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Charting Tax, Trust Law Changes In Singapore

Dawn Quek and Enoch Wan

9 May 2018

, the international law firm, shares insights about latest developments in and around cross-border matters affecting Singapore, such as concerning automatic exchange of information agreements. With so many changes affecting IFCs such as Singapore, this publication is particularly pleased to share such expert views with readers. Nevertheless, this news service does not necessarily endorse all views of outside contributors and invites readers to respond if they have questions, criticisms or further points. They can email

The authors of this article are Dawn Quek, principal and Enoch Wan, senior associate at Baker McKenzie Wong & Leow. This is a member firm of Baker McKenzie in Singapore.

About the authors:

Dawn Quek is the head of the wealth management practice at Baker McKenzie Wong & Leow in Singapore. She is also the Asia Pacific representative on the firm's Global Wealth Management Steering Committee. Her practice includes assisting ultra-high net worth families on their tax, trust and estate planning issues on a cross-border basis. She also advises the financial institutions serving such families on issues and regulations that affect their business. Enoch Wan is a senior associate and his practice focuses on commercial agreements and contracts, tax controversy and litigation, wealth management, VAT & indirect tax.

1, Activation of new Automatic Exchange of Financial Account Information (AEOI) relationships with China and Malaysia

 Automatic exchange of information based on the Common Reporting Standards ("CRS") refer to the regular exchange of financial account information between jurisdictions for tax purposes.

Under domestic law, a financial institution is required to conduct due diligence on all financial accounts it maintains and determine the tax residence(s) of its account holder. The financial institution must then report to the IRAS the particulars and account information of the account holder, if the account holder or the controlling person of the account holder are tax residents of jurisdictions that Singapore has an agreement with. This reporting is done on an annual basis.

As of 9 April 2018, China and Malaysia have been added to the list of Reportable Jurisdictions of Singapore for CRS. For these two jurisdictions, reporting must be carried out by 31 August 2018, in relation to the reporting year 2017.

2, Enhancement of the Enhanced-Tier Fund scheme under Section 13X of the Singapore Income Tax Act (ITA)

Section 13X of the ITA provides for a tax exemption on specified income from designated investments which is derived by an approved person arising from funds managed by a fund manager in Singapore. An approved person was previously limited to a Company, Trust, and Limited Partnership.

The scheme has now been extended to all fund vehicles irrespective of their form, so long as all the other qualifying conditions under section 13X are met.

The potential for alternative vehicles such as Ireland's Collective Asset-Management Vehicle and Luxembourg's Reserved Alternative Investment Fund to qualify for the scheme will increase the options available for the fund management industry, as well as for family offices and the private wealth industry in Singapore.

3, Introduction of a tax framework for Singapore Variable Capital Companies (S-VACCs)

The S-VACC is a proposed new structure for investment funds, with the goal of improving Singapore's competitiveness as a domicile for global investment funds. The Monetary Authority of Singapore (MAS) had recently concluded its public consultation for it in April 2017. As at the time of writing, the MAS has not yet issued any further guidance or commentary on the proposed S-VACC framework.

Generally, the S-VACC would be a company registered under the existing company incorporation system and supervised by the MAS. The SVACC is designed to be a flexible vehicle to cater for collective investment schemes. Among other features, S-VACCs can have cellular sub-funds, which allow for segregation of assets and liabilities. Such sub-funds will not have separate legal personality, and will instead be registered with the Accounting and Corporate Regulatory Authority (ACRA), as part of the umbrella S-VACC.

Generally, the new structure allows the S-VACC to freely redeem shares and pay dividends using its capital. Investors will be able to freely invest in and exit out of the S-VACC. This variable capital structure allows the S-VACC to better fulfill the functions required of an investment fund, as compared the fixed capital of conventional Singapore companies.

To complement the S-VACC regulatory framework, a tax framework for S-VACCs will be introduced. The details are as follows:

(a)          A S-VACC will be treated as a company and a single entity for tax purposes;

(b)          Tax exemptions under Section 13R and 13X of the Income Tax Act ("ITA") will be extended to S-VACCs;

(c)           Approved fund managers managing an incentivised S-VACC can enjoy the 10% concessionary tax rate under the Financial Sector Incentive - Fund Managers scheme; and

(d)          The GST remission for funds will be extended to S-VACCs.

