M&A

M&A

PE-VC fund investors may move holding structures to Singapore: report

Economic Times  

Investors and high net-worth individuals (HNIs) who have invested in private equity (PE) and venture capital (VC) funds are thinking of setting up holding entities headquartered in Singapore, following a recent ruling by a tax tribunal that indirect taxes may be applicable on carry fees. Their worry is that a goods and services tax (GST) rate of 18% could be levied on carry fees and most funds are certain to pass on the GST levy to investors, impacting their returns. A holding entity in Singapore, where the “profits” are accumulated, could do away with not only the risk of a GST levy but also halve their direct tax outgo. A tax tribunal had ruled recently that service tax - which was under the erstwhile tax regime but has since been subsumed under the GST - is applicable on carry fees. This came after a tax tribunal held that indirect taxes are applicable on expenses incurred by VC, PE and mutual fund firms, even under a trust structure. Investors pay around 50% income tax in India on their returns from AIFs, PE or VC funds. Against this, the tax outgo could drop to 20% if the holding entity is based outside the country or if the person receiving it is not an Indian citizen. This also takes away the risk of 18% GST.