One of the main reasons managers set up funds in Singapore is the tax framework. The city-state offers multiple incentive schemes that can exempt fund-level investment income from tax entirely, and some of them also give the management company a concessionary rate. For smaller managers, the economics are compelling, but only if you understand which scheme fits your fund and what conditions you need to satisfy to keep the exemption.
I have guided dozens of managers through this framework at Allocator One Asia, and the most common mistake I see is treating the tax incentive decision as an afterthought. It should be one of the first things you think about when structuring your fund, because it affects your vehicle choice, your staffing decisions, and your service provider costs from day one.
The major schemes are Section 13O, Section 13U, Section 13H, and Section 13R. Significant updates took effect on 1 January 2025, and I will cover those changes throughout [4].
Section 13O: the accessible entry point
Section 13O of the Income Tax Act, formally the Enhanced Tier Fund Tax Exemption Scheme, is the most commonly used incentive for new fund managers in Singapore. It provides tax exemption on specified income derived from designated investments for qualifying funds [4].
The qualification requirements are designed to be achievable for smaller operations:
- AUM threshold: At least SGD 5 million in designated investments [4]. For a first fund, that is typically reachable after your initial close.
- Investment professionals: The fund must be managed by a Singapore fund management company employing at least two investment professionals based in Singapore [4]. For a two- or three-person GP team operating out of Singapore, this is the natural setup anyway.
- No mandatory local business spending requirement at the basic 13O level, though the economic activity you generate from employing those investment professionals and engaging local service providers usually satisfies any reasonable substance test.
The biggest 2025 change at this tier: funds no longer need to be newly established companies to qualify for 13O [4]. Previously, existing vehicles could not apply. Now, a fund that was set up before pursuing Singapore incentives, or one re-domiciling from another jurisdiction, can access 13O benefits. That opens the door for managers with existing Cayman or BVI vehicles who want to move their next fund onshore to Singapore.
Section 13OA: the partnership equivalent
Section 13OA extends equivalent treatment to Singapore Limited Partnerships. The qualifying conditions are substantially similar to 13O, but the tax exemption applies at the partnership level [4]. This matters because some managers prefer LP structures for their investor base or allocation mechanics. Having parallel incentive treatment means you can choose between a VCC and an LP based on commercial considerations rather than being driven by tax.
Section 13U: for larger funds
Section 13U, the Enhanced Tier Fund Tax Incentive, targets bigger funds. The AUM threshold is SGD 50 million at the point of application, and you need to maintain that level at the end of each financial year [4]. This positions 13U primarily for second-time managers raising larger successor funds, or for debut managers with substantial anchor commitments.
The key difference from 13O is the tiered local business spending requirement:
- AUM of SGD 50 million to SGD 500 million: at least SGD 200,000 in annual local spending [4].
- AUM of SGD 500 million to SGD 1 billion: at least SGD 300,000 annually [4].
- AUM above SGD 1 billion: at least SGD 500,000 annually [4].
These spending thresholds sound high, but they generally align with what funds of that size naturally spend on service providers, office costs, salaries, and professional fees in Singapore. If you are running a SGD 100 million fund with a local team, you are probably already clearing SGD 200,000 in local expenses without trying.
Closed-end fund treatment: the 2025 game-changer
The most consequential change in the 2025 updates is the closed-end fund treatment available under Section 13U. Funds with 13O, 13OA, or 13U awards commencing on or after 1 January 2025 can voluntarily elect this treatment [4]. In brief:
- From the sixth incentive year onward, the annual AUM requirement is waived entirely [4].
- Local business spending can be satisfied on a cumulative basis through the tenth incentive year, rather than annually [4].
- From the eleventh year onward, the local business spending requirement is completely waived [4].
This fixes a structural problem that venture capital and private equity funds have always had with fixed AUM thresholds. A fund deploys capital in years one through five, holds investments through years five to eight, and then returns capital through exits in years seven through twelve. After a successful exit, AUM drops because you distributed the proceeds to your investors, which is the whole point. Under the old rules, that AUM drop could jeopardise your tax incentive status. The new closed-end fund treatment eliminates that risk.
