Singapore Must Address Tax Issues To Ensure Growth Of Hedge Fund Sector

by Mary Swire, Tax-News.com, Hong Kong

08 December 2004

Whilst the hedge fund industry in Singapore has grown significantly over the last three years, tax experts have called on the government to relax certain tax rules to ensure that the Asian jurisdiction continues to attract the interest of the alternative investment fraternity.

According to Channel News Asia, the number of hedge funds in Singapore has grown from just eight three years ago to more than 50 this year.

However, accounting firm PricewaterhouseCoopers warns that future growth in the industry will be stifled unless the government makes two key changes to tax legislation.

Firstly, the firm has called on the government to address the rule requiring at least 80% of investments in foreign hedge funds to have originated from overseas in order for them to qualify for tax exemption.

"They probably have to relook at the 80-20 rule,” observed Deepak Kaul, Manager, Corporate Tax Services, PwC.

He added: “I think the easiest thing is to do is to relax the imposition of the 80-20 rule, maybe make it applicable over a period of time. In which case then, even fund managers who are not meeting the 80-20 rule initially will be incentivised to actually start up in Singapore."

The other aspect of hedge fund taxation that industry participants would like to see changed is the 10% tax on fund management fees, considered somewhat high by many.

By cutting this levy to 5%, observers believe that Singapore will be able to continue to carve out a niche as a centre for the management of Indian, Japanese and Korean-based funds, in addition to capturing some of the growing interest in specialist Islamic hedge funds.

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