The Monetary Authority of Singapore has proposed a simplification of the authorisation process and regulatory framework for venture capital managers—with the goal of supporting start-ups.
Singapore’s Committee on the Future Economy (CFE) released a report on 9 February setting out seven strategies to maximize Singapore’s growth potential in the face of a slowing economy and global uncertainty (CFE Report). A key initiative outlined in the CFE Report is enhancing the financing ecosystem for start-ups to help sustain innovation and risk-taking in the economy.
In response, the Monetary Authority of Singapore (MAS) has released a Consultation Paper proposing to simplify the authorisation and regulatory requirements for venture capital (VC) managers to enable them to operate more nimbly in supporting start-ups in Singapore and the region. The MAS will also look to deepen the pool of private equity (PE) managers to draw in more capital for late stage and mature start-ups. In the coming year, the MAS will examine the scope to streamline rules and enhance the operating environment for PE managers.
Recognising the exponential room for growth within the nascent regional VC industry in Singapore, these changes are in line with the Singapore government’s aim to compete with leading fintech and VC ecosystems in New York and Silicon Valley. VC and PE assets under management in Singapore have grown by an average of 30% per year in the past five years.
To be eligible under the proposed simplified regime, VC managers must only manage funds that meet all of the following criteria:
Under the proposed simplified regulatory regime, the MAS will focus primarily on a fitness and propriety assessment of VC managers. The proposed relaxing of the regulatory regime for VC managers includes the following initiatives:
Other ongoing regulatory requirements currently in force for all fund managers will remain applicable to VC managers, including the following:
Whilst the MAS has not yet outlined its proposed tax incentives for VC funds and VC managers, it has recognised the need to bolster existing concessions to nurture the local VC ecosystem.
The current qualifying criteria for the tax incentive schemes require a fund manager to be either a registered or licensed fund management company or to be expressly exempted from the requirement to hold a capital markets services licence in respect of its fund management activities.
The three main tax exemption schemes are the following:
To qualify for (1), there can be neither 100% Singaporean ownership nor Singaporean tax residence. To qualify for (2), amongst other requirements, there needs to be at least S$200,000 business spending per year. To qualify for (3), amongst other requirements, there is a minimum fund size requirement of S$50 million, a minimum of S$200,000 local business spending per annum, as well as the need to file annual tax returns.
Public comments on the Consultation Paper will be accepted by the MAS until 15 March 2017.