How to Setup a Singapore Fund Management Company
Singapore – Gateway to Asia
Global Investors are now headed towards Asia-pacific region since it is outperforming the rest of the world in terms of economic growth. Asia is considered of strategic importance to set-up funds, due to the increase in high net worth individuals and also a region perceived with higher returns on investments. Asia as per PWC & UBS Billionaires Report have the maximum number of Billionaires as a region in the world overtaking the USA and Europe. Singapore is now impressing the world on a large scale, its financial sector (Banks, Singapore Fund Management Company, Venture funds, Financial Advisors, etc) has, over the years, been consistently setting the standards of financial regulation and strict supervision. The Monetary Authority of Singapore (MAS) set out to establish a high regulatory yardstick to ensure that the relevant risks faced by all stakeholders are adequately mitigated and in effect to ensure the sustainability of the industry. This promulgates the Asian story, and Singapore is right in the middle of it all.
Singapore Fund Management Company
Singapore’s success as an international financial center is premised on its robust supervisory framework and pro-business environment. Supplemented by an extremely attractive tax environment for budding businesses, Singapore’s mature infrastructure and government support for the wealth management sector continue to be attractive to fund managers who intend on establishing a presence in Singapore. These factors have attracted leading financial institutions and global investors to operate with confidence in Singapore. Fund Management continues to be one of the main Regulated Activities in Singapore, with approximately 900 Singapore Fund Management Companies in existence.
The Regulatory Framework for Fund Managers
Singapore Fund Managment Company is regulated by under the Securities and Futures Act (Cap. 289) and to conduct the regulated activity of fund management, Fund Management Company needs to obtain either registration or license from MAS as a Registered Fund Management Company (RFMC), Capital Markets Services License (CMSL) as a Licensed Fund Management Company or a Venture Capital Fund Manager (VCFM) or be expressly exempted from holding a Licence. RFMC and VCFM are subject to less stringent compliance requirements and oversight whereas the Licensed Fund Management Company would be deemed to be a full license and would have stricter preconditions before being granted to an applicant.
Key Requirements to Setup a Singapore Fund Management Company
A summary of the key requirements and ongoing compliance for Licensing or Registration as per the table below.
| Requirements | Licensed FMCs-Retail | Licensed FMCs -Accredited Investor (A/I) | RFMC | Licensed FMCs-VCFM |
|---|---|---|---|---|
| Amount of Assets under Management | Above S$250 million | Above S$250 million | Maximum of S$250 million | Any Amount |
| The number of Directors & Experience | Minimum of 2 Directors with more than 5 years of relevant experience, and 1 CEO with more than 10 years of relevant experience. Of the 2 Directors at least 1 must be Executive and Singapore-resident. | Minimum of 2 Directors with more than 5 years relevant industry experience. At least 1 must be Executive and Singapore-resident. | Minimum of 2 Directors with more than 5 years relevant industry experience. At least 1 must be Executive and Singapore-resident. | Have at least two directors, at least one of whom should be full-time and resident in Singapore |
| Minimum Base Capital Requirements | S$500,000 or S$1 million | S$250,000 | S$250,000 | No Specific requirements |
| Investor Type | All investors – no limitation | Limited to [1]Qualified Investors | Limited to Qualified Investors | Accredited & Institutional only |
| Number of Investors | No Limits- All type of investors | No Limits- All type of investors | Maximum of 30 investors (which may include up to 15 funds) | No Limits- Accredited Investors or Qualified Investors. |
| Compliance Arrangements | Full time, the independent compliance function | This function can be outsourced if the AUM is less than S$1 b. | Can be outsourced as per complexity and scale of business | This function can be outsourced if the AUM is less than S$1 b |
| Professional Indemnity Insurance | Compulsory, coverage proportionate to AUM | Encouraged to be maintained | Encouraged to be maintained | None stipulated so far, but this should be commensurate to the scale, nature, and complexity of the specific set up |
| Reporting requirements | Annual and Quarterly | Annual and Quarterly | Annual | Annual |
| Risk-Based Capital Requirements | 120% of Operational Risk Requirements | 120% of Operational Risk Requirements | None | None stipulated so far, but this should be commensurate to the scale, nature, and complexity of the specific set up |
[1] Qualified investors: Accredited Investors, Collective Investment Schemes offered in Singapore only to Accredited Investors and Closed-end funds whose holders are Accredited Investors only. Accredited investors are individuals whose net personal asset exceed in value of $2 million or such other amount as the authority may prescribe as the first amount and whose financial assets exceed $1 million (net of any related liabilities) or whose income in the preceding 12 months income is not less than $300,000 or corporations with net assets exceeding S$10 million or equivalent in value.
Other Key Requirements for Singapore Fund Management Company
Fit and Proper
A Singapore Fund Management Company should satisfy MAS that its shareholders, directors, representatives, and employees, as well as the Fund Management Company itself, are fit and proper, in accordance with the Guidelines on Fit and Proper Criteria issued by MAS.
Fund administration
Fund Management Companies are required to have fund administration managed independent, or have adequate segregation of duties, particularly in the performance of functions such as valuation or fund accounting, acting as a fund register, and client reporting (e.g. sending of monthly account statements)
Audit
Fund Management Companies needs to have an external auditor to perform the annual independent audit. Auditors provide the auditor’s report with their opinion on the financial statements and their compliance with key licensing and business conduct requirements to MAS, this is one of the mandatory requirements for all the Fund Management Companies.
Anti-Money Laundering (AML) Framework
Fund Management Companies needs to have robust Know your Customer (KYC) policies in place. It is mandatory for all Fund Management Companies to put in place these policies and have an anti-money laundering framework to identify, assess, understand and address its money laundering and terrorism financing risks.