The introduction of a tax framework for S-VACCs is welcome. Given that the intention is to encourage investment funds to be set up in Singapore, the extension of the tax exemption schemes under Sections 13R and 13X of the ITA respectively to S-VACCs is critical to support this drive to enhance Singapore's attractiveness as a jurisdiction for investment funds.

The proposed tax framework for S-VACCs aligns the tax treatment for S-VACCs with that of other vehicles that are currently commonly used for investment funds in Singapore. This makes the S-VACC a genuinely viable fund vehicle from both a corporate and tax perspective, and will do much to attract fund managers to set up in Singapore.

4, Remission of stamp duty for certain types of share transfer

Previously, certain amendments had been made to the Stamp Duties Act (which took effect from 11 March 2017) which shifted the stamp duty point on transfer of shares, such that stamp duty became chargeable upon the signing of a contract for the sale of stock or shares (as opposed to the previous position where stamp duty was imposed only upon the execution of the share transfer instrument).

The chargeability of the contract for sales of shares also meant that transfers of scripless shares (which were previously not subject to stamp duty, as they did not involve any transfer instrument that could be charged with stamp duty) could attract stamp duty if a contract for the sale of such scripless shares was executed.

However, as of 11 April 2018, the Stamp Duties (Agreements for Sale of Equity Interests) (Remission) Rules 2018 have been gazetted. Amongst others, these provide for a remission on of stamp duty in relation to:

(a)          contracts or agreements for the sale or any stock or shares which is not subject to Additional Conveyance Duty.

(b)          contract or agreements for the sale of book-entry securities which are subject to Additional Conveyance Duty.

5, Extension of tax transparency treatment to Singapore-listed Real Estate Investment Trusts Exchange-Traded Funds (REITs ETFs)

Under existing tax treatment, the trustee or manager of a Singapore-listed real estate investment trusts ("S-REIT") can apply for tax transparency treatment on specified income, subject to conditions. This means that the income distributed by the S-REIT will be taxed in the hands of the beneficial investors, instead of the trustee. Depending on the profile of the beneficial investors, income tax can be exempted, imposed at a 10 per cent rate (as a withholding tax on certain non-resident individuals), or at the prevailing corporate tax rate.

However, REIT-ETFs which carry on operations in Singapore and which receive distributions of specified income from a S-REIT are subject to corporate income tax rate of 17 per cent in Singapore. This means that, although investors in the REIT ETFs are not taxed on distributions from the REIT-ETFs, there will already have been tax deducted from the distributions they receive. As such, it is disadvantageous for an investor to invest in a S-REIT through a REIT-ETF compared to investing directly in the S-REIT.

The new tax treatment will give tax transparency to the distributions received by REIT-ETFs from S-REITs. This would mean that investors in the REIT-ETF would be subject to the same tax treatment as if they had invested directly in the S-REIT. This change helps to ensure parity of treatment between investing in individual S-REITs and investing via REITs ETFs with investments in S-REITs.

These changes will take effect on or after 1 July 2018, with a review date of 31 March 2020. The IRAS will be accepting applications for tax transparent treatment on or after 1 April 2018.

6, Interaction between additional buyer's stamp duties (ABSD) regime and charitable trusts

In the case of Zhao Hui Fang and another v Commissioner of Stamp Duties SGHC 105, the Singapore High Court held that ABSD does not apply to residential property purchased by a charitable trust.

ABSD is an additional duty imposed on the purchase of residential property. The rate to be applied depends on the status of the purchaser. In the case where the property is being purchased by a trust, the rate will depend on the beneficial owner of the property.

The High Court held that under Trust Law, a charitable trust is a trust for purposes and not for persons. Neither the members of the public, the trustees, not the parties who stand to benefit from the charitable objects under the trust deed could be said to be the beneficial owner of the property. Rather, the beneficial interest in the trust assets is held in suspense. Since there is no active or extent beneficial ownership of the apartment, there is nothing for ABSD to attach to.

While the decision strictly adheres to trust law principles, there is a question of whether the decision holding would leave a lacunae in the ABSD regime that could have been unintended by Parliament, as the position can also be taken that beneficial interests in the trust assets of a discretionary trust are similarly held in suspense. It would be interesting to see whether the same analysis (and consequences) may be applied to such trusts under which the beneficial interest is suspended based on trust law principles.