Setting Up An Investment Fund In Singapore: A Guide

Singapore is a leading financial services hub, offering a dynamic and thriving financial sector with a reputation for transparency and stability. The country has become an attractive destination for those looking to set up investment funds, particularly in the Asia-Pacific region. With a well-regulated economy, competitive tax rates, and a strategic location, Singapore presents a lucrative opportunity for fund managers and investors alike.

In this guide, we will explore the key considerations and steps involved in setting up an investment fund in Singapore, including the legal, regulatory, and operational aspects. By understanding these requirements, you can successfully establish your investment fund while navigating the complex regulatory landscape with confidence.

Choosing the right legal structure

When setting up an investment fund in Singapore, choosing the right legal structure is crucial. There are three possible legal forms for funds in Singapore: unit trusts, private limited companies, and limited partnerships. Each structure has its own advantages and requirements that you should consider carefully.

Unit trusts are a popular choice for mutual funds as they are not governed by the Singapore Companies Act. However, the compliance cost may be higher as unit trusts in Singapore must appoint a Licensed Collective Investment Scheme (CIS) Trustee. This structure can provide flexibility and ease of administration, making it a viable option for investment funds.

Private limited companies (Pte Ltd) are often chosen by private equity funds investing in Asia to take advantage of Singapore's extensive tax treaties with various regions and countries. Pte Ltd companies must comply with the Singapore Companies Act and fulfil certain requirements, such as making annual filings to ACRA (the national registrar of companies) and IRAS (the tax regulatory body). Additionally, all subscriptions and redemptions from the fund are subject to the Companies Act, and some information about the company may be publicly available.

Limited partnerships are a popular choice worldwide and are suitable for Singapore as well. The main drawback is that they cannot benefit from Singapore's cross-border tax treaties. However, limited partnerships have lower compliance requirements as they are governed by the Limited Partnership Act and require less public disclosure compared to companies.

When selecting a legal structure, it is essential to consider factors such as the type of investment fund, the level of compliance required, tax implications, and the desired level of public disclosure. It is advisable to seek professional guidance from legal and financial experts to ensure you choose the most suitable legal structure for your investment fund in Singapore.

Company registration

To set up an investment fund in Singapore, you will need to register your company with the Accounting and Corporate Regulatory Authority (ACRA). This process involves several steps and requirements, which are outlined below:

• Choose a unique company name and a registered office address in Singapore.
• Prepare the necessary incorporation documents, including the Certificate of Incorporation, Memorandum and Articles of Association, Consent to Act as a Director (Form 45), Declaration of Compliance (Form 6), Particulars of Shareholders, Directors, and Secretaries, Registered Office Address, and Share Capital Information.
• Submit the required documents and information to ACRA.
• If you are a foreign company registering a subsidiary or branch office in Singapore, you may need to appoint a local nominee director until you find a resident director.
• Ensure compliance with the Singapore Companies Act if registering as a private limited company (Pte Ltd). This includes making annual filings to ACRA and the IRAS (tax regulatory body) and complying with requirements for subscriptions and redemptions from the fund.
• Be mindful that some information about your company will be publicly available once it is registered in Singapore.
• Depending on the type of investment fund you are setting up, you may also need to obtain relevant licences and approvals from the Monetary Authority of Singapore (MAS). For example, if your company manages funds, you will need to apply for a Registered Fund Management Company (RFMC) Licence or a Capital Markets Services (CMS) Licence.
• Comply with anti-money laundering (AML) and know-your-customer (KYC) regulations and maintain proper records.

It is important to carefully review the requirements and regulations specific to your type of investment fund before initiating the company registration process.

Capital requirements

Setting up an investment fund in Singapore involves a range of considerations, one of the most crucial being capital requirements. These requirements vary depending on the type of fund structure and applicable regulations. Here is an overview of the capital requirements for establishing an investment fund in Singapore:

Minimum Capital Requirements:

• Registered Fund Management Company (RFMC): RFMCs are fund management companies that cater to a limited number of qualified investors, with a maximum of 30, and manage assets worth up to S$250 million. To qualify as an RFMC, a minimum base capital of either S$500,000 or S$1 million is required.
• Licensed Fund Management Company (LFMC): LFMCs are fund management companies that hold a Capital Markets Services (CMS) licence and can serve a broader range of investors without the restrictions applicable to RFMCs. LFMCs are subject to a risk-based capital requirement, needing financial resources of at least 120% of the operational risk requirement.
• Variable Capital Company (VCC): A VCC is another type of fund structure available in Singapore, offering flexibility and the ability to establish different portfolios with different investment objectives within a single company. While there is no specified minimum capital requirement for a VCC, it is essential to ensure that the capital is sufficient to cover the costs of setting up and operating the fund.

Regulatory Compliance:

When establishing an investment fund in Singapore, it is crucial to comply with the regulations set by the Monetary Authority of Singapore (MAS). The MAS has established guidelines on capital adequacy, risk management, disclosure, and reporting standards. As part of the licensing process, you will need to demonstrate that your fund meets the minimum capital requirements for the specific type of license you are seeking.

