On 19 August 2026, the Monetary Authority of Singapore (“MAS“) and the Ministry of Finance announced that they intend to exempt from tax qualifying “profit-related returns” arising from fund management services provided to qualifying funds. The description appears wide enough to cover both classic waterfall carried interest and performance fees. The exemption is expected to apply from the Year of Assessment (“YA“) 2027. Details will follow at Budget 2027.

What has been announced

The exemption is expected to cover a contractual share of fund profits received, directly or indirectly, by companies, partnerships or individuals for fund management services. Salaries, bonuses and other employee remuneration are not covered.

The fund must qualify under the existing fund tax incentive schemes (i.e. the section 13D, 13O, 13OA, 13U and 13V schemes of the Income Tax Act 1947), meet the economic substance conditions (including minimum headcount), and be managed by a Singapore-based fund manager.

MAS also announced a new investment programme for hedge fund managers setting up or expanding in Singapore, and an Investment Management Track under the Overseas Networks & Expertise Pass that would take performance-linked returns into account alongside fixed salary.

The Current Tax Treatment

Singapore has never had a dedicated framework for carried interest. The tax treatment follows general principles: capital gains are generally not taxable, while fees and remuneration for services are. Whether a return was characterised as a fee for services or as a capital return on the carry-holder’s investment could therefore determine whether it was taxed at all. We have advised managers and carry-holders on this characterisation question, often after the arrangements were put in place. IRAS’s published guidance addresses the capital/revenue divide generally, with nothing specific on carry.

Comments:

MAS has chosen its words carefully. The announcement never mentions “carried interest”. The exemption instead covers returns “arising from fund management services” – returns which, as remuneration for services, would ordinarily be taxable. The proposal leaves the capital question alone and exempts a defined class of these returns directly. Revenue, but incentivised. The contrast with Hong Kong is instructive: its 2021 concession is expressly confined to defined “eligible carried interest” with a hurdle-linked requirement, whereas Singapore has opted for a functional description that does not depend on what the return is called.

The two categories benefit differently: for classic waterfall carry, the exemption removes the need to establish that the return is capital in nature; for performance fees, which sat on the taxable side of the line, it removes the tax itself.

The exemption does not appear to cover everything. The fund must hold a qualifying award, meet the substance conditions and have a Singapore-based manager, and the return must fit the definition to be announced at Budget 2027. For returns that do not qualify, the general principles continue to apply, and an express exemption is not a concession that such returns were never taxable. The detail – qualifying recipients and vehicles, any co-investment or capital-at-risk condition, the boundary with employee remuneration, and the treatment of existing arrangements and pre-YA 2027 entitlements – will decide how much of the uncertainty this actually removes.

We welcome this development, and look forward to further details from MAS and the Ministry of Finance at Budget 2027. If the rules are commercially grounded and administratively workable, they will remove a longstanding point of uncertainty and strengthen Singapore’s position as a place to build and scale substantive investment businesses.

MAS media release