SINGAPORE Law and Practice Contributed by: Woon Hum Tan, Shook Lin & Bok LLP
3.4 Tax Regime for Managers Licensed FMs are subject to 17% corporate income tax. The income of the Licensed FM typically includes management or base fees, performance fees and car - ried interest, including any other income derived from the alternative fund. A Licensed FM can apply to the MAS for incentives under the Financial Sector Incentive – Fund Manage - ment Award. This incentive allows the Licensed FM to be taxed at a lower rate of 10% on income derived from managing or providing investment advisory ser - vices to qualifying funds (eg, funds approved under Sections 13O and 13U of the ITA). The key conditions are: • the fund manager must be a Licensed FM; • the Licensed FM must have at least three full-time investment professionals with minimum salary qualifications; and • the Licensed FM must have minimum assets under management of SGD250 million. 3.5 Rules Concerning Permanent Establishments The question of whether a foreign alternative fund with a local fund manager creates a permanent estab - lishment or other taxable presence in Singapore is a question of mixed fact and law. There are no exemp - tions or other rules on this. However, there is a tax incentive pursuant to Section 13D of the Income Tax (Exemption of Income of Prescribed Persons Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010, which applies to prescribed per - sons (that are non-resident individuals, companies or trust entities – ie, offshore fund vehicles) managed by a Singapore fund manager. The incentive comes with prescribed conditions. 3.6 Taxation of Carried Interest Carried interest is not expressly dealt with by local tax legislation. The taxability of carried interest will depend on its legal nature, and this will in turn depend on the legal documentation, classification and how in fact and in substance it is structured and dealt with. If it is income in nature in the hands of the fund manager, it will be subject to Singapore corporate income tax. If it is structured in the form of gains from actual capital
ciated with customer assets that it manages. It must be subject to external audit and internal audit. Profes - sional Indemnity Insurance is required and a Letter of Responsibility could be required by the MAS from the fund manager’s parent company or related company. The fund manager is required to comply, on an ongo - ing basis, with all the business conduct requirements prescribed in the SFA and the relevant subsidiary leg - islation. These include:
• custody; • valuation; • reporting; • mitigation of conflicts of interest; • disclosure; • termination of fund;
• cessation of business; • complaints handling; • oversight of personnel; • AML/CFT;
• misconduct reporting; • use of service provider; • notifications and approvals; and
• periodic returns. No Fiduciary Duty
Typically, alternative fund managers are appointed by the alternative fund pursuant to the IMA. Typically, the IMA will expressly provide that the relationship is purely contractual and the alternative fund manager has no fiduciary duty towards the fund nor the inves - tors. It is pertinent to ensure that the alternative fund manager act in a manner that is consistent with terms and conditions of the IMA and does not knowingly or unknowingly cross the line to act in a manner that is consistent with being a fiduciary to the fund or the investors. Conflicts of Interest Potential conflicts of interest involving the alternative fund managers must be expressly disclosed to their customers in the fund offering documents or IMA. Basic information about the alternative fund manag - ers, their licence status and permissible regulated activities are set out in the Financial Institutions Direc - tory found on the MAS website.
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