sg-tax-2021-sea-financial-services-tax-conference-12-october-2021Headline
Verdana Bold 2021 Southeast Asia Financial Services Tax Conference
Trusted. Transformational. Together 12 October 2021
2021 Southeast Asia Financial Services Tax Conference© 2021
Deloitte Southeast Asia Ltd. 2
1. Infrastructure and renewables investment in Southeast Asia
3
2. Wealth planning for Southeast Asian families 25
3. Structuring Southeast Asia focused funds 72
Contents
2021 Southeast Asia Financial Services Tax Conference© 2021
Deloitte Southeast Asia Ltd. 3
Infrastructure and renewables investment in Southeast Asia
Spotlight on Indonesia, Philippines, Thailand, and Vietnam
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Deloitte Southeast Asia Ltd. 4
Moderator
Panellist
Speakers
An Vo Hiep Van Partner Deloitte Vietnam
Korneeka Koonachoak Partner Deloitte Thailand
Elaine De Guzman Partner Deloitte Philippines
Michael Velten Partner | Financial Services Tax Leader Investment
Management and Real Estate Sector Leader Deloitte Southeast
Asia
Erlangga Atmadja Director Deloitte Indonesia
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Economic impacts on clean energy investments particularly on
developing its infrastructure, helps drive green economic recovery
from pandemic. • Demand-drivers: SEA electricity demand is one of
the world’s fastest at
6% per year, but renewables constitute 15%. Aspirations to double
this by 2025 (ASEAN Plan of Action for Energy Cooperation phase ii
2021-2025).
• More jobs created directly and indirectly—per US$1 million in
spending, RE technologies create 7.49 jobs, compared to 2.65 jobs
for fossil fuels.
• Strengthens Energy Security by reducing fossil fuel imports
(Philippines, Thailand, and Vietnam are top 15 importers of
coal).
• Counters fossil-fuel shortages: renewables coupled with battery
storage technology can buffer volatility in fossil fuel
supply.
• Avoids future public health crises. Without investments in clean
energy, continued growth in electricity demand will increase carbon
emissions and air pollution with detrimental effects on public
health, estimated 650,000 premature deaths by 2040.
• Averting global climate change induced crises in the future by
helping global efforts in achieving Paris Agreement goals via
achievements of NDCs.
• Large scale RE projects developed needed to meet demand and to
ensure economies of scale.
• Private sector development by incentivizing IPP and FDI.
A green recovery from the pandemic is crucial—especially in
Southeast Asia (SEA)—to ensure an economically and environmentally
resilient future
Macro view
Source: ADB, 2021; ACE, 2020; IEA, 2019; IEA, 2021; CNBC,
2021
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• Quick-win from hydropower, based on continued historical trends,
project pipeline availability, and natural endowment. •
Waste-to-energy (including biomass), especially when large cities
are supported by smart grid and current waste management
infrastructure is overcapacity. • Solar energy (Photovoltaics) and
wind, especially if government policies create favourable market
conditions. Shorter construction time. Wind power potentials may be
developed in the longer-run but are area
specific. • Levelling the playing field reduced fossil fuel
subsidies and improved RE incentives (particularly to attract FDI);
supplementary infrastructure such as smart grids and
battery-enabled tech needs to also be in place. • Mechanisms in
place to de-risk RE investments and improve access to
infrastructure finance a good track record in government support
through PPP, Feed-in-Tariffs, and supportive investment
climate.
Where and what to look for
Sector view
Country Commitments for growth (revised plans to 2030 issued during
pandemic)
Flagship projects to 2025 Constraints identified and measures
taken
Indonesia The Energy Supply Business Plan (RUPTL) updated in 2021
for 2021-2030 is a game-changer as for the first-time renewables at
51.6% in the energy mix is expected to beat fossil fuels at
48%.
• Waste-to-energy projects in cities such as Jakarta, Tangerang,
Bandung, Surakarta, Semarang, Surabaya, Makassar, and Denpasar, as
priority projects to be developed in the PPP mode and though
state-owned enterprises (SOEs). The estimated project cost is
Rp19.74 trillion (approximately US$1.4 billion).
• Off-grid mini and micro-hydro power plants to be offered via PPP
mode. • Rooftop Solar PV mainstreaming mandated to state electric
company (PLN) in
RUPTL 2021-20230. Flagship solar pv project: Floating solar energy
plant in Cirata Dam with UAE investment.
• Doubling Geothermal energy generation capacity from 1.2 GW to
2.4GW by 2026 by creating a holding company to coordinate
geo-thermal investments.
Reducing reliance on coal and general decarbonization of the
economy • A ban on new coal-fired power projects from 2023,
along with plans to retire ageing coal-fired plants. New tax
legislation with a provision for carbon taxation helps level
playing field.
Philippines RE targets to be achieved through Philippine Energy
Plan 2021-2030, currently being drafted. RE generation target
proposed at 35%; previous target at 10%. Plan focuses on
hydropower, solar, and geothermal.
405 pipeline commercial projects identified for hydropower and 273
solar pv power under RE Act of 2008, as of June 2021; These
constitutes more than 75 % of RE capacity in the RE pipeline.
Geothermal potentials are also being expanded.
Direct access to capital and broaden base for RE investments •
Green Energy Option Program, lists the renewable
energy suppliers accredited to sell RE energy directly to
customers.
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Where and what to look for (cont.)
Sector view
Country Commitments for growth (revised plans to 2030 issued during
pandemic)
Flagship projects to 2025 Constraints identified and measures
taken
Thailand Energy Efficiency Plan 2015–2036; to be updated by the new
integrated National Energy Plan (NEP) scheduled for 2022, with
focus on going green with a US$4.2 billion investment. NEP syncs 5
action plans with target of 35% of installed capacity by
2037.
• Thailand is creating the largest floating hydro-solar power
plants at Ubon Ratchatani province covering 121 Ha and would be
replicated in 8 other reservoirs nationwide.
• "Energy For All" programme to focus biomass and waste—Thailand
has developed waste-to-energy technology that can use agricultural
waste as biomass feedstock, and this will support.
• develop community-owned power generation projects using
waste-to-energy resources in more remote areas. It will encourage
local communities to sell crop waste to be used for biomass and
biogas generation in order to earn additional income.
• Hydropower is historically the strongest contributor in RE energy
mix.
Reducing reliance on LNG • 60% of electric power in Thailand
currently
generated from local natural gas, diversification of the energy
supply is seen as a necessary step towards enhanced national energy
security. Advanced Grid being developed to integrate RE to help
reduce dependence on LNG in the long-run.
Vietnam National Energy Efficiency Programme (VNEEP) for the period
of 2019-2030 (Decision280/QD). Updated by Power Development Plan
(PDP 8) for 2021-2030. The draft PDP 8 expands wind and solar
capacity and increases their shares of the country’s generation
mix. The draft PDP 8 also prioritizes enhancing grid infrastructure
to ensure stable operation with a higher share of renewables.
