Many jurisdictions offer flexible vehicles and a favourable tax environment, so fund location has tended to be a matter of familiarity and manager preference. For example, Asian real estate fund vehicles are often not based in Asia, but in the jurisdiction which is the most attractive location to the fund manager (usually the Cayman Islands). However, Singapore does offer a tax transparent fund vehicle, as well as being a good holding location for companies in fund structures because of its tax system. We may therefore see a growing appetite for funds focusing on Asia to use Asian fund vehicles. For managers based in Europe, Luxembourg is still a popular domicile for fund vehicles.
This guide gives a quick review of some of the most popular fund vehicles for Asian real estate funds.
Click here for table.
Vehicle choice is often determined by the preference for a tax favourable structure. We have found these vehicles popular for real estate funds in Asia.
Cayman Islands and Bermudan Limited Partnerships: The Cayman Islands and Bermuda are both popular jurisdictions for Asian real estate funds. There are no direct taxes on either limited partnership vehicle. A Bermudan limited partnership may function as an ‘entity’ and may sue and be sued and carry on business in its own name. It can also elect to have legal personality. In both the Cayman Islands and Bermuda, tax exemption undertakings can be applied for, confirming that for a period of years if income, capital gains or inheritance taxes are applied, the exempt limited partnership will not be taxed. This is also available for the Cayman Islands and Bermuda exempt companies listed in the table.
Singapore Resident Fund Company: Subject to conditions, specified income, derived by an approved company incorporated and resident in Singapore, from designated investments arising from funds managed by a fund manager in Singapore, is exempt from Singapore income tax at fund level. To qualify for this scheme, the entire value of the approved company’s issued securities should not be beneficially owned, directly or indirectly, by Singapore persons.
Singapore Limited Partnership: this was introduced in 2009 as a tax transparent vehicle for investment. An individual or a corporation may be a general partner or a limited partner. Appointing a local manager is not mandatory unless the general partner(s) is residing outside Singapore.
Singapore Business Trust: a hybrid structure which combines elements of a company with elements of a unit trust. A business trust does not have a separate legal identity and is operated through a trustee manager.
Mauritius Limited Liability Company: a commonly used vehicle to structure investments into India and China. Favourable withholding tax rates on dividends and capital gains. Low tax on dividend and interest income in Mauritius.
Bermuda Exempt Company: is exempted from those provisions of Bermuda law that stipulate that at least 60% of the equity must be beneficially owned by Bermudians. Generally, it cannot carry on business in Bermuda. It must have two individual company representatives resident in Bermuda.
Luxembourg FCP: a mutual investment fund, which has no separate legal personality and must be managed by a Luxembourg management company. One of the most popular forms for Luxembourg real estate funds. Luxembourg SICAV: a corporate vehicle, may take various legal forms. Not tax transparent and entitled to double tax treaty benefits.