Legal forms of typical investment vehicles
Apart from individuals, there are three main types of investment entities in Singapore:
- Private Limited Companies;
- Limited Liability Partnerships (LLP); and
- Real Estate Investment Trusts (REITs).
Real estate investment trusts (REITs)
MAS may also recognise a collective investment scheme which is constituted outside Singapore
A REIT established as a unit trust is regulated as a collective investment scheme under the Securities and Futures Act (Cap. 289).
Furthermore, there are additional regulations under the Code on Collective Investment Schemes issued by the Monetary Authority of Singapore (MAS), which governs the administration, supervision and control of REITs.
REITs have to be either authorised or recognised by MAS as a collective investment scheme.
MAS may authorise a collective investment scheme which is constituted as a unit trust if the Authority is satisfied that:
- There is a manager for the scheme which satisfies the prescribed requirements;
- There is an approved trustee for the scheme;
- There is a trust deed in respect of the scheme entered into by the manager and the trustee for the scheme that complies with prescribed requirements; and
- The scheme, the manager for the scheme and the trustee for the scheme comply with the Securities and Futures Act (Cap. 289) and the Code on Collective Investment Schemes.
MAS may also recognise a collective investment scheme which is constituted outside Singapore, subject to the satisfaction of requirements prescribed in the Securities and Futures Act (Cap. 289).
REITs have to be either authorised or recognised by MAS as a collective investment scheme
Subject to the terms of its trust deed, a REIT may invest in real estate, whether freehold or leasehold, in or outside Singapore. Such investment may be made by way of direct ownership or a shareholding in an unlisted special purpose vehicle constituted to hold or own real estate.
When investing in a foreign real estate asset, the manager should ensure the compliance of all applicable laws and requirements in that foreign jurisdiction.
At least 75% of the REIT's deposited property should be invested in income-producing real estate. Generally, the total contract value of property development activities undertaken and investments in uncompleted property developments where separate title has not been issued, should not exceed 10% of the REIT's deposited property.
Valuation of the Real Estate Investments
A full valuation of each of the REIT's real estate assets should be conducted by an independent valuer at least once every financial year.
Aggregate Leverage Limit
Borrowings may be used by REITs for investment purposes and assets may be mortgaged to secure such borrowings.
The total borrowings and deferred payments should not exceed 45% of the REIT's deposited property.
However, in light of the COVID-19 pandemic, on 16 April 2020, MAS raised the leverage limit for REITs from 45% to 50% and deferred the implementation of a new minimum interest coverage ratio requirement for REITs, to 1 January 2022.
A REIT has to distribute 90% of its taxable income to its unitholders in order to enjoy the tax transparency treatment under the Income Tax Act (Cap. 134), under which it will not be taxed on income that is distributed to its unitholders.
To ease the pressure on REITs during the COVID-19 pandemic, on 16 April 2020, the Ministry of Finance and the Internal Revenue Authority of Singapore extended the timeline for REITs to make the distribution of their taxable income for the financial year 2020 from 3 months to 12 months (after the end of the financial year 2020).
The manager should prepare an annual report at the end of each financial year disclosing, amongst others, the following:
- Details of all real estate transactions entered into during the financial year;
- Details of all the REIT's real estate assets;
- The profile of the tenants of the real estate assets; and
- Details of all borrowings.
Listing of REITs
An application for the listing of a REIT must comply with Chapters 2 and 4 of the Singapore Exchange Limited (SGX) Listing Manual.
Broadly, the steps in the listing process for investment funds are as follows:
- A copy of the listing application is prepared and submitted, together with the relevant supporting documents;
- The Singapore Exchange Securities Trading Limited (the "Exchange") will consider the application and may grant approval in-principle;
- Where a prospectus is required, the applicant lodges the final copy of the prospectus with the Exchange;
- The investment fund invites subscription for its securities;
- The investment fund issues securities pursuant to the allotment; and
- The investment fund is admitted to an official list of issuers on satisfaction of all the prescribed conditions.
Family offices / Ultra-High Net Worth Individuals (UHNWIs)
Share transfers of companies are popular with foreign investors because the stamp duty payable is lower unless the target company holds residential properties, in which case Additional Conveyance Duty may be payable (Please refer to section on Taxes).
Trusts are typically used by fund clients because they can invest in a wide range of properties and fund managers can manage the fund for investors. However, investors must pay performance fees; may have less control over underlying assets owned by the fund; and may not be able to cash out of the fund at a time of their choice.
Both asset and share transfers of companies are typically used by family office and UHNW clients. For share transfers, stamp duty is payable at a lower rate unless the target company holds residential properties, in which case Additional Conveyance Duty may be payable (Please refer to Section 5 below).