Further Amendments to the Singapore Fund Tax Incentive Schemes: Implications for Non-SFO Funds and SFO Funds

On 31 July 2026, the Monetary Authority of Singapore (MAS) issued the FDD Circular 05/2026 (Circular) on Singapore’s fund tax incentive schemes under Sections 13O, 13OA, 13U, and 13D (S13O, S13OA, S13U, and S13D) of the Income Tax Act 1947 (ITA). The Circular introduces a number of welcome enhancements and clarifications to Singapore’s fund tax incentive schemes, aimed at further supporting the growth of Singapore’s asset and wealth management industry and family office ecosystem.

The changes affect non-single family office (non-SFO) funds and single-family office (SFO) funds, and include certain clarifications and terms that apply to both categories of funds. The key changes include:

• The removal of the requirement for non-SFO funds availing themselves of the S13O, S13OA, and S13U schemes to maintain a minimum annual amount of assets under management invested in “Designated Investments” (AUM in DI);
• Amendments to the conditions applicable to SFO funds availing themselves of the S13O, S13OA, and S13U schemes, including additional time to meet the qualifying investment professionals (IP) requirements, a simplified minimum assets under management invested in designated investments (AUM in DI) condition and capital deployment requirement (CDR), and streamlined local business spending (LBS) requirements; and
• Clarifications applicable to both non-SFO and SFO funds regarding designated investments and specified income, including the removal of the 5% cap on investments in physical investment precious metals (IPMs), together with the introduction of standard terms and conditions under Annex 13 applicable to all funds approved under the S13O, S13OA or S13U schemes.

In broad terms, MAS has eased several economic and structural conditions while expanding the transparency and AML expectations applicable to incentivised funds.

 

Changes Applicable to Non-SFO Funds

The Circular introduces several significant changes for non-SFO funds under the S13O, S13OA, and S13U schemes.

Removal of Annual Minimum AUM in DI Condition

Perhaps the key significant change for non-SFO funds is the removal of the annual minimum AUM in DI condition, which previously required funds to maintain a prescribed level of AUM in DI at the end of each basis period. This removal takes effect retroactively from 1 January 2025.

However, it is important to note that the entry conditions at the point of application remain in place:

1. for S13O and S13OA funds: the fund must have at least SGD5million in AUM in DI at the point of application, with a grace period to meet this condition by the end of the third year of assessment (YA); and
2. for S13U funds: the fund must have at least SGD50million in AUM in DI at the point of application, with no grace period.

Practical observation: The removal of the annual AUM condition is a welcome development. Moreover, for funds experiencing temporary dips in AUM (for example, due to redemptions or market downturns), the annual condition created compliance risk. The retroactive application from 1 January 2025 provides immediate relief to funds currently subject to the condition.

 

Closed-End Fund Treatment

With the removal of the annual AUM condition, the closed-end fund treatment is now principally relevant for the purposes of the cumulative local business spending (LBS) mechanism. Under this mechanism:

1. cumulative LBS is assessed up to the 10th incentive year;
2. LBS is waived from the 11th incentive year onwards;
3. existing funds may make an irrevocable election for closed-end fund treatment (this requires revocation of the existing award and a fresh application); and
4. in the case of an umbrella variable capital company (VCC), the VCC is treated as a single entity for the purposes of the closed-end fund treatment.

The award must be revoked with effect from the end of the divestment phase, or the day immediately after the 20th incentive year, whichever is earlier.

 

More than one fund management company (FMC) co-managing the Fund

S13O, S13OA and S13U funds may have more than one FMC co-managing the fund, provided that the fund meets all the relevant conditions, and the FMCs meet the following conditions:

1. each FMC is based in Singapore;
2. each FMC is fully responsible and accountable for the performance of its specific portfolio; and
3. each FMC employs the minimum number of qualifying investment professionals under the respective scheme.

Practical observation: This change provides greater flexibility for larger funds that wish to engage specialist managers for different asset classes or strategies, while preserving the requirement for substantive Singapore-based management activity.

 

Foreign Partners/Investors Tax Filing Relief

Foreign partners and investors of incentivised Singapore limited partnership funds (under S13U and S13OA) who derive only tax-exempt income from the fund may, subject to the review and approval of the Inland Revenue Authority of Singapore (IRAS), not be required to file tax returns in Singapore.

Practical observation: This is a practical concession, which follows a confirmation of previous practice, that reduces administrative burden for foreign investors and may improve Singapore’s attractiveness as a fund domicile, particularly for limited partnership structures with numerous international investors. However, the tax filing relief is still subject to specific approval by the IRAS.

