Tax incentives to strengthen the development of Singapore's equities market

The Equities Market Review Group was established to recommend measures to strengthen Singapore’s equities markets. Adopting all its recommendations, the Government will introduce the following measures to encourage the listing of companies including business trusts on the Singapore Exchange (SGX):

• Listing Corporate Income Tax (CIT) Rebate for new corporate listings in Singapore
• Enhanced Concessionary Tax Rate (CTR) for newly listed fund managers in Singapore under the Financial Sector Incentive – Fund Management (FSI-FM) scheme
• Tax exemption on fund manager’s qualifying income arising from funds investing substantially in Singapore-listed equities under the FSI-FM scheme 

A summary of the salient features and requirements of the proposed tax incentives is provided below.

The corporate tax rebate of 20% for primary listings and 10% for secondary listings (subject to absolute dollar amount caps) should lighten the financial burden for companies considering a Singapore listing and encourage fundraising on the SGX. The proposed types of entities which can qualify for the Listing CIT Rebate include companies and registered business trusts. Real estate investment trusts (REITs) generally do not adopt either one of these entity structures so it would seem that new listings of REITs cannot qualify for this incentive.

The other point to note is that the MAS administers a Grant for Equity Market Singapore scheme (GEMS) to support listings and expand the equity research ecosystem. Issuers seeking a listing on the SGX Mainboard can apply for a listing grant to cover up to 70% of listing-related expenses up to a cap of $2 million for market capitalisation of at least $1 billion or $1 million where the market capitalisation is below $1 billion (Listings on the Catalist board are also supported, but up to a lower quantum). Combined with the Listing CIT Rebate, it is evident that a very substantial amount of support ($32 million) could be obtained over a five-year period for a company with market capitalisation of at least $1 billion. This should provide a strong attraction to businesses considering listing in Singapore versus elsewhere.

For fund managers, the new tax incentives providing a 5% tax rate on qualifying income for newly listed managers and tax exemption for qualifying income for fund managers investing in Singapore-listed equities should help to enhance shareholders’ returns and attract liquidity to the local market. However, fund managers should factor in the short award period and the non-renewable five-year status of the tax incentive in their financial and operational plans, as the economic commitments they have to make may not be easily dialed down at the end of the five years. It is also unclear whether there will be full claw back of the Listing CIT Rebate if the listed company is de-listed before the end of the five-year period for commercial reasons, for example, if there is an unsolicited privatisation offer.

In addition, the proposed changes on tax deduction on equities-based remuneration schemes to allow companies to claim a deduction on newly issued shares should complement the above tax incentives to provide a holistic package to attract high growth companies which often use stock options plans to attract and retain talent, to be based out of Singapore thereby increasing the likelihood of listing in Singapore when they are on the path to profitability. 

In addition, we believe it is relevant to consider the following:

• Listing CIT Rebate - Depending on the commercial considerations, the listing entity may be a holding company of a corporate group or the operating company. Generally, holding companies derive only dividend income (which are generally exempt from income tax) or non-taxable capital gains. If the Listing CIT Rebate for new corporate listings in Singapore is awarded to the listed entity, the rebate would not provide any effective benefit to the listed vehicle which may be subject to minimal tax. The relevant authorities could consider allowing the flexibility for the listed company to identify tax-paying operating companies within the corporate group to “transfer” the tax rebate so that the entire group benefits.
• GST concession - Entities qualifying for the Listing CIT Rebate could be investment holding entities which are potentially not eligible for GST registration as they may not meet the thresholds for registration. As a result, the GST incurred on their expenses would be a cost if there is no avenue for input tax recovery - an important concern especially as listing expenses can be significant.
  
  Currently, Singapore-listed real estate investment trusts and business trusts that carry on prescribed businesses are granted a concession to claim the input tax on listing fees, fund raising and other business expenses even if they are not eligible for GST registration.
  
  To encourage listings in Singapore, we hope that the package of tax incentives can be subsequently expanded to include the GST concession to allow newly listed companies that are not eligible for GST registration to recover the GST on the listing, fund raising and business expenses. This will cater more holistically to the tax situation of corporates when they consider listing in Singapore versus elsewhere.

• Distribution requirement for enhanced CTR – Fund managers availing of the enhanced CTR are required to distribute a portion of their profits as dividends. We hope that the authorities will allow some flexibility for fund managers to determine the appropriate distribution policy as each fund manager’s operating environment and needs are unique.
• Tax exemption for qualifying funds investing in Singapore-listed equities – Qualifying funds are required to have at least 30% of their AUM invested in Singapore-listed equities. As the value of the investments and the AUM may fluctuate from time to time depending on external factors such as investment performance, investor subscriptions and redemptions, we hope that the authorities will allow flexibility or introduce a grace period for meeting the above condition.
  
  Similarly, in relation to the condition requiring existing funds to have a net inflow of capital (subscription less redemption to funds) of at least 5% of the fund’s AUM in the preceding year, the ability to meet this condition may not be within the control of the fund managers. Such a condition also appears to be designed in the context of open-ended funds where there may be additional subscriptions and may discourage fund managers managing closed-ended funds from availing of the tax exemption.

• Application time frame and incentive term – The application periods for the Listing CIT Rebate and tax incentives for fund managers end on 31 December 2027 and 31 December 2028, respectively. The incentives are non-renewable. This may limit the overall attractiveness of the tax incentives given that Singapore is still reviewing how to improve the overall listing market infrastructure, regulatory framework and deepening investor interest in Singapore listed equities. The Government could consider providing more flexibility over the application time frame and possible renewals so that the new incentives are on a par with the current FSI-FM incentive, which is renewable subject to meeting increased commitments.
• Pillar Two considerations – For a limited number of multinational enterprises and fund managers who may be subject to top-up tax under the Multinational Enterprise (Minimum Tax) Act 2024, the benefits of the Listing CIT Rebate and CTR for fund managers may be negated by these top-up taxes. Additionally, there is a need for clarity on whether the Listing CIT Rebate can be considered as a Qualifying Refundable Tax Credit. The tax measures introduced would therefore be more appealing to companies that are not falling within the scope of Pillar Two.
  
  The proposed tax measures introduced in Budget 2025, together with non-tax initiatives soon to be announced by the Equities Market Review Group later this year, are intended to effect a holistic and strategic change to achieve the aim of boosting the attractiveness for companies to list on the SGX, and bolster Singapore’s position as a fund management hub. They strongly signal Singapore’s commitment to create a vibrant equities market. To this end, it is equally important to continue to enhance Singapore’s market infrastructure, regulatory framework and investor outreach so as to sustain and amplify companies' and investors’ interests.
  
  The Government’s tax proposals to encourage the development of the equities market are laudable. It has always demonstrated that it is willing to take feedback from the industry and make changes where needed. We hope that industry feedback on the recent changes to the fund tax exemption schemes under sections 13O/13OA and 13U of the Income Tax Act 1947, particularly that relating to the minimum AUM in designated investment requirement to be tested at financial year end, will be considered and adjustments made to the qualifying conditions to cater to the practical realities of the business.