Singapore Unit Trusts Hit By Tax Bombshell

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

19 November 2003

According to a report in the Business Times, over $2 billion worth of assets in some of Singapore’s unit trusts that were previously thought to be exempt from income tax may now be liable, after the Inland Revenue Authority of Singapore ceased granting them special tax status.

Currently, a fund is liable on all forms of income at the corporate tax rate of 22%, although so-called Designated Unit Trusts, or DUTs, were excused from income tax at the fund level. However, according to the Business Times, the tax authority concluded the granting of DUT status in August last year, meaning that as much as $2.26 billion worth of assets in capital secured funds may be liable for tax, including $1.3 billion raised this year in fund launches.

Confusion seems to have arisen over the status of capital secured funds. According to the BT, it appears the Revenue Authority stopped granting DUT status to such funds, as they do not strictly fulfil the criteria of being ‘open-ended’ because their subscription period is open only for a limited time.

“Open-ended means the capital of the fund is not fixed but may increase or decrease according to the demand of investors,” explains the Revenue Authority. “Since capital guaranteed funds cannot satisfy this requirement, DUT status should strictly not be granted.”

Fund managers meanwhile point to the Securities and Futures Act, which infers that capital secured funds are not closed-ended and therefore must be open-ended.

Discussions between fund managers, the Monetary Authority of Singapore and the Revenue Authority have been ongoing for the last few months in order to find a suitable solution.

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