 

Prohibition on Investments in Family Operating Businesses

The Circular also clarifies that non-SFO funds are prohibited from holding investments (whether in the form of equity, debt, or other financing arrangements) in operating businesses of the family. Operating businesses of the family include businesses or entities that are owned, controlled or influenced by an individual investor of the fund, or multiple investors of the fund, all of whom are members of the same family.

Practical observation: Family office structures managed by third-party licensed fund managers in Singapore should consider the impact of these changes and review whether they may be affected.

 

Changes Applicable to SFO Funds

The Circular introduces comprehensive enhancements and revisions of conditions applicable to SFO funds. SFO funds refer to fund vehicles which consist of assets primarily originated from member(s) of the same family and are managed by an SFO that is exempted from licensing requirements under the Securities and Futures Act 2001 pursuant to paragraph 5(1)(ba) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations.

These changes are broadly positive, offering SFOs enhanced conditions and greater flexibility in meeting conditions while maintaining the integrity of the incentive framework.

 

Revised Qualifying Investment Professional Condition

The qualifying IP requirements for SFO funds have been revised to provide greater hiring flexibility:

• S13O and S13OA SFO funds: require at least 2 qualifying IPs (of whom at least 1 must be a non-family member). However, SFOs may now apply with only 1 IP initially (who may be a family member or otherwise) and must employ the second IP by the end of the basis period of the first YA of the award.
• S13U SFO funds: require at least 3 qualifying IPs (of whom at least 1 must be a non-family member). SFOs may apply with 2 IPs initially (who may be a family member or otherwise) and must have the third qualifying IP in place by the end of the basis period of the first YA of the award.

For subsequent YAs, SFO funds under Section 13O/13OA and S13U must employ at least 2 and 3 qualifying IPs, respectively, throughout each basis period for the SFO funds to avail themselves of the tax exemption in the corresponding YA.

Practical observation: The ability to apply with fewer qualifying IPs initially and hire the remaining IP(s) within the first basis period is a welcome change. It addresses the practical difficulty that many new SFOs face in recruiting qualified investment professionals prior to obtaining their award.

 

AUM in Designated Investments

The AUM in DI requirements for SFO funds are as follows:

• S13O and S13OA SFO funds: must have at least SGD20 million in AUM in DI at the point of application and at the end of each basis period.
• S13U SFO funds: must have at least SGD50 million in AUM in DI at the point of application and at the end of each basis period.

In order to reduce the compliance burden associated with continuous AUM tracking, the SFO fund will only be required to report that it meets the minimum AUM in DI threshold at the point of application and at the end of each basis period.

Additionally, investments in family operating businesses cannot count towards the minimum AUM in DI condition, although they count for other conditions.

 

Revised Local Business Spending Condition

The minimum local business spending (LBS) condition for the basis period has been revised as follows:

• AUM in DI < 250 million: SGD200,000 
• 250 million ≤ AUM in DI < 2 billion: SGD500,000 
• AUM in DI ≥ 2 billion: minimum local spending of SGD1,000,000

The local spending condition may be partially met by eligible donations and grants to blended finance instruments distributed by licensed financial institutions in Singapore. However, certain minimum LBS floors apply as follows:

1. where AUM in DI < 250 million: the condition must be fully met by LBS (i.e. SGD200,000);
2. where 250 million ≤ AUM in DI < 2 billion: LBS of at least SGD 300,000, with the remainder (up to SGD500,000 total) being able to be met by donations/grants; and
3. where AUM in DI ≥ 2 billion: LBS of at least SGD 500,000, with the remainder (up to SGD1,000,000 total) being able to be met by donations/grants.

Practical observation: The updated tiered LBS is a positive development. Smaller SFOs will benefit from the lower SGD200,000 threshold. The ability to partially satisfy the conditions through charitable donations and grants to blended finance instruments introduces useful flexibility, though the LBS floors have been increased for certain tranches.

 

Streamlined Capital Deployment Requirement

The list of options for specified investments under capital deployment requirement (CDR) for SFO funds has been streamlined to 3 options. The SFO fund must invest at least the lower of 10% of AUM in DI or SGD10 million, in DI which are:

• Option 1: Equities listed on Approved Exchanges;
• Option 2: Distributed (e.g., sold, marketed) by MAS-licensed financial institutions in Singapore (excluding equities listed on non-Approved Exchanges); or
• Option 3: Non-listed Singapore-incorporated companies with an operating business(es) and with substantive presence in Singapore.

Enhanced recognition (2x multiplier) applies to:

1. equities listed on Approved Exchanges;
2. funds that substantially invest in Singapore-listed equities;
3. blended finance instruments distributed by licensed financial institutions in Singapore; and
4. investments in non-listed Singapore-incorporated companies with operating businesses and with substantive presence in Singapore.