• Rooftop solar energy champion in the region. In 2020,
successfully created an 8-fold increase in rooftop solar
installation. Now is the highest installed solar energy capacity in
ASEAN and is a world top 10.
• Vietnam also has strong potential in wind energy generation.
There are over 17 wind farm projects being developed as of 2017 in
8 provinces.
• Hydropower, however, is historically the strongest contributor in
RE energy mix. Mini- Hydro projects developed in more remote areas
can help reduce local reliance on coal-fired energy.
Successful RE Policies need to be bolstered by smart
grid—eight-fold increase of rooftop solar in 2020 compared to the
previous year, driven by the attractive policies. Market rush needs
to be supported by smart grid. supplementary infrastructure, such
as storage and ample grid, should be planned and developed along
with the deployment. This is acknowledged by PDP 8.
© 2021 Deloitte Southeast Asia Ltd. 82021 Southeast Asia Financial
Services Tax Conference
Indonesia
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Tax features and facilities
Key tax aspect Features
Income Tax (IT) 22% Financial Year (FY) 2021 or 20% from FY2022
(now proposed to 22% from FY2022).
Value Added Tax (VAT) 10%, or exempt for certain products or
services (electricity, water, toll road fare). Now proposed to
increase to 11% from 1 April 2022 and 12% from 1 January 2025 at
the latest.
Withholding Tax (WHT) dividend and interest
20%, or between 5% to 15% under a Tax Treaty (generally 10%).
Investment exit 5% final tax on sale of shares by non-residents, or
0.5% founder tax and 0.1% transaction tax if exit through the
Indonesia Stock Exchange/IDX. A tax treaty may provide
exemption.
Tax facilities Features
Tax holiday Provides 50% or 100% reduction of CIT payable, for 5 to
20 years.
Tax allowance Provides additional (hypothetical) depreciation 30%
of capex, accelerated depreciation, 10% WHT on dividend to
non-resident shareholder, and extended tax loss carry forward
period.
Import facilities • Masterlist facility: exemption from import
duty. • Import taxes (VAT and IT) exemption facility.
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Selected key tax considerations/issues • Thin capitalisation rule
(DER) 4:1. Sponsor
loans vs third party financing. • Fiscal depreciation/amortisation
may not
necessarily match the actual project life. • Tax facilities: devils
is in the details:
timeline, document submission, limitation of facility.
• VAT may represent additional investment cost: if product is
VAT-exempt (e.g., Independent Power Producer/IPP project) or if
pre-production period extend to certain pre-determined
period.
• VAT refund process and timeline: cash flow issue.
• Accounting versus tax treatment (e.g., lease accounting vs fixed
assets accounting).
• New draft tax bill (e.g., Carbon Tax).
Tax considerations and issues in infrastructure and renewable
Investments
Indonesia
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Indonesia
PT Project 1
PT Project 2
PT Project 3
Dividend (IT exempt)
Dividend Lenders
Exit (22%/20% tax on gain)
Exit (5%/0.1% final tax/exempt
Exit (long-arm rule)
EPC contract
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Services Tax Conference
Philippines
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Macroeconomic outlook
Philippines
48%
22%
24%
6%
Infrastructure investment forecast 2016-2040, sector breakdown in
terms of Gross Domestic Product (GDP)
Philippine energy mix (2020)
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Philippine taxation—At a glance
Infrastructure and renewables investment in the Philippines
Philippines
Tax type Tax rate
IT In general, effective 1 July 2020, domestic corporations with
total assets of PHP100 million below and net taxable income of P5
million and below will be subject to 20% tax, and 25% tax for other
domestic corporations. Lower tax rates may apply under special
laws.
VAT
• Levied on the supply of goods and the provision of services, and
on importation. • VAT rate is 12% while a number of transactions
are exempt. A 0% VAT rate applies to qualified export sales
transactions and activities covered by special laws. • VAT
registration is mandatory for all taxpayers whose taxable
transactions in the Philippines exceed
PHP3,000,000 gross sales/receipts.
Creditable WHT • Imposed on local income payments and creditable
against the income tax due of the payee ranging from 1% to
15%.
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Philippine taxation—At a glance
Infrastructure and renewables investment in the Philippines
Philippines
Tax type Tax rate
Final WHT on dividends
Dividends paid by a domestic corporation to its foreign parent are
generally taxed at 25%. However, if the home country of the
recipient allows an additional credit of 10% as tax deemed paid in
the Philippines, the tax is reduced to 15%. The rate may be reduced
under a tax treaty subject to conditions under Double Taxation
Agreement (DTA) and tax treaty relief application with the
Philippine tax office.
Final WHT on interest Interest paid to non-resident corporations is
subject to a WHT of 20% on interest for foreign loans unless the
rate is reduced under a tax treaty subject to conditions under DTA
and tax treaty relief application with the Philippine tax
office.
Capital gains tax
A final tax of 15% shall be imposed upon the net capital gains
realised during the taxable year from the sale, barter, exchange,
or other disposition of shares of stock in a domestic corporation
not sold through a local stock exchange. Tax relief under the
treaty is available subject to conditions under DTA and tax treaty
relief application with the Philippine tax office.
Documentary stamp tax Transfer of shares of stocks are subject on
the rate of PHP1.50 for each 200 pesos of the par value of the
shares of stocks issued. In the case of stocks without par value, a
DST at the rate equivalent to 50% of the DST paid on the original
issuance of the said stocks shall be paid.
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Tax incentives
Fiscal incentives available for renewable energy developers Rule 5
Section 13, Renewable Energy Act • Income tax holiday for the first
seven years of
commercial operation. • Reduced corporate tax rate (10% after
income
tax holiday). • 0% VAT rate. • Duty-free importation of renewable
energy
machinery, equipment and materials. • Special realty tax rates on
equipment and
machinery. • Net operating loss carry-over. • Accelerated
depreciation. • Cash incentive for renewable energy
developers
for missionary electrification. • Tax exemption of carbon credits.
• Tax credit on domestic capital equipment and
services.
Philippines
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Services Tax Conference
Thailand
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Strategic energy plan 1. Reduce carbon emission. 2. Renewable
energy. 3. Disruptive technologies.
Infrastructure and energy industry
Thailand
The consumption of renewable energy in Q1 2021 • 2021 is targeted
to be at 17.34%, whereas 2037 is expected to reach 30%.
