From a tax perspective, any investment fund structure should meet two key criteria:

1st, it should be tax neutral, i.e. as an investment fund essentially operates as a pooling vehicle it should not expose investors to more burdensome taxation than if they were to invest directly; and

2nd, it should provide certainty of taxation, i.e. it should be possible to determine the tax consequences at every level, from income from investments to the distributions to investors.

Generally, tax neutrality of a fund structure means the following:

1. no taxation at the level of the fund itself; and2. no taxes on distributions from the fund to its investors in the location of the fund.

A Singapore fund set up as a company and approved under one of the existing tax exemption schemes, i.e.:

1. the Singapore Resident Fund Tax Exemption Scheme; and2. the Enhanced-Tier Fund Tax Exemption Scheme, generally meets the above criteria.

The Singapore Resident Fund Scheme was introduced to encourage fund managers to base their fund vehicles in Singapore, by giving Singapore based funds the same tax exemptions given under the offshore fund regime (e.g. to a Cayman Islands fund). The main advantage of using a Singapore fund over a tax haven based fund is the access to Singapore’s large tax treaty network, which now stretches to over 70 countries.

An additional advantage of the Singapore Resident Fund Scheme is that the potential double charge that may arise under the Offshore Fund regime (i.e. where both a financial penalty and tax may be paid) should not occur for a Singapore resident fund. This is because dividend payments from a Singapore fund are exempt from Singapore tax. Specific approval must be sought from the Monetary Authority of Singapore (MAS) to access the tax exemption under the Singapore Resident Fund Scheme and conditions are imposed. In particular, the fund vehicle must be a company and have its administration performed in Singapore.

Structure Aspects

Private equity funds do not offer redemption rights. Instead, they exist for terms of years—usually around five to ten years—after which they wind up by distributing their assets or by selling their assets and distributing the proceeds.