Guide for setting up Fund Management Company in Singapore

Guide for setting up Fund Management Company in Singapore

In Singapore, how do you start a fund management company?

Companies wishing to engage in the business of fund management in Singapore must be either a licenced fund management company (LFMC) with a Capital Markets Services (CMS) licence in fund management or a registered fund management company (RFMC) with the Monetary Authority of Singapore, according to the Securities and Futures Act (SFA) (MAS). The term "fund management" refers to a company's activities that include making investment decisions on behalf of customers with a pool of money or assets.

Unit Trusted Funds

This is a common option for mutual funds, and it has the added benefit of being exempt from the Singapore Companies Act. However, because unit trusts in Singapore are required to employ a Licensed Collective Investment Scheme (CIS) Trustee, compliance costs may be greater.

As a Private Limited Company, you can invest your money in a variety of ways (Pte Ltd)

This option is popular among private equity funds looking to invest in Asia because of Singapore's extensive tax treaties with regions and nations all over the world. Notably, only Pte Ltd is covered by the city-cross-border state's tax treaties.

A minor disadvantage is that Pte Ltd (hereafter referred to as company/companies) in Singapore must always comply with the Singapore Companies Act and meet the following requirements:

Make annual filings with both ACRA (National Registrar of Companies) and IRAS (tax regulatory body).

The Companies Act governs all subscriptions and redemptions from the fund. This means that if an investor invests in funds structured as a company through redeemable preference shares in Singapore, ACRA must be notified and required resolutions must be prepared.

Furthermore, because some information about corporations in Singapore is public, this will apply to newly established funds, which may be unfavourable at times.

Funds in the Form of a Limited Partnership

A popular choice around the world including in Singapore, with the main negative being that the fund is not eligible for Singapore's cross-border tax treaties. However, there are fewer compliance obligations (since limited partnerships are governed by the Limited Partnership Act rather than the Companies Act in Singapore) and significantly less mandatory public disclosure than corporations.

The Advantages of Creating a Singapore Registered Fund Management Company

In today's world, Asia is where the money is, and Singapore, with its financial infrastructure and strategic location, is well suited to serve as the continent's financial centre. The benefits are summarised below.

• Low-tax territorial framework that is competitive, transparent, and efficient
• Worldwide network of tax treaties (currently over 76 full and eight limited treaties in place)
• There is no capital gains tax.
• Several tax exemptions are available for the fund management sector, including 13R, 13X, and 13CA (details below).
• Investor protection and a strong regulatory environment
• Best in the world for ease of doing business (consecutive top ranking in World Bank surveys)
• IP protection that is strong
• A well-run legal system
• Local labour with an English education
• Proximity to Asia's rising markets
• Foreign experts are welcome to work in under an open-door policy.
• There are about 125 financial institutions in the city, with five of them regarded among the best in the world.

Setup Requirements for a Fund Management Firm (FMC)

The MAS requires that the category a company picks meets its demands in a fair amount of time. The following are the many types of FMCs available in Singapore:

RFMC

RFMCs are those who run a fund management firm with a maximum of 30 qualified investors (no more than 15 of whom can be funds or limited partnership fund structures) and a total asset value of less than S$250 million.

Accredited investors in Singapore are individuals with net personal assets of more than S$2 million or income of more than S$300,000 in the previous 12 months, as well as organisations with net assets of more than S$10 million.

Closed-end funds and collective investment plans (offered only to accredited investors in Singapore) are also included in the definition of qualified investors (whose holders are accredited investors only).

LFMC

LFMCs are divided into two categories:

Retail LFMCs - engage in fund management with a wide range of investors.

A/I LFMCs - conduct fund management business only with qualified investors, with no limit on the number of investors.

The conditions for establishing the three types/subtypes of FMCs listed above can be summarised as follows:

	RFMC	Retail LFMC	A/I LFMC
Types of investors and their numbers are permitted.	Only qualified investors are eligible, and the number of investors is limited to 30. (up to 15 can be funds)	There are no restrictions on the number of investors.	Only qualified investors are allowed to participate, and there are no limits on the number of people who can participate.
Minimum Capital required	S$250,000	Either S$500,000 or S$ 1 million	S$ 250,000
Risk Based capital requirement	None	Yes, at least 120 percent of operational risk is required in terms of financial resources.
Internal audit requirements and risk management framework	Mandatory
Reporting Requirement	Annual	Annual as well as quarterly
Professional Indemnity Insurance (“PII”)	Not compulsory but recommended	Compulsory	Not mandatory but recommended
Compliance Structure	Allowed out-sourcing	Must have full time compliance function	May be outsourced
Number of directors and their residential requirement in Singapore	Minimum two directors with 5 year+ experience and full time resident in Singapore	At least two directors with more than five years of relevant experience, with at least one executive and full-time resident in Singapore (with more than ten years of experience).	At least two directors with more than five years of relevant experience, at least one of whom is an executive and a full-time Singapore resident
Company officials with mandatory residence in Singapore (including the resident director)	At least two with more than five years of relevant experience	At least three with more than five years of relevant experience	At least two with more than five years of relevant experience