25
Solar Energy Biomass Biogas (Wastewater/Waste) Wind Energy
Municipal Solid Waste Hydro Power
65.5%
92
20.5%
44
56
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Board of Investment (BOI) incentives • BOI is a governmental agency
under the direct administration of the Prime Minister’s office to
promote investment in Thailand offering activity-based
incentives and merit-based incentives. • In 2021, Energy, Utilities
& Environmental Industry are eligible to tax incentives under
section 7.1.1 “Production of electricity or electricity and steam”
in
BOI schedule.
Eastern Economic Corridor (EEC) • Chachoengsao, Chonburi and Rayong
Provinces have been designated for the development (EEC areas). •
The government has identified four “core areas” essential in making
the EEC a renowned economic zone
Increased and improved infrastructure; Business, industrial
clusters, and innovation hubs; Tourism; and The creation of new
cities through smart urban planning.
.
Thailand
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BOI incentives
Eastern Economic Corridor (EEC) incentives
Common issues • The debate on VAT point for sale of electricity and
water supply since it is intangible goods and could not clearly
determine the timing of ownership
transferred. • The debate on Build Transfer Operate (BTO) on
whether it should be considered as a sale of good or provision of
service. • The debate on Permanent Establishment (PE) issue when
hiring a foreign advisor to oversee a project in Thailand.
Tax incentives and common issues
Thailand
EEC package Incentives
Standard tax package for the infrastructure using advance
technology to create value added
Tax holiday for 8 years would be granted.
• Investment projects which are engaged in human resource
development programs.
• Additional tax holidays for 2 years; or • 50% reduction of CIT
for 3 years depends on targeted activities.
• Investments located in EECi, EECd, EECa and EECmd. • Additional
tax holidays for 1 year; or • 50% reduction of CIT for 2 Years
depends on targeted activities.
• Investments located in industrial estates and promoted industrial
parks. Additional tax holidays for 1 year depends on targeted
activities.
BOI activities Incentives1
7.1.1.1 Production of electricity or electricity and steam from
garbage or refuse derived fuel. 8 years CIT exemption (No
Cap).
7.1.1.2 Production of electricity or electricity and steam from
renewable energy (e.g., solar, wind, biomass or biogas).
8 years CIT exemption.
7.1.1.3 Production of electricity or electricity and steam from
other energy sources. 3 years CIT exemption.
1Being subject to an approval by relevant government agencies and
certain conditions to be fulfilled.
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Cash repatriation
DTA between Thailand and respective countries WHT Other taxes
Interest 15% SD: 0.05% on loan principal but capped at THB
10,000.
Generally, a tax relief would be available for financial
institution and insurance company.
Dividend 10% N/A. No Tax relief available (but can be exempt if the
income is qualified for BOI/EEC tax incentive).
Capital gain 15% SD : 0.1% on shares transfer consideration or
paid-up capital whichever is higher.
A tax relief would be available subjecting to conditions under DTA
with respective countries.
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Services Tax Conference
Vietnam
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FDI by Sector as of August 2021
Vietnam
Industrial Power Real Estate Others
Renewable Energy Sector in Vietnam is one of the most vibrant in
SEA
6.5%
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Challenges • Weak grid capacity. • Low tariffs. • Unbankable PPA
terms.
Tax incentives • Tax holiday (4 years tax exemption, 9 years 50%
tax reduction and 15 years tax concessional rates). • Import tax
exemption and free of land use fee*.
Development cost The importance of arranging sufficient supporting
documents to enhance the deductibility of the development costs
after the project comes into operation phase.
Interest deduction 30% EBITDA cap on interest deduction.
CGT and Tax Treaty • Indirect share transfer would be subject to
Vietnam CGT. • Structure attached to land such as wind turbine,
solar farm, LNG terminal could be considered as immovable assets
affecting the ability to obtain tax
treaty benefits at investment exit.
* Conditional application
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Wealth planning for Southeast Asian families
Issues and considerations
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Moderator
Panellist
Speakers
Tristan Lopez Director Deloitte Philippines
Dionisius Damijanto Partner Deloitte Indonesia
Michael Velten Partner | Financial Services Tax Leader Investment
Management and Real Estate Sector Leader Deloitte Southeast
Asia
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Services Tax Conference
Wealth management trends
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Competitiveness ranking • Switzerland, Singapore and Hong Kong are
leading in a tight race, as in 2018. But
the competitive landscape is shifting, with factors such as ESG
investments and political stability becoming more important.
Asset size ranking • Switzerland remains the largest centre,
followed by the UK and US.
COVID-19 has boosted the offshore market—on average the centres
grew their IMV by 10.6% in 2020, significantly above the annual
average of 4.8% for the previous four years.
IWMC overview • All centres have been affected by erosion of
structural fees and margins as well
as increasing costs driven by stricter regulation. Increasing
wealth in Asian emerging markets is leading to further development
of local offshore hubs, and Singapore and Hong Kong are
well-positioned as Asian international finance centres.
Strategic implications for offshore wealth managers • Digitally
enabled interaction with clients, deeper integration with local
partners
as well as enhancement of the product offering are emerging
priorities.
Key findings of the International Wealth Management Ranking 2021
report
Wealth management trends
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Tight race at the top—Switzerland leading before Singapore and Hong
Kong • Overall competitiveness ranking
Competitiveness ranking results
Wealth management trends
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Tight race at the top—Switzerland leading before Singapore and Hong
Kong • Detailed competitiveness ranking
Switzerland is strong almost across the board, with particular
strength in ‘stability’ (monetary, financial, political) but a
slight weakness due to limited market size and the lower
profitability of Swiss wealth management providers.
Singapore shows few weaknesses, mostly related to the domestic
capital market and taxation.
Hong Kong also ranks well for competitiveness. A weak point is
political stability (whereas monetary and financial stability
remains unproblematic).
UK is hampered by Brexit, loosing in Provider capability (talent)
and only not loosing in stability due to the weakness of others
(esp. Bahrain).
Competitiveness ranking results (cont.)
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Switzerland remains the largest centre, followed by the UK and the
US—except for Luxembourg and Panama & the Caribbean, all
centres kept the same relative positions as in our 2018
report.
International Market Volume of leading wealth management centres
(in US$ billion)
Asset sizing—results
Wealth management trends
2020
2019
2018
2017
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Indonesia
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• Indonesia has Controlled Foreign Companies (CFC) rules which are
intended to prevent Indonesian tax taxpayers from circumventing
Indonesia’s worldwide tax regime by placing their assets in a
foreign (non-Indonesian tax resident) company.
• Where a CFC derives profits but does not distribute such profits
as dividends to the Indonesian taxpayer, 100% of the profits would
be attributed to the Indonesian taxpayer as a deemed dividend and
be taxed. PMK 107 issued on July 2017—CFC rules applied to both
directly held CFC, and indirectly held CFCs. PMK 93 issued on June
2019: CFC attribution rules were to be applied only to “passive”
income of the CFC,
and not active income. • CFC attribution rules are based on
accounting profit. This means that both realised and unrealised
gains may be
attributed. This may be contrasted to an Indonesian individual
taxpayer deriving the income directly—in such a case, tax would
generally only apply on realised gains.