Custody arrangement
Fund Management Companies needs to place customers’ monies and assets with a custodian who is licensed, registered or authorised (to perform the custodial function) in the jurisdiction where the monies or assets are being held. Notwithstanding that Singapore Fund Management Company would not have direct responsibility for appointing the custodian, it must be able to demonstrate that it has taken reasonable steps to ascertain that the assets are subject to adequate safeguards including independent custody.
Tax regimes for funds and fund managers
Singapore is a vital location for managers of private equity, real estate and hedge funds to be based in, especially for investments in the Asia Pacific region. Singapore is also increasingly being used as a preferred location for fund vehicles (funds). The splendid growth of the fund management industry in Singapore can be accredited to several factors, including the ease of doing business in Singapore and attractive tax incentives for funds and fund managers. Outside of the traditional offshore funds’ jurisdictions such as the Cayman Islands, Singapore is viewed as having one of the most attractive regulatory and tax regimes for funds and fund managers.
The Tax Exposure of Funds Managed by a Singapore Fund Manager
Singapore based fund managers that manage funds may be liable to tax in Singapore due to territorial activity. The fund manager may create a taxable presence in Singapore for the fund (whether onshore or offshore) and, therefore, certain income and gains derived by the fund may be considered as Singapore-sourced and liable to tax in Singapore. However, this tax liability could be eliminated under Singapore’s tax incentive schemes for funds, provided that certain conditions are met.
Synopsis of Tax Incentive Schemes in Singapore for Funds
There are three main tax exemption schemes available to funds managed by fund managers in Singapore under which “Specified Income” (including gains) derived by the fund from “Designated Investments” is exempt from tax. All funds that are subject to any of the tax incentive schemes as at 31 March 2019 may enjoy the tax exemption for the life of the fund, subject to the funds continuing to meet the relevant conditions of each scheme.
Fund set-up options
Funds in Singapore can either be set up as companies, unit trusts, limited partnerships, and upcoming variable capital company (VCC)
Companies
The preferred structure for funds investing in Asia remains the private limited company (“PTE LTD.”) as Singapore’s tax treaties only apply to companies. Opting for the PTE LTD structure requires compliance with the Singapore Companies Act. In practice, this means that:
- The fund has to make annual filings to both the registrar (ACRA) and the tax authorities (IRAS)
- Any subscriptions or redemptions from the fund need to follow the requirements of company law
- Certain information about the fund is publicly available
- Investors invest in funds structured as companies usually via redeemable preference shares, with the promoters of the fund holding the ordinary shares.
- Upon issuance or redemption of preference shares, companies must prepare the relevant resolutions and update the details with ACRA
Unit Trusts
Mutual Funds often elect to form as a Unit Trust, which offers the advantage of not being governed by the Singapore Companies Act. However, there is the need to appoint an Approved Trustee of a Unit Trust, a form of Collective Investment Scheme (CIS), possibly increasing the cost of running the structure.
Limited Partnerships
Limited Partnerships are a popular vehicle for funds worldwide. In Singapore, these are governed by the Limited Partnership Act. Limited Partnerships offer fewer annual compliance requirements and less public disclosure than companies. However, Singapore’s tax treaties do not apply to limited partnerships
Variable Capital Company (VCC)
On October 1st 2018, a bill for a new structure was passed, called as the Variable Capital Companies’ bill. This fund structure is applicable to both open-ended and close-ended funds The benefits of a VCC structure are
- Provide flexibility in terms of managing investment funds in Singapore
- Will help fund manager to achieve cost efficiencies.
- Help facilitate re-domiciliation of funds
- Help reap the benefits of tax treaties and tax exemption schemes
The VCC act will be implemented in 2019, which will be notified by a notification in the Gazette
Benefits of Establishing in Singapore
Singapore’s strong infrastructure and attractive tax system have developed it into a leading fund management center, where institutions can handle fund operations with a presence and substance in Singapore for the following reasons:
- The competitive and transparent tax system
- Extensive tax treaty network worldwide
- Territorial tax system
- No capital gains tax
- Tax exemptions specifically for the fund industry
- Numerous other tax incentives available to all Singapore companies
- OECD whitelist
- Strong regulatory environment and investor protection
- Ease of doing business
- Effective legal system
- Skilled local workforce
- English as the first language
- Hub for a vast number of financial institutions and service providers.
Disclaimer: The information contained in this document is for general reference only. While all reasonable care has been taken in the preparation of this document, Argus (now Waystone Compliance) cannot accept any liability for any action taken as a result of reading its contents without consulting us with regard to relevant factors.
Regulatory Compliance Services provider
Argus (now Waystone Compliance) provides the full spectrum of services for Fund Managers compliance. Argus (now Waystone Compliance) assist with you to incorporate Singapore Fund Management Company and opted fund structure (Onshore/offshore), help you to obtain MAS registration or license and maintain its ongoing compliance. Our dedicated regulatory compliance team comes with extensive knowledge, diverse experience and ability to react fast. This enables clients to rely on us in this manner so much so that we are an extension of their team. We can help the client in the following:
- Setting up your business – We will incorporate the appropriate structure
- License Application– We analyze your business type and help you put a regulated business plan together with your license application. We check all relevant documentation to be provided to the MAS prior to submission of your license Application
- Policy and procedure– We ensure that your policies and procedures are adequately set up to complement your business strategy.
- Risk Management & Corporate Governance– We set up your Risk Management Framework & Compliance Monitoring Plan to ensure that the implemented policies and procedures are executed accordingly.
- Ongoing Compliance– Our team will be at your fingertips to ensure that any queries or questions relating to your compliance technicalities are resolved.