Singapore courts fund managers with carried-interest exemption

Key Points

Singapore is moving to close a long-standing regulatory gap in its asset-management regime as competition for senior investors and performance-linked earnings with rival hubs like Hong Kong and Dubai intensifies. 

“The headline measure is the proposed tax exemption for profit-related returns earned from managing qualifying funds,” Victor Sanlorien, senior associate at DLA Piper, told AsianInvestor. “It will provide clarity around carried interest.”

Carried interest is a share of a fund’s investment profits paid to its managers when the fund performs well, over and above their ordinary management fees or salaries. The Monetary Authority of Singapore (MAS) and the Ministry of Finance plan to introduce the exemption starting in the assessment year 2027, with details to be finalised in the budget for 2027.

Victor Sanlorien
DLA Piper

Singapore currently has no specific rules explaining how carried interest should be taxed, Sanlorien said. The key question is whether it should be treated as employment income, which can attract rates of up to 24%, or as an investment return, which is generally not taxable.

The exemption is part of a wider package that includes a Hedge Fund Investment Programme and an Investment Management Track under the Overseas Networks and Expertise Pass framework.

Singapore's latest measures reflect a broader effort to compete with financial centres such as Hong Kong and Dubai for the industry's highest-value activities, including portfolio management, investment decision-making and performance-linked compensation. Industry participants say the package is designed not only to attract more funds to domicile in Singapore, but also to encourage fund managers to base senior investment professionals and core investment functions in the city-state.

Singapore’s asset-management industry accounts for around 15% of financial-sector output and 13% of employment. Assets under management (AUM) grew by an average of 7.5% annually over the past five years to almost S$7 trillion ($5.5 trillion), according to MAS.

Sanlorien said carried-interest taxation was a missing piece in Singapore’s otherwise developed fund ecosystem. Greater clarity will allow managers to locate their investment teams, decision-making functions and economic upside in the same jurisdiction.

“That is a change in the architecture of how funds are set up, not just in the rate of tax,” he said.

NOT JUST A TAX CHANGE

The implications could extend well beyond the taxation of private-equity incentives, potentially reshaping how fund managers structure their operations in Singapore.

MAS’s use of the phrase “profit-related returns” indicates that the exemption may cover a wider range of performance-linked arrangements, Sanlorien said.

It will apply to qualifying funds managed from Singapore, potentially allowing managers to receive carried interest through their Singapore operations instead of establishing separate offshore structures.

For new funds, Sanlorien said the benefits could include lower administrative costs, simpler compliance and time-zone alignment. The exemption could also help attract and retain senior professionals whose earnings are linked to investment performance.

Yet the policy objective goes beyond resolving the treatment of carry.

“The biggest shift is that Singapore is competing for the full asset management value chain, not just fund domiciliation,” said Raihan Zulimran, managing director of FGS Global. “MAS wants to anchor the capital, senior talent, and investment decisions behind the funds.”

Raihan Zulimran
FGS Global

Under the Hedge Fund Investment Programme, MAS plans to co-invest with managers that establish or expand their operations in Singapore. Zulimran said tax incentives can be replicated by competing centres, while MAS-backed capital provides funding, institutional validation and a reputational lift that are harder to match.

Meanwhile, the proposed Investment Management Track under the ONE Pass framework is intended to make it easier for leading fund managers and senior investment professionals, whose pay is often linked to investment performance, to work in Singapore.

Zulimran said the measures may not trigger an immediate mass relocation on their own but could influence close decisions over where managers build their Asian teams. Much will depend on whether the final rules are sufficiently broad, clear and workable for actual fund structures.

THE CONTEST FOR DECISION-MAKERS

The success of the reforms may depend less on tax treatment and more on whether they persuade investment professionals to build careers and make investment decisions from Singapore. Because, the move arrives as asset-management centres compete for an increasingly mobile pool of senior investors.

“Asset management is fundamentally a people business,” said Jacqueline Pang, head of strategy for Asia-Pacific at State Street Investment Management. “If I had to identify the biggest impact, it would likely be the ability to attract and retain talent and decision makers, and the rest would ultimately follow.”

Jacqueline Pang
State Street IM

Pang said location decisions will still depend on a combination of client access, talent, regulation, capital-markets connectivity and strategic objectives.

James Leong, chief executive officer of Grasshopper, said aligning the treatment of carried interest would put Singapore on a level playing field with Hong Kong and Dubai. He expects the change to appeal both to managers without an Asian base and firms seeking to expand an existing regional presence.

Singapore hosts some systematic macro and quantitative multi-strategy managers, Leong said, but many large multi-strategy platforms remain in Hong Kong, partly because of its proximity to China.

James Leong
Grasshopper AM

“We expect that balance to shift, with more managers choosing to set up in Singapore, including possible spinouts from established platforms,” he said.

Tax and immigration measures will still need to be supported by prime brokers, financing, anchor capital and a deeper talent pool, according to Zulimran.

“The real success measure isn’t more funds incorporated in Singapore, but having more investment decisions being made here,” he said.