• If the CFC rules apply and no dividends are declared or derived
from the foreign entities, the deemed dividend must be calculated
and reported in the annual corporate income tax return.
Omnibus Tax Law—impact on Indonesia’s Controlled Foreign Companies
rules
Indonesia
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Omnibus Tax Law—example
Current year: PAT $100: • Dividend: $50
$30 is reinvested in Indonesia in prescribed instruments. $20 is
not reinvested in Indonesia. Retained earnings: $50.
Tax treatment under the Omnibus tax law: • Dividend: $50
Reinvested $30: not income tax object—i.e., exempt from tax. Not
reinvested $20: not subject to income tax.
• CFC attribution: $0: not subject to income tax.
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Where corporates receive dividends from local companies, the
dividend income would be automatically exempt without the need to
satisfy further conditions.
Omnibus Tax Law—New tax exemption on dividends re-invested into
Indonesia
Indonesia
Individuals may now enjoy a tax exemption on dividend income, if
the dividends are “re-invested” into Indonesia. This is applicable
to both local and foreign dividends. In order to qualify for the
exemption, the dividends must be invested in Indonesia into
specified categories of investments (see table on right), and be
subject to a 3 year lock up period.
Corporates may similarly enjoy a tax exemption on dividends
received from a foreign company, subject to the same re-investment
and lock-up conditions.
Notable categories of investments include “investment in new/old
companies in Indonesia”. Query whether an Indonesian taxpayer can
re-invest dividends into his own company, and subsequently
repatriate cash from the company.
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Omnibus Tax Law—New tax exemption on dividends re-invested into
Indonesia
Indonesia
Financial investments Non-financial investments
1. Bonds and Sharia RI’s bonds; 2. Bonds/sukuk BUMN (OJK); 3.
Bonds/sukuk Government owned financing institution (OJK); 4.
Investment in perception bank (including Sharia); 5. Bonds/private
sukuk (OJK).
1. Government infrastructure investment cooperation; 2. Government
priority real sector investment; 3. Investment in new companies in
Indonesia; 4. Investment in old companies in Indonesia; 5.
Collaboration with investment management institutions; 6. Lending
for micro businesses; 7. Other valid investment.
Investment form Investment form
1. Debt securities (including MTN); 2. Sukuk; 3. Shares; 4. Mutual
fund unit; 5. EBA; 6. DIRE; 7. Deposit; 8. Saving; 9. Giro;
10.Futures; 11.Other instruments including investment insurance
products, finance
companies, pension funds, venture capital (OJK).
1. Infrastructure investment through government cooperation 2.
Government priority real sector investment; 3. Land and/or building
property (non subsidy) ; 4. Direct investment to companies in
Indonesia; 5. Precious metals, gold bullion or bullion (99.99%); 6.
Collaboration with investment management institutions; 7. Lending
for micro businesses; 8. Other investment besides financial
market.
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Tax residency New criteria and procedures have been introduced for
an Indonesian citizen to qualify as a non-resident taxpayer. The
changes introduce more procedures to achieving tax non- residency,
but also greater certainty.
Omnibus Tax Law—other changes
Indonesia
Insurance products Indonesia’s tax exemption on payments from
insurance companies now only applies if such insurance payments
arose due to death, sickness or an accident. This means, if a
policy holder partially or full surrenders its policy, the cash
value less the premium paid, will be taxable in the hand of policy
holder.
Trusts No changes were made to Indonesian tax treatment of trusts.
Our understanding remains that the DGT will disregard a trust and
generally impose tax on trust income on the settlor. Where a CFC is
settled into a trust, the settlor will continue to be subject to
CFC attribution rules vis-à-vis the CFC during his/her lifetime. In
the event that the settlor is deceased, CFC attribution rules will
apply to the beneficiaries instead.
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Due date • 30 September 2022, for taxpayers who declare to transfer
net assets into Indonesia territory; • 30 September 2023, for
taxpayers who declare to invest net assets in natural resources or
renewable energy business sector and/or SBN/Government
Bonds in Indonesia. The investment must be carried out at least 5
years since initially invested.
Tax compliance programme
Not Repatriated
2%, 3%, 5% 2%, 3%, 5% 4%, 6%, 10% 6% 8% 6% 8% 11% 12% 14% 12% 14%
18%
Penalty Increase 4%, 6%, 10%
- If not invested:
Assessment Letter);
- 5% (Voluntary)
Lock-up Period 3 years 3 years 3 years 5 years 5 years 5 years 5
years 5 years 5 years 5 years 5 years 5 years 5 years
Compliance Program 2
Onshore Asset Offshore Asset
Compliance Program 1
Offshore Asset
Financial & non-
financial to
Financial & non-
financial to
Financial & non-
Offshore Asset
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Services Tax Conference
Singapore
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Observation • The Monetary Authority of Singapore (MAS) estimates
that the number
of family offices in Singapore increased fourfold between 2015 and
2017, and fivefold between 2017 to 2019.
• On 5 October 2020, Senior Minister Tharman Shanmugaratnam (who
serves as the Chairman of the MAS) estimated that there are
currently about 200 family offices in Singapore managing around
US$20 billion in assets.
• The growth of family offices in Singapore corresponds with the
broader global trend that family office growth has accelerated
rapidly since 2000—see infographic on the right.
• Pull factors include strong, predictable and clear regulatory
framework (e.g., MAS adopts a light touch regulatory regime for
Single Family Offices (SFO)), attractive work and living
environment, access to strong talent pool and service
providers.
• Push factors include high taxes in home jurisdiction,
developments in North Asia, etc.
Singapore family office—rapid growth
Singapore
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• Singapore’s 13R/13X/13CA fund incentives allow for fund vehicle
to enjoy Singapore tax exemption on “Specified Income” from
“Designated Investments”.
• Fund vehicle typically able to obtain Certificate of Residence
for treaty access.
• Potential non-Singapore tax benefits as well, e.g., re Indonesian
CFC rules.
• No Singapore withholding tax on fund vehicle outbound
distributions of dividends or interest.
Singapore family office—tax
Portfolio
assets
Singapore tax exemption on fund’s income if within “Specified
Income” from “Designated Investments.
Fund management fee is taxable in the hands of the Singapore fund
manager. The prevailing corporate tax rate in Singapore is
17%.
Employment salary is tax deductible by family office, and taxable
in Singapore in the hands of employee at up to 22%.