Fund Type and Investment Strategy:

The capital requirements for your investment fund will also depend on the type of fund you intend to establish and its investment strategy. For example, hedge funds typically employ strategies such as leverage, short-selling, and investing in non-mainstream asset classes. These factors will influence the amount of capital needed to establish and operate the fund successfully.

Tax Considerations:

Singapore offers a competitive tax regime, including tax incentives and exemptions for investment funds. Understanding the applicable tax regulations can help you optimize your capital structure. For example, Singapore does not impose a capital gains tax, and there are various tax exemption schemes available specifically for the fund management industry, such as the Goods & Services Tax (GST) Remission Scheme for Funds.

Operational Costs:

In addition to the initial capital requirements, it is essential to consider the ongoing operational costs of running an investment fund in Singapore. These costs include compliance fees, licensing fees, administrative expenses, and personnel costs. Ensure that you have sufficient capital to cover these ongoing expenses, in addition to the initial setup costs.

In summary, the capital requirements for setting up an investment fund in Singapore will depend on the specific type of fund, the regulatory framework, the investment strategy, and the ongoing operational costs. It is essential to carefully assess these factors and seek professional advice to ensure that your fund complies with all applicable regulations and has sufficient capital to operate successfully.

Regulatory compliance

To operate as an investment fund in Singapore, you will need to obtain the necessary regulatory approvals and licenses from MAS. The specific licenses required will depend on the nature of your activities. If your company manages funds, you must apply for a Registered Fund Management Company (RFMC) license. Additionally, depending on the investment products and services offered, you may need a Capital Markets Services (CMS) license for activities such as securities dealing, fund management, or investment advisory services.

It is important to implement Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures and maintain relevant records for compliance. This includes maintaining a compliance and risk management framework that demonstrates your commitment to adhering to regulatory requirements and effectively managing investment risks.

Singapore has a well-regulated and stable economic environment, which is one of the reasons it is considered a leading financial services hub. The country has a flat corporate income tax rate of 17%, and its measured approach to regulation makes it attractive to investors. Additionally, Singapore has a wide network of over 90 double taxation agreements, providing tax efficiency for investment funds.

To ensure compliance, investment funds must also comply with Singapore's tax regulations, including corporate income tax, goods and services tax (GST), and withholding tax. It is advisable to consult with tax specialists or accountants to ensure proper tax compliance.

Board and director appointments

When setting up an investment fund in Singapore, the appointment of the board of directors is a crucial step. The Monetary Authority of Singapore (MAS) requires that the fund has a board of directors with relevant qualifications and experience. Here are the key points to consider for board and director appointments:

• Number of Directors: According to MAS requirements, the fund should have at least two directors. It is common to have between two and five directors on the board, depending on the size and complexity of the fund.
• Qualifications and Experience: Directors should have relevant qualifications and experience in the investment industry. They must meet the MAS's "fit and proper" criteria, which assess their integrity, competence, and financial soundness. The directors should collectively have a diverse range of skills and expertise to effectively govern the fund.
• Residency Requirements: At least one director must be a resident of Singapore and should be executive and full-time. This director is responsible for ensuring the fund's compliance with local regulations and acts as a liaison with the MAS.
• Independence: The board should include independent non-executive directors to provide objective decision-making and oversight. These directors are not involved in the day-to-day management of the fund and can bring a fresh perspective to the board's discussions.
• Diversity: While not a legal requirement, it is beneficial to have a diverse board that includes individuals with different backgrounds, genders, and ethnicities. This diversity can enhance decision-making and better represent the fund's stakeholders.
• Appointment Process: The appointment of directors should follow a robust process. This typically involves identifying potential candidates, reviewing their qualifications and experience, conducting interviews, and making the final selection. The fund's constitution or governing document may outline the specific procedures for appointing directors.
• Duties and Responsibilities: Directors have fiduciary duties and legal responsibilities to act in the best interests of the fund and its investors. They are responsible for setting the fund's strategy, overseeing its operations, ensuring compliance with regulations, and making key decisions.
• Board Committees: The board may establish committees, such as an audit committee, a risk management committee, or an investment committee, to assist in specific areas. These committees provide specialized focus and support to the board in fulfilling its duties.
• Director Training and Development: It is important to provide ongoing training and development opportunities for directors to enhance their skills and knowledge. This ensures that they stay up-to-date with industry developments and best practices in governance.
• Remuneration: The compensation structure for directors should be competitive and commensurate with their responsibilities. This may include a combination of fees, benefits, and incentives, following the guidelines set by MAS.
• Board Evaluation: Regular evaluations of the board's performance and effectiveness should be conducted to identify areas for improvement. This can be done through self-assessment, peer review, or external evaluation, ensuring that the board functions optimally.

Frequently asked questions