Overview of Starting a Hedge Fund in Singapore
The number of people, flocking the shores of Singapore for setting up hedge funds, is increasing by the day. The reasons behind this transition are very simple. A few of them include, fund executives getting a host of tax benefits and incentives, licensing requirements not being very stringent and the presence of numerous High-Net-Worth-Individuals (HNWI). Other factors that also play a supporting role in making Singapore the ‘most-sought-after’ include, its progressive economy, stable political environment, low crime rates, excellent infrastructure, and most importantly skilled and talented work force.
All the factors given above make the island of Singapore, the perfect business hub for setting up any company, not only a hedge fund. However, speaking of hedge funds, they are set-up with the sole intention of seeking an ‘absolute return’, independent of directional move of equity, fixed income or cash markets. The MAS (Monetary Authority of Singapore) will check if the fund is investing in some non-mainstream asset classes other than the listed bonds, equities, and cash.
Types of Funds
The two major types of hedge fund structures are onshore and offshore. The onshore funds can be of three types: close-ended funds like corporation, open-ended unit trust funds, and limited liability partnerships. In an onshore fund, the licensing and regulatory regime applied is that of Singapore. On the other hand, an offshore fund is run by foreign legislation. It provides a sense of security to the investors.
Smaller funds that have less than 30 investors can operate without a license. All others have to can operate under a single license like a Capital Markets Services license or Financial Advisers license. Securities and Futures Act (SFA) regulate the issuance of Capital Markets License. Whereas the Financial Advisers Act, (FAA) issues a Financial Advisers License. Offshore funds interested in marketing to Singapore investors must carry an appropriate license, and should be regulated by the offshore jurisdiction.
If a Singaporean fund manager manages an offshore fund, then the amount earned may be termed as ‘Singapore sourced income’ and is liable to be taxed. If on the other hand, an offshore fund has already paid the taxes to the offshore jurisdiction with tax rate of at least 15%, then Singapore will not tax the amount even if it is remitted into Singapore.
There are a few exemptions given to both offshore and onshore funds. All types of onshore funds that are approved by the MAS, constituted in Singapore and have its administration performed in Singapore can avail the tax exemption benefits. Whereas, a qualifying offshore fund is one that is not 100% beneficially owned by Singapore investors, does not have its presence in Singapore, and is only present in the form of a company, trust, or individual account.
Even the fund managers in Singapore, get taxed at a concessionary rate of 10% on fee income, subject to certain conditions and MAS approval. However, in order to avail this scheme, fund managers should employ at least three investment or fund management advisory professionals, and the basic monthly income of these professionals should exceed S$3,500.
Concisely, Singapore is continuously gaining popularity as the hub for setting up of a company as hedge funds. This is primarily because of its lower tax rates, lenient regulatory measures, availability of many High-Net-Worth-individuals (HNWI), and highly skilled workforce.