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Singapore to attract more global funds

New corporate structure for funds to be set up here, as the nation plays to its strength as a regulated financial hub amid pressure for tax transparency
Friday, March 24, 2017 - 05:50

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In a move aimed at attracting more global funds to set up their legal entities here, the Monetary Authority of Singapore (MAS) on Thursday proposed introducing a corporate structure for investments.

Singapore

IN a move aimed at attracting more global funds to set up their legal entities here, the Monetary Authority of Singapore (MAS) on Thursday proposed introducing a corporate structure for investments.

This is expected to play to Singapore's regulatory strength amid stronger global pressures for tax transparency, which effectively calls for businesses to be domiciled in jurisdictions where they have substantive operations.

In announcing the proposed change, Singapore's Second Minister for Finance Lawrence Wong said this move will enable investment managers to consolidate their operations in Singapore by domiciling more of their funds here, alongside their fund management activities.

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"We believe this will spur demand for fund-servicing activities such as accountancy, legal, custody and tax in Singapore, therefore creating more jobs in the broader professional services sector," said Mr Wong, who is also minister for national development. He was speaking at a conference of the Investment Management Association of Singapore (IMAS).

Three types of structures are now being used by investment funds in Singapore: funds can form unit trusts, have limited partnerships, or be registered as companies under Singapore's Companies Act.

However, each structure has its limitation for global funds.

Justin Ong, PwC Singapore's Asia-Pacific asset and wealth management leader, told The Business Times that the unit trust model is not commonly used by non-UK European funds, while the limited-liability model is mostly applied by US companies. As for Singapore's Companies Act, this is mostly used by domestic companies with typical business operations.

Under the new corporate structure known as the Singapore Variable Capital Company (S-VACC), asset managers domiciled here can enjoy more flexibility and save on costs, said Mr Wong.

The structure can be applied to open-ended and close-ended funds, retail and private funds, and for investments across all asset classes. Open-ended funds differ from close-ended ones in that open-ended funds can adjust constantly their investment criteria, their capital and their fund size.

Asset managers will also be able consolidate administrative functions at an umbrella fund level. This means sub-funds with varying risk levels, investment objectives and classes of investors can be housed together under the same legal entity, said Mr Wong.

Funds typically base their legal entities in places such as Dublin, Luxembourg, the British Virgin Islands and the Cayman Islands - offshore locations viewed as tax havens.

But amid the weight of tax-transparency pressures exerted by the OECD's Base Erosion and Profit Shifting (BEPS) and the United States' Foreign Account Tax Compliance Act (FATCA), businesses are expected to be based in places where they can prove substantive operations in order to justify the tax breaks they earn.

PwC's Mr Ong said: "There's nowhere to hide. In the last two to three years, this whole debate around tax transparency has been around substance. If you create a vehicle in Singapore, it works because you've got an eco-system here."

Singapore has focused on building itself as a financial centre for asset managers; it can now tap that expertise, as well as its reputation for being well-regulated, to woo global funds into setting up their legal entities here, he added.

"It's very fungible as a vehicle structure. So once you have these things in play, any global investor who wants to invest into Asia, or any part of Europe, can now look at the Singapore structure."

Mr Ong added that Singapore-domiciled funds can take advantage of the various bilateral tax treaties in force.

Tony Lewis, head of HSBC's securities services, Singapore, pointed out that funds based here may also, in time, benefit from fund passporting through Asia.

"Singapore's strategically important location within Asean means that future fund passporting schemes will provide Singapore-domiciled funds with additional, and extensive, distribution channels."

With regard to future fund passporting in this region, it is understood that Singapore is still in talks over "tax harmonisation" with other Asia-Pacific countries. Singapore poses advantages for its Asia-Pacific counterparts in Australia and Japan, given that fund flows through Singapore are from global investors, while fund flows within Australia and Japan tend to come from domestic investors.

Mr Ong said: "When the Asian fund passporting concept comes about, that would provide a new playground for Singapore. It's a very big opportunity, and if we sit out of it, it would be quite disadvantageous. Once you're not in the game at the first move, you will no longer get there."

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