 

Banking Account Condition

The Circular clarifies that SFO funds must maintain a private banking account with an MAS-licensed financial institution at the point of application and throughout each basis period.

Practical observation: It is unlikely to be onerous for most SFOs, as they will typically maintain such accounts in the ordinary course of their operations.

 

Application for Existing Awards

All existing SFO funds with S13O, S13OA, and S13U awards that are currently subject to the pre-18 April 2022, 18 April 2022 or 5 July 2023 conditions will be subject to the revised conditions from the Year of Assessment in which the relevant basis period ends on or after 1 August 2026, as follows:

Practical observation: SFOs with existing awards should carefully assess whether they can meet the revised conditions from their next basis period ending on or after 1 August 2026.

 

Changes Applicable to Both non-SFO Funds and SFO Funds

The Circular also provides certain clarifications with respect to designated investments and specified income, and introduces standard terms and conditions under Annex 13 that apply to all funds approved under the S13O, S13OA, or S13U schemes, whether granted under new or existing awards.

 

Clarifications on Designated Investments

The Circular provides several helpful clarifications regarding designated investments:

• Physical Investment Precious Metals (IPMs): With effect from 1 August 2026, the 5% cap on physical IPMs qualifying as designated investments has been removed. This means that funds may now hold physical IPMs as designated investments without being subject to the previous 5% threshold.

However, MAS reserves the right to deny the tax exemption or revoke the award of a non-bona fide IPM fund set up by retailers and manufacturers solely to shield their profits from tax.

• Tokenised interests: Tokenised interests in designated investments qualify as designated investments themselves, to the extent it confers the same interest, rights and obligations as direct ownership of the underlying designated investment. This is a positive development for funds with exposure to digital asset structures representing underlying traditional investments.

 

Clarifications on Specified Income

The Circular provides several helpful clarifications regarding specified income:

• Foreign-sourced income: Foreign-sourced income must be both derived and remitted to Singapore during the incentive period in order to benefit from the tax exemption. This is a notable clarification that funds with foreign-sourced income streams should take into account when structuring their operations.
• Guarantee fee income: Guarantee fee income may qualify as specified income, provided the fund is primarily set up for investment purposes and is not facilitating treasury activities of operating companies. As an example provided in the Circular, guarantee fee income received by an approved fund when it uses or lends securities (that are DI) as collateral to support the debt financing or borrowing activities of other entities may qualify as “specified income”, provided that such guarantee income is derived by the fund as part of its investment activities.

 

Standard Terms and Conditions

Unless otherwise notified by MAS in writing, with effect from 1 August 2026, the standard terms and conditions in Annex 13 apply to all funds approved under the S13O, S13OA, or S13U schemes, whether under new or existing awards.

For funds that have been granted an award under any of these schemes where the letter of award was issued prior to 1 August 2026 and contains terms and conditions that differ from the standard terms and conditions set out in Annex 13, the standard terms and conditions in Annex 13 will, unless otherwise notified by MAS in writing, apply in addition to the terms and conditions in the letter of award. To the extent of any inconsistency, the standard terms and conditions in Annex 13 will prevail over the terms and conditions set out in the letter of award.

 

Conclusion and Practical Takeaways

The Circular represents a considered and broadly positive development for Singapore’s fund tax incentive landscape.

• For non-SFO funds, the removal of the annual AUM in DI condition reduces the burden of the ongoing compliance requirements. Additionally, the retroactive application from 1 January 2025 provides immediate relief. The removal of the 5% cap on physical IPMs and the recognition of tokenised interests as designated investments reflect MAS’s willingness to adapt the incentive framework to evolving asset classes and investment strategies.
• For SFO funds, the package of changes offers greater hiring flexibility through the revised IP conditions, simplifies AUM tracking by assessing compliance only at application and year-end, and streamlines the CDR to three clear options with an effective SGD10 millioncap. The tiered local spending structure more appropriately reflects the varying sizes and operational footprints of Singapore-based SFOs.

All existing SFO funds with S13O, S13OA or S13U awards that are subject to the pre-18 April 2022, 18 April 2022 or 5 July 2023 conditions should assess their ability to comply with the revised conditions from the first basis period ending on or after 1 August 2026.

Funds with existing awards should also review the updated standard terms and conditions in Annex 13 carefully, as these may apply in addition to the terms and conditions set out in their letters of award.

For further information, or to discuss the implications of the Circular for your fund or family office, please contact the authors of this article or your usual DLA Piper contact.