Collective investment schemes (CIS) refer to investment arrangements that pool funds from multiple investors to invest in various assets for profit. In Singapore, CIS are regulated by the Monetary Authority of Singapore (MAS) under the Securities and Futures Act (SFA). There are several common legal structures for setting up CIS in Singapore, including companies, limited partnerships and unit trusts. The Variable Capital Company (VCC) structure was recently introduced by the Singapore government as a customized structure tailored for investment funds. Singapore also offers attractive tax incentives for qualifying CIS, making it an appealing jurisdiction for fund management activities.
Overview of Unregulated and Regulated Collective Investment Schemes in Singapore
Collective investment schemes in Singapore can be broadly categorized into unregulated and regulated schemes. Unregulated schemes are typically only offered to professional or accredited investors due to their higher risk profile. Examples include hedge funds, private equity and venture capital funds. Regulated schemes must be authorized or recognized by MAS, and have greater investor protection. Authorized schemes are domiciled in Singapore while recognized schemes are foreign funds approved for offering under the CIS framework.
Common Legal Entities for Setting Up Regulated Collective Investment Schemes
Before the introduction of VCCs, common legal structures for regulated CIS in Singapore are: (1) Investment companies – set up under the Companies Act but with restrictions that may hamper operations; (2) Limited partnerships – provides good privacy and flexibility but compliance costs can be high; (3) Unit trusts – must appoint a licensed trustee to hold assets, less commonly used than companies or LP.
Key Features and Advantages of the Variable Capital Company Structure
The VCC structure is customized for CIS with key features like: sub-fund segregation allowing cost savings; no need for shareholder meetings or public shareholder register providing operational ease; tax transparency enhancing returns for investors. The VCC Grant Scheme also incentivizes global fund managers to domicile or re-domicile funds in Singapore as VCCs.
Overview of Singapore’s Competitive Tax Incentive Schemes for Collective Investment Schemes
Singapore offers three tax exemption schemes for CIS subject to certain qualifying conditions – Enhanced Tier Fund (13X) scheme, Onshore Fund (13R) scheme and Offshore Fund (13CA) scheme. These provide a tax exemption on specified income derived from designated investments until 31 Dec 2024. Reduced tax rates may also be available for fund management companies under the Financial Sector Incentive scheme.
Singapore provides a robust environment for CIS with the flexible VCC structure and attractive tax incentives catering specifically to investment funds. These schemes, together with Singapore’s stellar reputation and connectivity, strengthen its position as an attractive Asian hub for fund domiciliation and management activities.