LBS, TBS and "local spending": decoding the fund spending conditions

The short answer

Every 13O, 13OA or 13U fund must spend a minimum amount in Singapore each year to keep its tax exemption, but the definition of "spend" and the size of the minimum both depend on which track the fund sits in. Non-SFO funds are tested on local business spending ("LBS"), tiered at S$200,000, S$300,000 or S$500,000 by AUM in Designated Investments ("DI"), with a transitional flat total business spending ("TBS") test of S$200,000 running until Year of Assessment ("YA") 2028. Single family office ("SFO") funds are tested on a tiered "local spending" condition of S$200,000, S$500,000 or S$1,000,000, where the top two tiers can be partly satisfied through eligible charitable donations and blended-finance grants above an LBS floor. Miss your threshold in a given year and you lose that year's exemption only — not the award.

LBS versus TBS: the one-word difference that matters

The distinction turns on where the money goes, not how much is spent. LBS refers to operating expenses recognised under accounting principles — including but not limited to remuneration, fund management fees and other operating costs — paid to contracting parties in Singapore. TBS refers to the same expenses regardless of contracting party, so a fee paid to an overseas administrator or offshore counsel counts toward TBS but not LBS. A fund can post a healthy TBS figure while its LBS falls short if too much of its spend leaks offshore — and for a non-SFO fund from YA 2028, and any SFO fund at any time, it is the LBS-anchored test that governs the exemption.

Non-SFO funds: tiered LBS, with a transitional TBS runway

An S13O, S13OA or S13U non-SFO fund must meet a minimum LBS condition set by its AUM in DI as at the end of each basis period. As a transitional measure, the fund only needs to meet a flat TBS condition of S$200,000 for YAs before YA 2028; the tiered LBS condition below applies from YA 2028. In practical terms, a fund can rely on total spend wherever incurred through YA 2027, but must ensure the Singapore-contracted share of that spend meets the relevant tier from YA 2028.

SFO funds: three tiers, with donation and grant top-ups above an LBS floor

An SFO fund's local spending condition is also tiered by AUM in DI, but the top two tiers are composite: a minimum LBS floor plus room to make up the balance through eligible donations to Singapore Registered Charities, Exempt Charities or Institutions of Public Character (excluding Grantmakers under MCCY's Grantmaker Scheme), and grants to blended-finance instruments distributed by MAS-licensed financial institutions, recognised at twice their value. The bottom tier (AUM in DI below S$250 million) has no top-up option — it must be met entirely in LBS.

What actually counts as LBS

LBS is an accounting-recognition concept, not a cash-paid one: operating expenses recognised under applicable accounting principles that are paid to contracting parties in Singapore. That reaches remuneration paid to staff or the fund manager's Singapore entity, fund management fees paid to a Singapore-based FMC or SFO, and other operating costs — administration, audit, tax, legal and similar service fees — where the invoicing counterparty is Singapore-based. The test looks at the contracting party's location, not the provider's nationality or where the work is physically performed: a Singapore-incorporated administrator with an offshore back office still counts, while an overseas-incorporated provider does not, even with Singapore-based staff.

Donations, blended-finance grants and the 2× multiplier

For SFO funds at the two upper AUM tiers, part of the local spending gap above the LBS floor can be closed with eligible donations and blended-finance grants rather than operating spend. Eligible donations are limited to Singapore Registered Charities, Exempt Charities or Institutions of Public Character, excluding Grantmakers under MCCY's Grantmaker Scheme; receipts must be produced to MAS on request if the fund is selected for review. Grants refer to contributions with no return of principal or income to blended-finance instruments — vehicles using catalytic public or philanthropic capital to draw in private investment for sustainable development — distributed by MAS-licensed financial institutions in Singapore, and are recognised at twice their actual amount: a S$100 grant counts as S$200 of local spending. Neither donations nor grants are available to non-SFO funds or to SFO funds at the bottom AUM tier — both must meet their minimum entirely in LBS.

Miss a year, lose a year — and the closed-end alternative

The spending condition, like the AUM in DI test, is assessed year by year rather than cumulatively. Failing to meet the applicable LBS, TBS or local spending threshold in a given basis period loses the tax exemption for that YA only; meeting the threshold again in a later year restores the exemption for that year, with no requirement to make up the shortfall retrospectively. The one structural alternative is closed-end fund treatment for non-SFO 13O, 13OA and 13U funds, under which the annual LBS condition is assessed cumulatively across the fund's first ten incentive years — smoothing a fund's natural pattern of heavier early spending and lighter spending near divestment — and is waived from the eleventh incentive year. The election is irrevocable and not available to SFO funds.

Two worked examples

Example 1 — a non-SFO 13O fund crossing the YA2028 line. A fund has AUM in DI of S$180 million at its basis-period end for YA 2029 — under the S$250 million tier, so its minimum LBS is S$200,000. It incurs S$230,000 of total operating spend, but S$80,000 goes to an offshore administrator, leaving only S$150,000 recognised as LBS. Pre-YA2028 this fund would have passed on TBS alone; from YA 2028 it fails the tiered LBS test and loses the exemption for that YA, despite total spend clearing S$200,000. The fix is routing more spend to Singapore-contracted providers, not simply spending more.

Example 2 — an SFO 13U fund using the donation and grant top-up. An SFO fund has AUM in DI of S$800 million (the S$250 million–S$2 billion tier), requiring S$500,000 of local spending comprising LBS of at least S$300,000. It incurs S$320,000 of LBS — clearing the floor — then makes a S$90,000 eligible donation and a S$45,000 blended-finance grant, recognised at 2× as S$90,000. Total recognised spending: S$320,000 + S$90,000 + S$90,000 = S$500,000, meeting the condition exactly. Had the fund relied on a larger grant without first clearing the S$300,000 LBS floor, the top-up would not have counted — the floor is a precondition, not an alternative route.

Planning around the condition

Because the test runs on contracting-party location and accounting recognition rather than total cash spent, the practical discipline is reviewing, well before each basis-period end, which service providers — administrator, auditor, tax adviser, legal counsel — are contracted through Singapore entities, and whether AUM in DI growth has pushed the fund into a higher tier. SFO funds approaching the two upper tiers should plan donations and grants ahead of year-end rather than as a last-minute fix, so the LBS floor itself is not missed. Nothing here is recalculated retrospectively, but nor can a missed year be recovered after the fact — the condition rewards planning over correction.