

Singapore’s Section 13O (S13O) and Section 13U (S13U) fund tax incentives offer exemptions to fund vehicles managed by Singapore-based fund managers, subject to specific conditions. S13O applies to funds incorporated and tax-resident in Singapore, while S13U covers a wider range of structures, including companies, trusts, and limited partnerships, both onshore and offshore. These schemes aim to attract fund domiciliation and management to Singapore, supporting the growth of its asset and wealth management industry.‍

What are the key amendments to section 13O tax incentives, that we should know about?‍

#1: Economic criteria for non-SFO funds‍

Starting January 1, 2025, non-single-family office (non-SFO) funds under Singapore’s S13O scheme face revised economic criteria. Funds must maintain a minimum of SGD5 million in designated investments (DI) by the end of each financial year. Additionally, the fund’s Singapore-based manager must employ at least two investment professionals (IPs). Local business spending (LBS) obligations will be tiered, varying based on the fund’s assets under management (AUM). These changes aim to align with Singapore’s broader economic goals while maintaining its appeal as a fund management hub.‍

#2: Phased transition‍

To facilitate a smooth transition, the updated AUM, IP, and LBS requirements will be implemented gradually. Existing funds will have a grace period to fully comply with the new rules, while newly awarded funds will be given time to meet AUM targets by their third year, with IP and LBS obligations taking effect later. This phased approach ensures funds can adapt to the revised criteria without disruption.‍

#3: Other Key Changes‍

There have been changes done to enhance flexibility and attract a broader range of fund structures to Singapore’s asset management ecosystem.‍

Funds will no longer require prior approval for investment strategy changes, needing only to notify MAS of updates. Additionally, the “newly set-up company” condition for S13O applicants has been scrapped, allowing existing entities to qualify. In a further relaxation, the 30/50 ownership rule under the S13D scheme has been waived for trusts and unit trusts, removing previous restrictions. The 30/50 rule, which previously limited ownership by Singapore residents to 30% of fund units or 50% of fund value, had constrained certain fund structures.‍

What is the S13OA tax incentive for limited partnerships?‍

Singapore has also introduced a new Section 13OA (S13OA) tax incentive, effective January 1, 2025, tailored specifically for private equity (PE) and venture capital (VC) funds. ‍

The scheme applies to funds structured as Limited Partnerships (LPs) under Singapore’s Limited Partnerships Act 2008, with the General Partner (GP) tasked with ensuring compliance. ‍

Economic criteria for S13OA funds will mirror those of the existing S13O framework. By offering a more flexible structure, the initiative aims to extend tax benefits to smaller PE and VC funds, further strengthening Singapore’s appeal as a hub for alternative investments.‍

This move comes as despite global economic challenges, Singapore's PE and VC sectors continue to attract significant investments, underscoring the country's robust ecosystem and strategic importance in the region. In the first nine months of 2024, the country accounted for 58% of deal volume and 68% of deal value in ASEAN.

What are the key amendments to Section 13U tax incentive?‍

Singapore has tightened the economic requirements for non-single-family office (non-SFO) funds under its S13U tax incentive scheme, effective January 1, 2025. Funds will now need to maintain a minimum of S$50 million in designated investments (DI) by the end of each financial year, up from previous thresholds. Additionally, fund managers must employ at least three investment professionals (IPs), and local business spending (LBS) obligations will be tiered based on AUM.‍

The stricter rules reflect Singapore’s focus on attracting higher-quality, more substantial funds while ensuring meaningful economic contributions to the city-state. The move comes as Singapore solidifies its position as Asia’s leading wealth management hub, with assets under management (AUM) reaching more than USD$4 trillion at the end of 2023. By raising the bar, authorities aim to balance growth with sustainability, ensuring that funds domiciled in Singapore contribute to job creation, professional expertise, and local economic activity. This aligns with broader efforts to maintain the city-state’s competitiveness amid increasing global scrutiny of tax incentives and economic substance requirements.‍

Are there any other key structural changes to Section 13U tax incentives?‍

Singapore has introduced further simplifications to its S13U tax incentive scheme, easing compliance for fund managers. ‍

Funds structured with special purpose vehicles (SPVs) or trading feeders will now have AUM and local business spending (LBS) requirements applied at the single-fund entity level, rather than for each sub-entity, reducing administrative complexity.

‍Additionally, funds will no longer need prior approval from the Monetary Authority of Singapore (MAS) for changes to their investment strategies, though they must still notify the regulator.

These changes are just the beginning as Singapore continues to adapt its regulatory landscape to meet evolving global standards and investor demands. Stay tuned for more insights as we delve deeper into the implications of these reforms and explore upcoming changes in the next instalment of this series.

Also read: Navigating the evolving landscape of wealth management: A global perspective