The end of island-hopping for carried interest: how Singapore fund managers can bring their economics home

This is the structuring companion to our same-day breakdown of the announcement — Singapore’s carried-interest answer — and to the news summary. Those pages cover what was said; this one covers what to do with it.

Why the carry vehicle left Singapore in the first place

Singapore’s fund tax architecture has three layers, and until last month only two of them worked. At the fund level, Section 13O, 13OA and 13U exempt the vehicle’s qualifying income — a VCC, a Singapore limited partnership or, under 13U, an offshore vehicle of any legal form. At the manager level, the Financial Sector Incentive for fund managers (FSI-FM) taxes qualifying fee income at a concessionary 10% instead of 17%, for licensed managers with at least three investment professionals and S$250 million under management.

The third layer — the profit share — had no home. Carried interest is not a fee; it is a contractual slice of the fund’s gains, usually allocated to a general-partner or carry vehicle owned by the principals and, through it, to the individuals. FSI-FM does not reach it. Singapore has no capital gains tax, but a return earned for providing management services is income in character, and IRAS reads intent rather than labels. A Singapore carry vehicle therefore faced exposure at the 17% corporate rate, or up to 24% at personal level once distributed, depending on how the arrangement was characterised.

So the carry went where the fund already was. A Cayman exempted limited partnership with a Cayman general partner charged nothing on the carry, investors’ lawyers knew the documents by heart, and the Singapore manager took a management fee for its work. From 2021, Hong Kong added a second destination: a certified 0% concession on eligible carried interest for private-equity funds, subject to HKMA certification, a hurdle rate and local substance. Either way the economics island-hopped, and the manager lived with the cost of running three jurisdictions to hold one profit share.

What the 19 August announcement changes

MAS and the Ministry of Finance will introduce a tax exemption on profit-related returns from the provision of fund management services to qualifying funds. The scope, as published, has four features that matter for structuring:

• It covers the profit share itself. Traditional carried interest and profit- or return-sharing models are in; ordinary salaries, bonuses and other remuneration are explicitly out.
• It follows the money through the structure. The exemption applies where a share of a qualifying fund’s profits is contractually received by corporate entities, partnerships or individuals, directly or indirectly, for providing fund management services — the words that let a Singapore carry partnership, its corporate partner and the individual professional all sit inside one regime.
• “Qualifying fund” is defined by the existing awards. Funds exempt under Sections 13D, 13O, 13OA, 13U or 13V, managed by Singapore-based fund managers. The fund-level award becomes the gateway to the manager-level exemption.
• It starts with YA 2027 — the 2026 income year — with mechanics at Budget 2027. Conditions are expected to include local business spending and Singapore-based investment-professional headcount, in the mould of the fund awards.

Two companion measures complete the picture: a new MAS Hedge Fund Investment Programme that will invest with managers committed to building in Singapore, and an Investment Management Track under the ONE Pass that counts performance-linked returns, not just fixed salary, toward the visa threshold — the profile whose payslip understates their economics.

Hong Kong moved first, and moved wider

Honesty about the benchmark is the point of this page. Hong Kong’s 2026 Bill, gazetted on 12 June, does not merely keep its 0% concession; it broadens it. HKMA certification is replaced by self-assessment through ordinary tax filing, the hurdle-rate requirement is dropped, eligible strategies extend from private equity to hedge funds, private credit, real estate and digital assets, and employees who hold a specified right to carried interest or performance fees — directly or indirectly — are covered at the salaries-tax level. The enhancements apply retrospectively from 1 April 2025. Proprietary trading houses stay outside, and the substance tests — Hong Kong personnel, local operating spend, investment decisions taken in Hong Kong — remain.

A manager whose team genuinely sits in Hong Kong has a live, broad regime today. A manager whose team sits in Singapore has, from YA 2027, the one that fits the rest of its stack. The point of the Singapore package is not to out-bid Hong Kong on a single rate; it is that the fund exemption, the manager concession, the profit-share exemption, the vehicle and the visa are now all in the same jurisdiction, under the same regulator.

What island-hopping actually costs now

The offshore carry vehicle was never free; its cost was simply lower than the tax it avoided. That arithmetic has moved on both sides.

The Singapore-only stack, layer by layer

How to restructure: the sequence that works

1. Map the economics before touching any entity

List every vintage, its domicile, the general partner, the carry vehicle, the management and advisory agreements, and who ultimately receives what. Most stacks have accreted rather than been designed; the map usually shows two or three entities that exist only to hold a profit share.

2. Decide fund domicile vintage by vintage

A live Cayman fund does not need to move for the manager to benefit: 13U takes an offshore vehicle of any legal form, so an existing fund under a Singapore 13U award is already a “qualifying fund”. The cleaner long-run answer is to launch the next vintage as a VCC sub-fund or a Singapore LP, and to consider inward re-domiciliation for older vehicles only when investor consent and cost line up — our Cayman-to-Singapore migration guide sets out that decision.

3. Bring the carry onshore for new vintages first

For funds not yet closed, write the Singapore carry vehicle into the limited partnership agreement or the VCC sub-fund terms from day one: a Singapore partnership or company receives the contractual profit share, with the principals’ entitlements documented as commercial fund arrangements. For existing vintages, resist the urge to novate accrued carry. Moving an entitlement that has already built value can crystallise tax, needs limited-partner consent and rarely changes the outcome for a fund in its harvest phase. Let those vehicles run off.

4. Secure the gateway awards

The exemption is defined by reference to the fund awards, so the sequencing is: licensed manager first (the CMS licence or VCFM registration), then 13O/13OA/13U for each vehicle, then FSI-FM once the manager clears three professionals and S$250 million. A manager without a qualifying fund has nothing for the new exemption to attach to.

5. Separate pay from profit share, on paper and in practice

Salary and bonus are excluded from the exemption; the profit share is not. Compensation documents should show a genuine contractual entitlement to fund profits — not discretionary pay relabelled as carry. Expect Budget 2027 to draw anti-avoidance lines exactly here.

6. Run the 10L and 13W checks on every holding entity

Any group entity that receives foreign-asset gains in Singapore needs adequate economic substance or an incentive award to stay outside Section 10L; any entity holding 20% of a portfolio company for 24 months should be positioned to use the 13W safe harbour. Both favour real Singapore operations over paper.

7. Retire the offshore entities on a timetable

Keep Cayman economic-substance filings and Hong Kong obligations current until the last vintage they serve has distributed, then strike off. A dated wind-down plan reassures investors that the change is administrative, not a flight.

Who should not rush

Three groups should wait or stay put. Managers with a real Hong Kong team already have a broad, self-assessed regime and may keep the Hong Kong leg for that team’s economics. Managers running funds outside the 13D/13O/13OA/13U/13V family have no qualifying fund and therefore no exemption to structure toward until they obtain an award. And anyone whose plan depends on a detail not yet published — the definition of outperformance, how sub-fund allocations inside a VCC umbrella are treated, the exact spending and headcount conditions — should build for optionality now and finalise after Budget 2027. Nothing announced changes the home-country tax of non-resident partners; a Singapore carry vehicle solves the Singapore layer, not theirs.

Singapore versus Hong Kong on the profit share

Read together with our Singapore-versus-Hong-Kong domicile comparison, the pattern is consistent: Hong Kong competes hardest on the headline rate, Singapore on the coherence of the whole stack. For a manager whose people, licence and vehicle are already here, coherence is the cheaper thing to own.

Frequently asked questions