Employees
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• Singapore Permanent Residency (PR) under the Global Investor
Programme (GIP): Under the GIP Option C, an investor who
places at least S$2.5 million in a Singapore-based SFO with an
Assets under Management (AUM) of at least S$200 million may be
granted PR status for himself and his family (spouse, unmarried
children below 21). This is subject to satisfaction of milestones
(employee headcount, business spending) based on a business
plan.
• Singapore Employment Pass (EP) under SFO sponsorship route: An
SFO that applies for the 13R/13X fund
incentive can expect MAS support for EP applications.
• Dependent Pass (DP)/Long Term Visit Pass (LTVP) Suitable for
spouse, unmarried children
below 21, and/or parents that are not directly covered under
GIP/EP.
Singapore family office—immigration
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• One common structure is the combination of a Singapore family
office structure under a Singapore trust.
• This is primarily driven by non-tax reasons, e.g., estate
planning.
• Potential to mitigate exposure to future wealth/inheritance
tax?
Singapore family officeuse of trust
Singapore
100%
Trustee
Trust
BeneficiariesSettlor
100%
100%
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Services Tax Conference
Tax residency
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Breaking the nexus
Tax residency
Jurisdiction Is it sufficient to spend 183 days a year in
Singapore?
Indonesia Post-omnibus tax law, the following must be satisfied to
sever tax residency in Indonesia • Reside outside of Indonesia for
more than 183 days within 12 months period; • Satisfy one of the
tie-breaker rules (being permanent home, main activities, or
habitual abode); • Become a tax resident of another country; •
Settle all outstanding taxes payable in Indonesia; and • Obtain
approval from the Indonesian tax office.
Malaysia There are four conditions to meet in order for a Malaysian
citizen to qualify as a tax resident of Malaysia. Generally, he/she
would need at least 5 years to break the tax residency rule. In
order to qualify as non-tax resident, the Malaysian citizen must
not satisfy any of the following: • Physical presence in Malaysia
for ≥182 days or more in a calendar year; • Physical presence in
Malaysia for <182 days but is linked to/by a consecutive period
of 182 days or more with temporary absence allowed; • Physical
presence in Malaysia >90 days and 3 out of 4 immediate basis
year, he was either resident or in Malaysia for > 90days; • No
physical presence in Malaysia in the year concerned and was
resident in 3 immediate preceding years and will be resident in
immediate following year.
Philippines For a Philippine citizen to qualify as a non-resident
citizen, he/she should establish to the satisfaction of the
Commissioner of internal revenue either of the following: • He/she
left the Philippines during the year for permanent migration or
permanent employment abroad. • He/she left the Philippines, for a
foreign country, for employment thereat and outside of the
Philippines most of the time (at least 183 days) for employment
thereat.
Thailand Tax residency purely based on 180 day rule (increased to
183 days under applicable treaty).
Vietnam For an individual to qualify as non-resident, he/she has to
be present in Vietnam for less than 183 days in a tax assessment
year, not maintain any “regular residence” in Vietnam, and prove
the residence in another country (by obtaining Tax Residency
Certificate of other country).
© 2021 Deloitte Southeast Asia Ltd. 462021 Southeast Asia Financial
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Use of Singapore family office by Southeast Asian families
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• From a Singapore tax perspective, where the Fund has applied for
and obtained the 13R/13X fund incentive, it will enjoy a Singapore
tax exemption on “Specified Income” from “Designated Investment”.
However, fund management fees derived by the Family Office would be
subject to Singapore income tax at 17%.
• In considering the tax issues that arise for the SEA family under
a Singapore Family Office structure, the threshold consideration is
the tax residence of the family members that invest in the
Singapore Fund. Put simply, are the family members tax resident
in
Singapore or in another SEA jurisdiction or both (in the case of
the latter, the “tie break” rule under tax treaties is
relevant).
If the family members are: Tax resident in Singapore (and not tax
resident in any
other jurisdiction): Distributions from the Singapore fund are tax
exempt in Singapore.
Tax resident in another jurisdiction: We will need to consider
domestic tax rules in such jurisdiction, e.g., CFC.
Use of Singapore family office by Southeast Asian families
100%
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• Tax treatment in Indonesia if family members are Indonesian tax
resident: Indonesia will look through the trust for tax purposes,
such
that the Singapore fund and family office would be treated as CFCs.
Undistributed profits may be attributed back to the Indonesian
Settlor as a deemed dividend based on Indonesia’s CFC rules, and
consequently be subject to tax in Indonesia.
When dividend distributions are made, such dividend income would be
taxable in the hands of the Indonesian taxpayer, subject to the
dividend income qualifying for the tax exemption on the basis of
being re-invested into Indonesia.
Where profits have already been taxed in Indonesia under CFC rules,
and are subsequently distributed as dividends, Indonesian tax would
not apply on dividend income, i.e., no double taxation.
Gains on disposal of assets into structure may trigger Indonesian
tax.
• If family members are not Indonesian tax resident: No adverse
Indonesian tax risks.
Indonesia
100%
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• Tax treatment in Malaysia if family members are Malaysian tax
resident: — No CFC rules in Malaysia. — Transfer of assets (except
for Malaysian real estate or “RPC
shares”) into a Singapore Trust structure will not be subject to
Malaysian income taxes as the gains are regarded as capital in
nature.
— The transfer of stock, shares or marketable securities will be
subject to stamp duty at 0.3% of the higher of transfer
consideration or market value. Stamp duty remission in excess of
RM200 is remitted for all instruments of contract notes relating to
the sale of any shares, stock or marketable securities listed on a
stock market of an approved stock exchange or in companies in
Malaysia or elsewhere between a local broker and an authorised
nominee on behalf of a foreign broker.
— Trust distributions to Malaysian beneficiaries not subject to tax
in Malaysia if it is not sourced in Malaysia.
• If family members are not Malaysian tax resident: Same tax
implications apply.
Malaysia
100%
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• Tax treatment in the Philippines if family members are
Philippines tax resident: No CFC rules in the Philippines. For a
Philippine individual taxpayer, any investment income
whether it be directly or through a family office structure will be
subject to Philippines income tax.
Gratuitous transfer of assets, whether during the lifetime or
through inheritance, by a Philippine individual to any Singapore
entity is subject to donor’s tax or estate tax, respectively, which
is 6% of the fair market value of the property transferred.
Irrevocable transfer to a trust will likewise be subject to the
taxes imposed on the immediately preceding paragraph; and income
earned by the trust is subject to the same income tax rate imposed
on the settlor.
• If family members are not Philippines tax resident: No adverse
Philippines tax risks.
Philippines
100%
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• Tax treatment in the Thailand if family members are Thailand tax
resident: No CFC rules in Thailand. Disposal of assets (shares,
cash, etc.) into structure may
trigger Thailand taxation. Different types of taxation and tax
rates may apply depending on the type of asset, etc.
Thailand has inheritance and gift taxes—but the implications can be
managed.
