With almost 25 years of tax advisory experience, Teo specialises in fund formation and has structured numerous funds that invest in a diverse range of asset classes, such as hedge, real estate, infrastructure, private equity, venture capital, private debt/credit and digital assets. Besides structuring third-party funds, he is also involved in advising ultra-high-net-worth (UHNW) individuals in setting up investment vehicles and management offices in Singapore. Tapping his expertise in mergers and acquisitions, as well as international tax, Teo has advised multiple clients in acquiring their investments across Asia Pacific, Europe and US.

In the last 25 years of your career, what would you say are the key tax considerations relating to fund formation? Any differences depending on the asset classes?


As it is widely believed that a fund is a mere pooling vehicle, any tax should therefore only be levied at the investors’ and at the investments’ level.  As a result, in the past, the main tax consideration has always been focused on ensuring that the fund achieves tax neutrality, a concept that is used to describe the non-imposition of taxes on income and gains and withholding taxes on profit repatriation and return of capital. This objective is quite simply achieved through setting up the fund in a jurisdiction with a favourable tax regime or through a tax transparent structure.

However, the key considerations relating to fund formation have evolved tremendously over time. Increasingly, we see added complexities arising from ensuring that the fund structure considers tax implications at the investment level. For instance, if you are setting up an open-ended Pan-Asian real estate fund, the structure must allow the fund to leverage on both treaty benefits and tax-advantaged domestic structures in the target location.  These objectives must be balanced with the fund’s marketability, which is also important in determining the fund’s legal form and location.

The level of complexity varies across asset classes. Hedge funds possess relatively flat structures and are generally the least complex while setting up a fund that invests in hard assets such as real estate and infrastructure (including renewables) involves greater rigour. This complexity arises from multiple tax considerations on various levels, as such funds tend to have many layers of structures. Funds focusing on private equity, venture capital and debt possess moderate complexity. Lastly, complications in funds focusing on digital assets largely result from the fact that tax treatment of such assets are relatively untested, and many tax incentive schemes globally typically include only conventional capital market products but not digital assets.

Traditionally, funds are set up in tax-neutral locations such as the Cayman Islands but the fund management functions are often located in a different country such as the US, Singapore, Hong Kong, UK, etc. Are you seeing the onshoring of funds in Singapore and Hong Kong as an increasing trend and if yes, what are the possible reasons?


Such a trend has been observed in recent years and can be attributed particularly to changing policies, perceived risks and innovation in fund structures.

Setting up and maintaining funds in traditional tax haven countries such as Cayman Islands have become significantly costlier due to increased regulations. On the contrary, it is becoming more cost-competitive to set up funds in countries such as Singapore, especially because of government-issued grants to enhance attractiveness.

Furthermore, many institutional investors such as sovereign wealth funds and pension funds are moving away from such a structure because of the potential reputational risks. Certain family offices and UHNW investors are also moving away from such structures, fearing that association with such structures would result in them being targets of tax audits.

From a tax perspective, particularly for the purposes of accessing treaty benefits, if the fund and the holding company are set up in the same country, this could arguably reduce the risks of being accused of treaty shopping. For instance, many Asian-focused funds are set up as Singapore limited partnerships (LP) with wholly-owned subsidiaries in Singapore.

Another contributor is arguably the development of new fund structures offering fund managers and investors more flexibility than before and catering to the various needs of each segment. For example, Singapore fund managers may set up their fund vehicle in the form of a Variable Capital Company (VCC), LP or unit trust.

Could you briefly discuss the key benefits of domiciling funds in Singapore?


Singapore is a leading financial services hub and is regarded as being transparent, stable and a gateway to the Asia-Pacific region. It is renowned for having an open and well-regulated economy that is well-served by a vibrant ecosystem of service providers such as banks, tax and legal advisers.

Using Singapore entities within a fund structure is ideal for several reasons. Singapore has a wide network of over 90 double taxation agreements and a flat corporate income tax rate of 17%. It has a measured approach to regulation with agencies such as the Monetary Authority of Singapore (MAS) and the Economic Development Board adopting pro-business policies.

Singapore is also a common law jurisdiction and offers a variety of legal entities and arrangements, such as companies (private limited and VCC), trusts or partnerships. To offer a conducive operating environment to the asset management industry, tax incentive schemes are also available for qualifying funds and asset managers.

What about those who want to set up a fund management company in Singapore? What do they need to consider?


First, the fund manager should consider whether the fund management company (FMC) is required to obtain a licence from the MAS to conduct regulated fund management activities in Singapore. There are two self-invoking licence exemptions whereby the FMC either manages a fund that invests solely in immovable assets, such as real estate and infrastructure funds; or provides fund management services to related corporations, such as members of the same group of companies. The second exemption is typically utilised by single-family offices (SFOs). If the requirements for exemption are not met, the FMC would have to apply for a licence with the MAS. They may apply for a Capital Market Services licence, where one key feature is the unlimited assets under management (AUM) (typically for mutual fund/hedge fund managers) or register with the MAS as a Registered Fund Management Company (typically for those who manage smaller funds).

Next, Singapore offers tax incentives such as the Section 13U (Enhanced-Tier Fund Tax Incentive Scheme) and Section 13O (Singapore Resident Fund Scheme) schemes, which provide for tax exemptions on certain income or gains derived by the funds. One key condition of note is that the fund must be managed by a licensed (or exempted) fund manager in Singapore.

Furthermore, FMCs may be eligible for a concessionary tax rate of 10% under the Financial Sector Incentive–Fund Management (FSI-FM) scheme. This is for fund management companies which manage only incentivised funds and commit to, amongst other things, growing their businesses (such as through AUM or headcount) in Singapore over a specified period.

Are there any specific rules governing the taxation of carried interest in Singapore?


No. In the absence of any deeming provisions in Singapore, the tax treatment of carried interest would prima facie follow its legal form. For funds managed in Singapore, it is common for carried interest to be structured as investment returns and paid out as dividends or partnership distributions if the carried interest recipients have invested a meaningful amount of capital to show alignment of interest with investors. Whilst less common, carried interest is sometimes structured as a performance fee payable to the FMC.

In what way is Singapore a favourable location for setting up a family office and what are the types of structures available?


Apart from the key benefits mentioned above, Singapore operates in a time zone which allows for greater convenience and ease of communication when servicing clients in Asia. The multi-racial make-up also brings multilingual capabilities. Singapore has a good reputation and infrastructure with an unbiased, fair court and legal system, a strong regulatory framework and a stable political environment.

The structures typically used by Singapore SFOs include private limited companies, VCCs and/or trusts. These allow flexibility and enable effortless assimilation into various categories of wealth planning structures.

What about someone who desires to set up a multi-family office (MFO) in Singapore? How is it different from setting up an SFO in Singapore?


One key difference lies in the licensing requirements. MFOs require an MAS licence to conduct fund management activities, while SFOs typically qualify for licensing exemption. A huge limiting factor for time-sensitive investments by MFOs lies with the approval process of the licence, which may take up to nine months.

Furthermore, FMCs may qualify for the FSI-FM scheme, subject to conditions met. The intention of this is to incentivise fund managers to grow their AUM/fund management activities in Singapore. This scheme is more targeted towards MFOs since SFOs’ main objective is generally to grow and preserve family wealth. However, the MAS is prepared to approve FSI-FM applications made by SFOs on a case-by-case basis and if conditions are met.


This article was first published on Finance Monthly.

Teo Wee Hwee is a Partner leading the real estate and asset management tax practice at KPMG in Singapore. His team consists of 8 partners and over 40 staff focusing entirely on servicing fund managers, family offices and institutional investors on tax advisory matters.