The Old Rule and Why It Changed

Under the prior regime, the AUM floor was tested at the point of application. A family office could apply for Section 13O with S$20 million, receive the award, and then redeploy capital out of the fund without losing the incentive. That created two outcomes MAS did not want. First, several family offices used the award to enter the regime and then ran the fund well below the floor on the basis that the conditions had been met at award. Second, the regime’s economic substance — three investment professionals, local business spending, capital deployment into Singapore — sometimes operated against a shrunken capital base.

The May 2026 update closes that gap. The minimum AUM is now a continuing condition. A fund that drops below the floor faces a remediation conversation with MAS and, if not cured, a re-examination of the tax-exempt status. The change is consistent with MAS’s broader 2025–2026 supervisory posture on family offices: the regime is open to those who deliver substance, not those who acquire status.

Section 13O: Conditions for the Onshore Fund Tax Incentive

Section 13U: Conditions for the Enhanced-Tier Fund Tax Incentive

Section 13U remains the preferred award for UHNW family offices with multi-strategy fund structures, particularly where investments are made through both onshore and offshore vehicles. The marginal cost of moving from Section 13O to Section 13U is largely the AUM threshold and the higher LBS commitment.

Lifetime AUM Retention — How the Test Operates

The lifetime retention test does not require AUM to remain at the floor on every business day. The intent is to prevent funds from being structurally below the floor, not to penalise a temporary market-driven movement. In practice, three operating rules emerge.

First, valuation snapshots matter. The fund’s audited financial statements and quarterly investor reports are the records MAS will examine. A fund that closes a financial year above the floor but reported a quarter-end below is in a much weaker position than one that maintained the floor at every quarter-end.

Second, cure periods are available but should be agreed proactively. Where AUM drops below the floor because of a redemption or a writedown, the manager should notify MAS in writing and propose a cure path — typically a top-up from family principals or a redeployment from another family vehicle within a defined window. Failing to notify is worse than notifying late.

Third, market-down years are the highest-risk scenario. A fund with concentrated positions in volatile assets needs a buffer above the floor. Family offices that applied at S$20.5 million in 2024 will be exposed in any equity drawdown of more than three per cent. The remediation conversation is much easier from a sustainable buffer than from a marginal application.

The Three-IP Rule and the Non-Family Investment Professional

The investment professional headcount moved from one to two in earlier rounds and is now three. MAS’ position is that one of the three must not be a family member. The intent is to introduce independent investment decision-making at the operational level, not just at board level.

The non-family IP must operate as an investment professional, not as a compliance, operations or administrative officer in disguise. MAS has signalled that it expects this person to be tax resident in Singapore and substantively involved in deal sourcing, due diligence, position sizing or portfolio risk management. A figurehead hire will not satisfy the test.

Compensation arrangements should reflect that role. We see family offices satisfying the test with a senior portfolio manager hired on a multi-year contract with a base salary and performance-linked variable in the S$250,000 to S$500,000 range, depending on strategy. A token retainer is not credible.

Local Business Spending — Building a Defensible Budget

The tiered LBS model requires careful budget planning. Spending is measured per fund per year and includes:

• Salaries and employer CPF for Singapore-based IPs and operating staff;
• Fees paid to Singapore service providers — administrator, auditor, fund counsel, tax adviser, custodian, corporate secretary;
• Office rent, utilities, technology, market data and research subscriptions paid to Singapore vendors;
• MAS, ACRA and IRAS fees and statutory disbursements paid in Singapore.

Spending that does not flow through Singapore vendors — for example, fees to an offshore administrator or to non-Singapore advisers — does not count. The budget should be approved by the board and tracked against actual on a quarterly cadence so that any underspend is identified before the year-end audit.

The 10% / S$10 Million Singapore Capital Deployment Test

The Singapore deployment test requires at least 10% of AUM, or S$10 million if lower, to be invested into qualifying Singapore-linked assets at any time. Qualifying assets include SGX-listed equities, qualifying debt securities (QDS) issued by Singapore-resident entities, non-listed Singapore operating companies, and units in Singapore-domiciled funds that themselves invest in Singapore assets. Sovereign and quasi-sovereign exposures via Singapore Government Securities and statutory board bonds also count.

The deployment test is a live test, not an application-stage assurance. The portfolio manager should ensure that the qualifying tranche is held at every quarter-end and that disposals are followed promptly by replacement positions. Family offices with concentrated single-stock positions sometimes underweight the qualifying tranche because of liquidity preferences; that is a conscious decision that needs board sign-off and a cure plan if the underweight risks the test.

Decision Tree — SFO Section 13O vs Section 13U

• Below S$50 million AUM: Section 13O is the only realistic option. The administrative overhead is similar to Section 13U at this size, so the choice is settled by the floor.
• S$50–100 million AUM: Section 13O remains attractive if the family is comfortable with the lower headline AUM, the LBS at S$500,000 and a Singapore-resident IP team. Section 13U becomes worthwhile if the family expects to grow above S$100 million within 18 months or wants the optionality of a foreign-incorporated sub-fund.
• Above S$100 million AUM: Section 13U is the default choice. The LBS tier at S$1 million is meaningful but is usually already met by the operating cost base. The benefit is the broader fund vehicle and investor flexibility.
• Multi-generational families approaching S$500 million: consider an umbrella VCC with multiple Section 13U sub-funds segregated by branch, mandate or generation. This separates risk and reporting without multiplying entity overhead.

Practical Steps Before Year-End 2026

Family offices already operating under Section 13O or Section 13U should commission a four-point review before year-end. First, an AUM stress test at minus 10% and minus 20% to identify breach risk. Second, a Singapore-resident IP check confirming each named IP’s tax residency and role. Third, an LBS reconciliation against the latest tier. Fourth, a Singapore deployment audit showing how the 10% / S$10 million floor is held across the portfolio.

New applicants in 2026 should treat the application pack as the foundation of the operating model, not a separate document. The application should be drafted alongside the fund’s investment policy, board charter, MAS Circular IID 04/2025 governance pack and AML/CFT framework. MAS’ assessment of an applicant has tightened, and an integrated submission converts faster than a fragmented one.

Frequently Asked Questions

Does the lifetime AUM retention rule apply to existing 13O and 13U awards?

Yes. The May 2026 update applies to existing awards. Existing funds should test their current AUM and build the buffer that fits their portfolio volatility.

Can a family member be one of the three investment professionals?

Two of the three can be family members. At least one must not be a family member and must be substantively involved as an investment professional, tax resident in Singapore.

Does Section 13U still require Singapore incorporation?

No. Section 13U can be applied to a Singapore-incorporated fund or a foreign-incorporated fund managed from Singapore. Section 13O continues to require Singapore incorporation.

What qualifies as a Singapore investment for the 10% / S$10 million test?

SGX-listed equities, qualifying debt securities issued by Singapore-resident entities, non-listed Singapore operating companies, units in Singapore-domiciled funds investing in Singapore assets, and Singapore Government Securities and statutory board bonds.

Related Guides

Related Singapore Resources

• Raffles Corporate Services for Singapore corporate structuring, fund administration support and family office advisory.
• Singapore Secretary Services for corporate secretary and statutory compliance support for VCCs and fund managers.
• Pros and cons of incorporating a VCC in Singapore.
• Employment agency licensing and manpower compliance resource.

Useful References

• Income Tax Act 1947 — Section 13O
• MAS — Fund Tax Schemes for Family Offices (Overview)
• MAS — Infographic on 13O and 13U for Single Family Offices
• MAS — FAQs on the Schemes for Single Family Offices
• IRAS — e-Tax Guides on Fund Tax Incentives