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MAS Tightens Tax Incentive Qualification Criteria of Singapore Family Offices

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MAS Establishes New Criteria for Singapore Family Offices

The Monetary Authority of Singapore (MAS) announced new stricter rules on 18th April 2022 for family offices that are benefiting from tax incentives in the country. The new rules have come into force from 18th April, Monday itself.

The revised rules apply to Section 13O and Section 13U of the Singapore Income Tax Act in terms of minimum assets under management (AUM), growth of AUM over a specified period, business spending, local investments and the number of the investment professionals hired by family offices.

A family office is a privately held wealth management advisory firm that manages the assets of ultra-high-net-worth families and handles financial investments, shares, properties and other assets including tax and legal affairs.

Revised S13O Scheme

Minimum AUM

While registering under the S13O scheme, Family offices based and incorporated in Singapore must have a minimum fund size of SGD 10 million (USD 7.3 million) at the time of application.

Growth of AUM

The fund must increase its AUM to SGD 20 million (USD14.6 million) within two years.

Hiring Investment Professionals

Singapore family offices under the S13O scheme must now have at least two investment professionals such as a portfolio manager, a trader, and a research analyst and if unable to do so at the time of application, are granted one year grace period to hire the second one.

Besides, the investment professional must have earnings exceeding SGD 3,500 (USD2,500) per month and have sufficient and satisfactory experience in this industry.

Earlier, under the S13O scheme, the fund only needed to be managed or advised by a fund management company (FMC) in Singapore. The FMC must be licensed under the Securities and Futures Act of Singapore.

Local Investment Requirements

The fund managed by the family office requires a local investment of a minimum of 10% of its AUM or SGD 10 million (USD 7.3 million) whichever is lower including qualifying debt securities; listed

equities on Singapore-licensed exchanges; funds distributed by Singapore registered fund managers and private equity investments into non-listed resident companies and startups.

If the fund managing assets of a  Singapore Single Family office, cannot make such an investment at the time of application, a one-year grace period is usually granted to comply with this requirement.

Business Spending

 A minimum business expenditure totaling SGD 200,000 (USD146,000) must now be incurred by Singapore family offices per year including tax advisory fees, management fees and remuneration etc.

A tiered framework (below SGD 50 million, SGD 50 million to below SGD 100 million, and SGD 100 million and above) based on the value of the AUM decides the minimum total annual business spending.

The total business spending should relate to the operating activities of the fund and excludes financing activities.

Revised S13U Scheme

Minimum AUM

The value of the minimum AUM remains at SGD 50 million (USD 36.6 million).

Hiring Investment Professionals

The management and advisory of the fund must be handled by at least three investment professionals and one of them must be a non-family member. In the event of non-compliance at the time of application, a one-year grace period to hire a non-family member IP will be granted.

Local Investment Requirements

As under the other scheme, the fund must invest at least 10% of its AUM or SGD 10 million (USD7.3 million) in local investments.

Business spending

Under the S13O scheme, family offices must incur a minimum local business spending of SGD 500,000 (USD 366,000).

Business Spending for Family Offices Under the S13U Scheme is also based upon a tired framework and pegged on the AUM.

As in the other scheme, the local business spending incurred should relate to the operating costs only without any financing activities.

The revised criteria will apply to an FMC that is exempted from the requirements to possess a capital market services (CMS) license and a family office wholly owned or controlled by members of the same families with direct lineal descendancy with the single ancestor. The spouses, ex-spouses, children, adopted and stepchildren are all considered to be members of a single-family.

Singapore is presently the most coveted country for ultra-riches and family offices, with their numbers more than tripled in the last couple of years. An Ultra-high-net-worth family genuinely interested in setting up Single Family Office in Singapore will not be discouraged by the new requirements. Many tax experts believe the new stricter rules will ultimately enhance the quality of Singapore family offices.

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