This is one of the more thoughtful pieces of fund tax policy I have seen. It shows that MAS actually understands how closed-end funds work in practice.
Section 13H: for Singapore-focused VC
Section 13H is a more targeted scheme. It provides tax exemption on income from funds investing in unlisted Singapore-based companies, essentially domestic venture capital [27]. The fund gets tax-exempt investment income, and the fund manager becomes eligible for a 5% concessionary tax rate under the Fund Management Incentive (FMI) scheme [27].
That dual benefit is unusual. Most incentive schemes only operate at the fund level. Section 13H also rewards the management company, which makes a real difference to GP economics for managers whose strategy is focused on Singapore's domestic startup ecosystem.
The limitation is the investment focus requirement. If your strategy spans Southeast Asia or broader Asia, 13H may not work because your portfolio will include companies domiciled outside Singapore. You need to evaluate whether your anticipated portfolio composition can satisfy the Singapore-based company requirement, or whether 13O or 13U is a better fit for a regional mandate.
Section 13R: self-administered, no application needed
Section 13R is the self-administered exemption. You do not apply to MAS or any regulatory authority. Instead, you verify independently that your fund satisfies the qualifying conditions and claim the exemption directly [27]. The fund must be Singapore-incorporated and resident, and the 2025 updates require it to be managed by a Singapore fund management company employing at least one investment professional [4].
The advantage is speed and simplicity: no waiting for approval. The risk is that you bear full responsibility for correctly interpreting and applying the qualification requirements. If IRAS reviews your position later and concludes you did not actually qualify, you face back taxes plus penalties. If you do not have deep tax expertise in-house, I strongly recommend engaging a Singapore tax advisor to validate 13R eligibility rather than self-certifying without professional review.
How to choose between the schemes
My decision framework, in short:
- First fund, AUM under SGD 50 million: Start with Section 13O. The SGD 5 million AUM threshold and two-investment-professional requirement are achievable, and you avoid the spending obligations of 13U.
- Successor fund, AUM above SGD 50 million: Move to Section 13U and elect closed-end fund treatment. The spending requirements are manageable at that scale, and the AUM waiver from year six onward protects you through the distribution phase.
- Singapore-focused VC strategy: Evaluate Section 13H for the dual fund-level and manager-level benefits, but only if your portfolio will genuinely concentrate on Singapore-domiciled companies.
- Speed is the priority: Section 13R gets you started without an application, but get professional tax advice to confirm eligibility.
Substance requirements and the global tax context
Every one of these schemes requires genuine substance in Singapore: investment professionals, local management, real economic activity. This is real. Singapore has deliberately aligned its incentive framework with the OECD's Base Erosion and Profit Shifting standards [4]. The investment professional requirements, spending obligations, and licensing prerequisites all ensure that tax benefits flow to real operations, not shell structures.
For managers, this is actually a good thing. The substance requirements push you to build your operations in Singapore properly, which gives you access to the country's talent pool, service provider ecosystem, and investor network. The activities that satisfy the tax incentive conditions are the same activities that make your fund management business work.
All current incentive schemes have been extended through 31 December 2029, along with associated GST remission and withholding tax exemptions [4]. That gives you visibility over a full fund lifecycle for planning purposes.
How Allocator One Asia and Infra One help with tax structuring
We work with managers and their tax advisors to make sure fund structures are set up for Singapore's incentive schemes from the outset. Infra One's fund administration services include the NAV calculations, financial reporting, and documentation that support tax incentive compliance. We coordinate with local counsel on VCC formation and incentive scheme applications, and our operations team tracks the ongoing conditions (AUM thresholds, spending requirements, investment professional headcount) so nothing falls through the cracks.
The tax incentive framework is one of Singapore's strongest selling points for fund managers. But it only works if you set it up correctly at the start. If you are evaluating Singapore for your next fund and want to talk through the tax implications, reach out to our team.
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