Where a Thailand family member receives profits from the trust, if
the beneficiaries are individuals, he/she will only be subject to
personal income tax at the progressive rate ranging from 0-35%
under the Thai Revenue Code once all of below conditions are
satisfied: (i) he/she is a Thai tax resident; and (ii) he/she
brings the profits (foreign sourced income) into Thailand in the
same calendar year that he derives such profits.
• If family members are not Thailand tax resident in the tax year:
No adverse Thailand tax risks.
Thailand
100%
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• Vietnam has strict rules relating to exchange controls and
outbound investment.
• As such, based on experience, most wealthy Vietnam families focus
on the domestic market. This may soon change due to potential
upcoming relaxation in the relevant regulatory laws.
• Some common features of wealthy Vietnam families are: First
capital earned in 1990s: either by doing
business abroad before returning to Vietnam for investment, or by
starting small business in Vietnam from zero to hero.
Next generation are relatively young. Succession planning will be
an urgent need
In the next 5 years, there will be a sizeable generational shift to
2nd Gen with an estimation of more than 50% VFB having 2nd Gen in
the board.
Real estate is the most common industry in which wealth originates.
Most of millionaires invest their money into or having real estate
related business.
• Common planning structure.
Use of Singapore family office by Southeast Asian families
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Family governance
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• Rules and structures agreed in advance: To provide clarity and
align expectations of family members. About how the family makes
decisions and monitors performance
governing the family business, family wealth and family office. •
Includes succession planning for key decision makers and
pre-agreed
conflict resolution mechanism. • Such as:
Family Constitution. Family Board.
• Critical particularly when the founder(s) pass as a Code of
Conduct for how NextGen interact with each other and with the
family business/family office.
What is family governance?
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Family governance overarching legal structures, family business,
family office
Family
Personal
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• If family business shares are locked up in structure, family
disputes may be prolonged if there is no exit route or method to
mitigate family disagreements via conflict resolution
mechanisms.
• Documented statement of family’s core values, rules, policies and
procedures that the family members agree upfront to align their
expectations.
• The journey is key. • Allows each member to be heard:
Anticipate and debate issues calmly in advance.
Not when disputes have erupted. • Avoid feeling that policies are
targeted at certain
persons. • Establish fair processes. • Intergenerational buy-in
essential for future
compliance—co-develop succession plan together.
Starting point—Family Constitution
Need for Family Governance
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Family constitution
Values The family values that have successfully guided the firm in
its relations with customers, employees, suppliers, partners,
competitors, and the community are detailed.
Employment policy The requirements family members need to meet in
order to be considered for employment are enumerated.
Next-generation family-member development This policy sets out the
commitment and procedures guiding the education and professional
development of next-generation members.
Ownership policy Stock ownership, classes of stock, and ownership
transfer policies are defined.
Family bank Special funds allocated to sponsor the development of
new ventures or new initiatives by members of the family are
discussed and the overall terms of use of these funds are
explained.
Dividends and family benefits policy This section of the
constitution educates and guides shareholders on the expectations
for returns on invested capital.
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Family constitution (cont.)
Liquidity policy This article discusses business valuation,
buy-sell agreements in force, redemption funds, if any, and their
use in wealth-creating events.
The Board of Directors or Advisory Board Its make-up, standing,
authority, and relation to management, shareholders, and other
entities are discussed.
Family Council meetings Their purpose, primary functions and
relation to the board and shareholder meetings are discussed.
Membership and its standing and operating procedures are
discussed.
Shareholder meetings Their role is discussed, as are their
authority and legal standing. Their relation to the board and the
family council is also discussed.
If a family office has already been created, the constitution would
also list and define the role of a family office and its
relationship to shareholders, the family council, the board, and
management of the family's other enterprises.
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Structuring Southeast Asia focused funds
Recent developments and relevant considerations
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Moderator
Panellist
Speakers
David Michael Allgaier Partner Deloitte China
Elaine De Guzman Partner Deloitte Philippines
Reggy Widodo Partner Deloitte Indonesia
Michael Velten Partner | Financial Services Tax Leader Investment
Management and Real Estate Sector Leader Deloitte Southeast
Asia
Chen Siew-kee Investment Management Tax & Legal Leader Deloitte
Asia Pacific
Han Junwei Senior Manager Deloitte Singapore
© 2021 Deloitte Southeast Asia Ltd. 612021 Southeast Asia Financial
Services Tax Conference
Macro overview of capital flows
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Global AUM By Region, 2019, US$ $T
Asia Pacific Insights overview—in a world of slow organic growth,
Asia Pacific stands out as an area of strong potential
Macro overview of capital flows
APAC accounts for 17% of global AUM…
5% 5%
…but will account for 73% of new flows going forward
China
Australia
Japan
5.3%
Global AUM: $79 T
© 2021 Deloitte Southeast Asia Ltd. 632021 Southeast Asia Financial
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Investment management themes and trends in Southeast Asia
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• Trends and developments impacting capital inflows and outflows:
Countries opening up to foreign investors (e.g., foreign equity
ownership
liberalisation in Mainland China). Focus on sustainable investment
and green finance. In Singapore, the MAS will
place US$2 billion with asset managers under the Green Investments
Programme that was announced in 2019.
More significant outbound investments are being made by Asia
Pacific investors with substantial capital (e.g., sovereign wealth
funds, growth in family offices).
• Private equity investors are very active in Asia Pacific. A large
amount of “dry power” is yet to be deployed.
• Tax authorities continue to focus on the investment management
sector. Common Reporting Standard (CRS) reviews and audits have
commenced in locations such as Singapore (as participating
locations act to meet their Organisation for Economic Co- operation
and Development peer review obligations).
• Global tax and non-tax factors: New fund vehicles in Singapore
(i.e., the Variable Capital Company [VCC]) and
Hong Kong (e.g., Limited Partnership Fund (LPF). Coupled with
various developments (including the Economic Substance Law and
Private Fund Law in the Cayman Islands), there are both push and
pull factors driving an onshorisation of fund management and
certain fund vehicles.
Tax reform continues. For instance, the Omnibus Tax Law in
Indonesia. At a product level, the changes may encourage investment
into local mutual funds.
Latest trends and emerging themes
Investment management themes and trends in Southeast Asia
© 2021 Deloitte Southeast Asia Ltd. 652021 Southeast Asia Financial
Services Tax Conference
Regional passport and regulatory developments
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Comparison of regional passport initiatives in Asia
Regional passport and regulatory developments
ASEAN Collective Investment Schemes (CIS) Hong Kong–China MRF Asia
Region Funds Passport
Eligibility • Qualifying CIS operators in Singapore, Malaysia,
Thailand and Philippines.
• Retail investors.
• Hong Kong and mainland Chinese operators of compliant local
funds.
