What are the tax implications on mutual funds in Singapore?

When it comes to investing in mutual funds, there are a few things that you need to take into account – one of which is the tax implications. Depending on the type of fund and its structure, the taxes you may be liable for can vary.

What are mutual funds?

It’s a type of collective investment scheme which pools money from many investors and invests it in stocks, bonds or other securities. Mutual funds can be open-end or closed-end. Open-end funds issue new shares to the public as needed, while closed-end funds do not. The market sets the price of a closed-end fund’s shares and is often traded at a discount to the value of the underlying assets.

What are tax implications?

It depends on the type of fund and the investor’s tax status. For example, capital gains from mutual funds held for more than 12 months are taxed at a lower rate than other income, while dividends from some types of mutual funds are exempt from taxes.

With that in mind, let’s take a look at some of the different types of taxes that you may be subject to when investing in mutual funds in Singapore:

Capital gains tax

If you profit from the sale of your mutual fund units, you will be subject to capital gains tax. This tax is levied on the net gain you realize from the sale and is currently set at 20%.

However, it is essential to note that there is no capital gains tax payable if you hold the units for at least one year, and your total net gain does not exceed $10,000.

Income tax

If the mutual fund generates any income – such as from dividends or interest payments – you will be subject to income tax on this amount. The current income tax rate for individuals in Singapore is 20%.

Goods and services tax (GST)

If the mutual fund is structured as a business trust, it may be GST. GST is currently levied at 7% on the sale of units in a business trust and is payable by the trustee.

Withholding tax

Depending on the country that the mutual fund invests in, you may be subject to withholding tax on the dividends or interest payments that you receive. This tax is deducted at source by the fund manager and is typically between 10% to 30%.

Estate duty

If you pass away and leave your mutual fund units to your beneficiaries, they may be subject to estate duty. Currently, estate duty is only payable on estates valued at over $1 million.

Stamp duty

You will be subject to stamp duty when you purchase or sell mutual fund units. The amount of stamp duty payable depends on the value of the transaction and is currently 0.2% for purchases and 0.4% for sales.

Property tax

If the mutual fund invests in property, the fund manager may be liable for property tax. This tax is levied on the property’s value and is currently set at 4% to 16%.

Withholding tax on foreign income

If the mutual fund invests in foreign companies, you may be subject to withholding tax on the dividends or interest payments that you receive. It’s deducted at source by the fund manager and is typically between 10% to 30%.

How can I reduce my taxes?

There are a few ways to reduce your taxes on your investments in a mutual fund. One way is to invest in a tax-advantaged account such as an IRA or 401(k). Another way is to invest in a fund that focuses on investments that are taxed at lower rates, such as index funds or exchange-traded funds ( ETFs ). Finally, you can hold your investment in a mutual fund for a more extended period to take advantage of the lower long-term capital gains tax rates.

Bottom line

There are a variety of taxes that you need to take into account when investing in mutual funds in Singapore. By understanding the implications of each tax, you can make more informed decisions about which funds to invest in. 

You can visit https://www.home.saxo/en-sg/products/mutual-funds for more information on investing in mutual funds in Singapore.

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