Following the steps below, an FMC must submit its application for licence or registration to MAS:

1. Using the Corporate Electronic Lodgement, or CeL, to register as an RFMC with MAS.
2. Applying for a CMS licence in fund management through CeL, as well as additional SFA-regulated activities such as dealing in securities, trading in futures contracts, and/or leveraged foreign exchange trading, if applicable to the applicant's business model.
3. Obtaining a CMS licence in fund management by submitting a photocopy of SF(LCB)R Form 1 and, if applicable to the applicant's business model, any additional SFA regulated activities not stated above.

Processing Time

"A fully submitted application from an applicant who fits the admission criteria will take about 12 weeks to process, excluding any delays caused by causes beyond MAS' control," according to MAS. Incomplete entries or those that do not meet the criteria are notified. When they are ready, such applicants may re-submit a new application.

A Fund Management Company's Operations Have Come to an End

Prior to ceasing, an FMC must provide an orderly winding down of its business, according to the MAS. This includes providing sufficient notice to consumers, business partners, and other relevant stakeholders about the cessation, as well as fulfilling all customer responsibilities before the stoppage.

The following are the prerequisites for LFMC and RFMC to cease operations:

• Not later than 14 days after ceasing business, an LFMC must surrender its licence to MAS and file a notification of cessation of business - Form 7 of the SF (LCB)R.
• A notice of cessation of business – Form 24A of the SF (LCB)R – must be filed by an RFMC prior to the cessation.

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Tax Incentives for a Fund Management Company in Singapore

In a move to foster the development of the fund management business in the country, Singapore has introduced a number of initiatives as stated below.

The plan (which does not require permission) is for Singapore-based funds that are unable to claim GST on products or services under conventional GST procedures. A fund must have received approval for income-tax concessions in order to be eligible (under the schemes 13R or 13X, amongst others). In addition, the fund must have a prescribed fund manager in Singapore (either one who is licenced, registered or otherwise exempted) (either one who is licensed, registered or otherwise exempted).

The scheme is advantageous because, in general, funds in Singapore are unable to claim input GST because they are unable to register for GST due to the fact that they do not make taxable supplies. However, input GST on practically all expenses incurred by the fund in connection with its investing activities will be eligible for reduction under this plan. The rate of recovery established by the IRAS is fixed annually.

FMCs in Singapore pay a 10% tax rate on income earned from their fund management business instead of the corporate tax rate of 17 percent, subject to the following requirements and MAS approval:

• In order to conduct fund management or investment advisory operations, FMC must be licenced, registered, or exempt from having a capital markets services licence.
• FMCs must handle assets worth at least S$250 million and must employ at least three experienced fund management professionals earning more than S$3,500 per month.
• A strategy for asset expansion is also necessary.

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Singapore Fund Management Companies' 13R, 13X, and 13CA Schemes

Selected income from specified investments is tax-free under these plans. FMCs that take advantage of these schemes must file annual tax returns with IRAS and annual statements with the MAS.

Most trading gains and remittances of revenue into Singapore are classified as specified income. The designated investments under these programmes, in particular, include:

• Any company's stock or shares
• Debt securities
• Real estate investment trusts, exchange-traded funds, or other securities that are:

1. issued by foreign governments and denominated in foreign currency

2. traded on any stock exchange

3. issued by supranational organisations; or

4. issued by any business

• Contracts for the future
• Immovable property located outside of the United States
• Any recognised bank in Singapore accepts deposits.
• Deposits in foreign currency with foreign financial institutions
• Transactions in foreign currency
• Financial derivatives that qualify
• Unit trusts that qualify

The list of exclusions, on the other hand, includes:

• Real estate investment trusts' distributions
• Interest earned on eligible debt securities
• Interest earned on deposits with any approved bank and certificates of deposit issued by any eligible bank, as well as interest earned on Asian Dollar bonds