• Retail investors.
• Qualifying fund operators from Australia, Japan, South Korea, New
Zealand, Thailand.
• Retail investors.
• Streamlined authorisation process.
• Domiciled on the host country, fund registered with home
regulator.
• Streamlined authorisation process.
• Fund must be registered in home country as a Passport fund.
• Streamlined authorisation/notification process.
shareholder equity of US$1 million.
• Authorised for over one year. • Fund size not less than RMB200
million. • Less than 20% of assets in host country. • Investment
management function remains on home
country. • Must appoint a host country representative. •
Distribution to host country investors doesn’t exceed
50 % of total assets.
• Five years experience, US$500 million FUM for fund manager,
qualifications test.
• Min financial resources of US$1 million + 0.1% (capped at US$20
million).
• Mandatory custodian. • Independent oversight.
• Transferable securities, money market instruments, deposits,
units of other CISs and financial derivatives.
• Additional rules apply for money market funds, master feeder
funds, funds of funds and exchange-traded funds.
• Only general equity funds, balanced funds, bond funds and
unlisted index funds—no money market funds.
• Only liquid assets, mandatory diversification, no leverage,
restrictions on using derivatives.
Ongoing requirements
• Home regulator rules generally apply. • Ongoing reporting in host
jurisdiction. • Breach reporting requirement.
• Home jurisdiction rules generally apply unless it relates to sale
and distribution.
• Breach reporting requirement.
• Assets are managed in accordance with home economy laws, unless
it relates to disclosure and distribution.
• Ongoing reporting to both economies. • Breach reporting
requirement.
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Initiatives by the ASEAN Capital Markets Forum to promote ASEAN CIS
• Philippines joined as 4th signatory to the ASEAN CIS framework
in
May 2021. • Working to harmonise disclosure standards. •
Considering to extend the scheme to new fund types, e.g.,
infrastructure funds. • Exploring the use of digitalization to
facilitate cross border offerings.
Other initiatives by MAS • Continues to promote VCCs with strong
take-up of more than 300
VCCs registered since introduction of new structure in January
2020; MAS reviewing criteria for registering VCCs (e.g., single
family offices).
• Established Singapore Fund Industry Group to review regulatory
and tax policies, enhance capacity development, improve promotion
of Singapore as a fund management hub and develop industry
utilities that improves operational productivity and
efficiency.
• Regulatory focus—climate risk (environment risk management
guidelines for asset managers to come into effect from June 2022);
conduct (misconduct reporting extended to registered fund
managers).
Regulatory updates
Regional passport and regulatory developments
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Services Tax Conference
Fund structuring in Southeast Asia
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Fund structuring
Investment SPV
Fund Vehicle
Investor level • Home country considerations (differences with US,
EU, Asia investors). • Investor preferences (including the ability
to access Double Tax Treaties). • Investor reporting regimes and
requirements.
Fund manager level • Choice of location. • Ability to manage
offshore funds and offshore fund exemptions.
Fund/platform level • Fund vehicle choice—new Asian fund vehicles
(Singapore, Hong Kong). • Fund platform (Singapore fund exemption
schemes). • Impact of funding sources/types. • Linkage with
investor preferences (including exit considerations).
Asset level • Exit issues and operational taxes (including non
resident capital gains tax and indirect transfer rules
[Indonesia, Vietnam]). • Alternatives (including Private
equity/venture capital and Real Estate).
© 2021 Deloitte Southeast Asia Ltd. 702021 Southeast Asia Financial
Services Tax Conference
Case studies
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Structuring SEA PE funds for European and US investors
Case study 1
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Indonesia real estate fund for Southeast Asian investors
Case study 2
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Deloitte Southeast Asia Ltd. 73
Appendices
© 2021 Deloitte Southeast Asia Ltd. 742021 Southeast Asia Financial
Services Tax Conference
Appendix A
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Mutual funds involve large pools of investors and usually have a
larger focus on equities and fixed income products. A typical
structure used by mutual funds is the Singapore unit trust which
has the following features: • Allows for a fund to be open-ended. •
Allows for investors to have limited liability. • Allows for the
segregation of assets under an umbrella fund/sub-fund
structure. • No Singapore stamp duty imposed on issuance, transfer,
or redemption of
units. • However, it is usually difficult for a trust to claim tax
treaty benefits.
Mutual funds: Singapore Unit Trust
Use cases for the Singapore VCC
Unitholders
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Viability of VCC as alternative?
Pros • Similar to the unit trust, a VCC allows for a fund to be
open-ended, for investors to have
limited liability, and for the segregation of assets under an
umbrella fund/sub-fund structure.
• There is an additional benefit of a VCC being potentially able to
claim tax treaty benefits—subject to challenges in local tax
jurisdictions.
Cons • A transfer of shares in a VCC triggers stamp duty (however,
issuance and redemption of
shares do not).
Shareholders
VCC
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Another common fund entity used is the Ireland VCC: • Corporate
entity with separate legal personality. • Can operate as umbrella
fund with segregated sub-funds. • Potentially able to claim tax
treaty benefits based on Ireland’s wide treaty network. • No Irish
tax on income and gains of fund insofar as it does not have any
Irish taxable
investors. No Irish stamp duty on issue, transfer or redemption of
shares.
Mutual funds: Corporate vehicle (e.g., Irish VCC)
Use cases for the Singapore VCC
VCC
(Ireland)
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Viability of VCC as alternative?
Pros • Singapore VCC similar to Ireland VCC in many ways—both can
operate as umbrella funds with
segregated sub-funds; both are corporate entities potentially able
to claim tax treaty benefits. • “Onshorisation” by choosing
Singapore over Ireland where the fund manager is located
here.
Cons • For the VCC, tax exemption will depend on Singapore’s 13X
and 13R fund incentives. The fund
incentive will be applied to the VCC as a whole (and not to each
sub-fund)—Actions of one sub- fund on investment strategy can
affect the tax exemption status of other sub-funds.
Mutual funds: Irish VCC (cont.)
Use cases for the Singapore VCC
VCC
(Singapore)
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PE funds usually make investments over at least a 3-5 year horizon.
We typically see PE funds use a Cayman LP as a pooling vehicle. Key
features are: • Transparent entity to serve as pooling vehicle may
be attractive to PE investors due to fiscal.
transparency, tax benefits at home jurisdiction, CFC considerations
etc.
Holding companies may be used: • To claim treaty benefits. • To
mitigate tax on exit (subject to indirect transfer rules). • For
capital structure management purposes (usually involves multiple
layers of holding
companies).
Exempted LP (Cayman)
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Viability of VCC as alternative?
Pros • VCC potentially able to claim tax treaty benefits—subject to
local jurisdiction challenges. • “Onshorisation” by choosing
Singapore over Cayman Islands.
