Each investor of the fund must be a “Qualifying Relevant Owner” for the purposes for section 13CA of the Income Tax Act and the Income Tax (Exemption of Income of Non-residents Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010. Non-Qualifying Relevant Owners must notify the fund manager and/ or the fund administrator immediately and would be subject to financial penalties.

The information contained in this document is not tax advice. Investors should consult their advisers to seek appropriate advice before providing any representation to the Fund.

An investor is a Qualifying Relevant Owner if he:

  1. either alone or together with his associates[1], beneficially owns (directly or indirectly) on the last day of the financial year of the Fund, issued securities of the Fund the value of which is not more than 30% (or 50%, where there are more than 10 shareholders) of the total value of all issued securities of the Fund on the last day of the financial year of the Fund;
  2. is an individual;
  3. is a bona fide entity[2] not resident in Singapore who does not have a permanent establishment in Singapore (other than a fund manager[3]) and does not carry on a business in Singapore;
  4. is a bona fide entity not resident in Singapore (excluding a permanent establishment in Singapore) who carries on an operation in Singapore through a permanent establishment in Singapore where the funds used to invest directly or indirectly in the Fund are not obtained from such operation;
  5. is a designated person[4];
  6. is an approved company under the Tax Exemption Scheme for Singapore Resident Funds which, at all times during the basis period for the year of assessment, beneficially owns directly 100% of the total value of all issued securities of the Fund;
  7. is an approved person under the Enhanced-Tier Fund Tax Exemption Scheme.

Reporting obligations of Non-Qualifying Relevant Owners

A Non-Qualifying Relevant Owner will have to declare to the Inland Revenue Authority of Singapore (IRAS) the penalty liable to be paid in his income tax return for the relevant year of assessment.

Penalty for Non-Qualifying Relevant Owners

The penalty is determined as follows:

Penalty = A x B x C

where:

A is the percentage which the value of the issued securities owned by the owner on the last day of the financial year of the Fund bears to the total value of all issued securities of the Fund;

B is the amount of income of owner as reflected in the audited account of the person for the basis period relating to that year of assessment; and

C is the corporate tax rate applicable to that year of assessment (currently 17%).

[1] The situations where two persons (P1 and P2) will be regarded as being “associates” of each other (where neither person is a designated person or an individual) include the following:

(a)  at least 25% of the total value of the issued securities of one person is beneficially owned, directly or indirectly, by the other; or
(b)   at least 25% of the total value of the issued securities in each of P1 and P2 is beneficially owned, directly or indirectly, by a third person.

This does not apply if:

  • either P1 or P2 is an entity listed on a stock exchange; and P1 does not beneficially own, directly or indirectly at least 25% of the total value of the issued securities of P2 (and vice versa); or
  • the third person referred to in (b) above is an individual or designated person, or an approved person under Section 13X of the Act which beneficially owns directly any issued securities of the Fund.

[2] A “bona fide” entity means an entity that is not a “non-bona fide entity”.  A “non-bona fide entity” means a person not resident in Singapore (excluding a permanent establishment in Singapore) who (a) is set up solely for the purpose of avoiding or reducing payment of tax or penalty under the Act; or (b) does not carry out any substantial business activity for a genuine commercial reason.

[3] A “fund manager” for this purpose refers to a company holding a capital markets services licence under the Securities and Futures Act (Chapter 289) for fund management or that is exempted under that Act from holding such a licence.

[4] A “designated person” means (a) the Government of Singapore Investment Corporation Pte. Ltd., (b) the Monetary Authority of Singapore or (c) any approved company which is wholly owned, directly or indirectly, by the Minister (in his capacity as a corporation established under the Minister for Finance (Incorporation) Act (Cap. 183)) and which is approved by the Minister or such person as he may appoint.