Cons • VCC has separate legal entity and is tax opaque—may be
unattractive to PE investors who often
prefer transparent pooling entities due to local rules, e.g.,
Japanese investors. • Less familiar to international investors. •
Transfer of shares in VCC may trigger stamp duty c.f. complex stamp
duty analysis if transfer
instruments for a Cayman LP holding an underlying Singapore Co are
executed or brought into Singapore.
Private equity funds: Cayman LP + Hold Co
Use cases for the Singapore VCC
Hold Co 2
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Hedge funds often engage in active trading rather than passive
holding of investments, resulting in less emphasis on tax treaty
benefits. A common structure we see for hedge funds is the Cayman
SPC.
The Cayman SPC is also often used for ‘bespoke’ private funds or
multi-family office funds which are set up by service providers for
clients who require individualised structures.
Features of a Cayman SPC are • Corporate entity with separate legal
personality. • No requirement to employ a management company. • Can
operate as umbrella fund with segregated sub-funds. • No Cayman
Islands tax. • However, unable to access tax treaty benefits.
Hedge funds/‘Bespoke’ funds/MFO Funds: Cayman SPC
Use cases for the Singapore VCC
SPC
(Cayman)
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Viability of VCC as alternative?
Pros • Singapore VCC similar to Cayman SPC in many ways—both can
operate as umbrella funds with
segregated sub-funds. • VCC potentially able to claim tax treaty
benefits—subject to challenges in local tax jurisdictions. •
“Onshorisation” by choosing Singapore over Cayman Islands.
Cons • Singapore VCC requires a Singapore manager; cf. Cayman SPC
which does not have an analogous
requirement. • For the VCC, tax exemption will depend on
Singapore’s 13X and 13R fund incentives. The fund
incentive will be applied to the VCC as a whole (and not to each
sub-fund)—Actions of one sub- fund on investment strategy can
affect the tax exemption status of other sub-funds.
Hedge funds/‘Bespoke’ funds/MFO Funds: Cayman SPC (cont.)
Use cases for the Singapore VCC
VCC
(Singapore)
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Appendix B
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Can the VCC as a CIV fund qualify for treaty benefits? • The OECD
in a 2010 report considered whether CIV funds would qualified for
treaty relief. These conclusions in the 2010 report were endorsed
in the
Base Erosion And Profit Shifting (BEPS) Action 6 report. • The OECD
definition of a CIV fund is a fund that is
Widely held; Holds a diversified portfolio of securities; and
Subject to investor-protection legislation in the country in which
it is established.
• In assessing whether a CIV fund qualifies for treaty benefits,
the OECD identified the key issues as are whether it qualifies as a
“person”, a tax “resident”, and the “beneficial owner” of the
income it receives.
• We expect a VCC to satisfy each item A VCC is a corporate entity
and would be a “person” for tax treaty purposes. Singapore’s tax
laws allows a VCC to be a tax “resident” if its control and
management takes place in Singapore. Turning to the issue of
“beneficial ownership”, the OECD view is that a CIV that falls
within its definition should be treated as the beneficial
owner
of the income it receives, so long as the managers of the CIV have
discretionary powers to manage the assets on behalf of the holders
of interest in the CIV. This should be satisfied in the case of a
VCC.
CIV funds and treaty relief—Threshold issue
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• The Final BEPS Action 6 Report contains one example on the
application of the PPT to a CIV fund. There are three examples on
the application of the PPT to a non-CIV fund (Regional investment
platform example, Securitisation company example, and Immoveable
property example).
• The OECD examples for non-CIV funds highlight the importance of
economic substance in the jurisdiction of the holding company and
commercial purpose/reasons for choosing that location.
CIV funds and treaty relief—The VCC and anti-treaty shopping
measures
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• RCo: Resident of State R. • Collective investment vehicle.
— Manages diversified portfolio of investments. — Currently 15% of
portfolio is held in shares of companies resident of
State S (SCos), from which RCo receives annual dividends. • A
majority of investors in RCo are residents of State R, but a number
of
investors (the minority investors) are residents of States which do
not have treaty with State S.
• Investors’ decisions to invest in RCo not driven by any
particular investment made by Rco.
• RCo’s investment strategy not driven by tax position of its
investors. • RCo considered benefit under R/S treaty when deciding
to investment in
Scos. • RCo pursues policy of full distribution of profits to
investors.
CIV funds and treaty relief—OECD Example for application of PPT:
CIV fund
RCo
SCos
R
S
Investors
DWHT: •30% domestic rate •10% under R-S treaty
Dividends
PPT does not apply
Majority of RCo’s investors are resident of State R
“In making its decision to invest in shares of companies resident
of State S, RCo considered the existence of a benefit under the
State R-State S tax convention with respect to dividends, but this
alone would not be sufficient to trigger the application of PPT.
The intent of tax treaties is to provide benefits to encourage
cross border investment and, therefore, to determine whether or not
PPT applies to an investment, it is necessary to consider the
context in which the investment was made… Unless RCo’s investment
is part of an arrangement or relates to another transaction
undertaken for a principal purpose of obtaining the benefit of the
Convention, it would not be reasonable to deny the benefit of the
State R-State S tax treaty to RCo.”
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• RCo operates exclusively as regional investment platform for Fund
through acquisition and management of a diversified portfolio of
private market investments located in a regional grouping that
includes State R.
• Factors supporting State R Knowledgeable directors. Skilled
multilingual workforce. State R’s membership of a regional grouping
and use of the regional grouping’s common
currency. Extensive double tax treaty network: low withholding tax
rates.
• RCo employs experienced management team. • RCo’s board of
directors
Majority are State R resident directors with investment management
expertise. Members of Fund’s global management team.
• RCo now contemplating an investment in Sco. Only part of RCo’s
overall investment portfolio.
• Benefit of R/S treaty is taken into account by Rco.
CIV funds and treaty relief—OECD Example for application of PPT:
CIV fund
“In making its decision whether or not to invest in SCo, RCo
considers the existence of a benefit under the R/S treaty with
respect to dividends, but this alone would not be sufficient to
trigger the application of the PPT. The intent of tax treaties is
to provide benefits to encourage cross-border investment and,
therefore, to determine whether or not the PPT applies to an
investment, it is necessary to consider the context in which the
investment was made, including the reasons for establishing RCo in
State R and the investment functions and other activities carried
out in State R. In this example, in the absence of other facts and
circumstances showing that RCo’s investment is part of an
arrangement or relates to another transaction undertaken for a
principal purpose of obtaining the benefit of the treaty, it would
not be reasonable to deny the benefit of the R/S treaty to
RCo.”
RCo
SCo
(Regional investment platform)
DWHT: •30% domestic rate •5% under R-S treaty •10% under T-S
treaty
PPT does not apply
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