Singapore’s origin as a financial hub can be traced back to the British colonial time and the sea city in recent years has attracted many tourists and wealthy individuals to its shore for anchoring their businesses and establishing their families. The country has demonstrated significant resilience in financial sectors amidst the covid 19 pandemics and performed better than many of its Asian peers by registering new company formation in Singapore.
Individual wealth and private capital have grown significantly over the past decade and Singapore has witnessed a surge in Single-Family Offices (SFOs) growing fivefold over the past couple of years. As confirmed by the Monetary Authority of Singapore (MAS) the SFOs are neither registered nor licensed entities and as of December 2020, there were some 400 SFOs in Singapore with an estimated asset of USD 20 billion.
SFOs are privately managed wealth management entities designed and developed to fulfill the needs of Ultra-High-Net-Worth-Individuals (UHNWIs) by providing unique solutions for wealth, finances and many other affairs of a UHNWI’s family.
Though managing investments and related finance and administration activities are the key functions, the SFOs may also involve other activities including management of accounts, tax filing and compliance, managing charities, family governance and lifestyle management, risk management and wealth and succession planning.
Generally, financial advisors, investment analysts, legal and tax professionals are employed by SFOs for wealth planning and operational matters.
A growing number of SFOs in Singapore can be attributed to the following factors
- Reduced risks of regulatory changes and business environment.
- Political stability.
- World Class infrastructure.
- Transparent Legal System.
- Presence of investment and international banks.
- Regulated financial market.
- High standard of living.
- Expertise in business services, banking and Fintech.
- A competitive corporate tax rate.
- Strategic location in the middle of Asia.
- Good Business connectivity.
- Availability of financially skilled manpower.
- No Bureaucracy.
- Availability of Tax Incentives.
There are a few activities SFOs excursively carry out in-house while others are fully or partially outsourced.
The tasks that usually come under the purview of the SFOs are
- Technologies usually outsourced except for the handling of social media.
- Bookkeeping, accounting, budgeting and cash flow planning are often outsourced to accounting services in Singapore .
- Tax and wealth planning, only regulatory compliance is done in-house while tax planning is outsourced.
- Operations except hiring and employment are usually managed by external services.
- Investments including planning, policymaking, asset allocation are done in-house.
- Legal services are outsourced.
- Family governance, education and succession planning are mostly outsourced.
- Charitable services are managed by external sources.
- Risk management about fraud and data theft, insurance, managed both in-house and by external agencies.
An SFO structure normally involves a holding company or a trust directly owning both the SFO and the fund entity as assets. Single-family offices are normally formed by wealthy families desirous to manage and control their finances, businesses and various aspects of their lives and each beneficiary is a connected person to the settlers of that trust or a charity.
The SFO structure aims for achieving dual purposes, firstly obtaining the licensing exemptions and then availing tax exemptions including tax incentives. However, being eligible for tax incentives under the Income Tax Act, a fund manager must have real operations in Singapore as per the Section 13X incentive. The law also stipulates that an SFO must engage a minimum of three investment professionals, each having five years of investment experience.
The register of shareholders of the holding company is centrally maintained and treated as a non-public register with effect from 2020 and the information on ultimate beneficial owners are never shared.
Likewise, the trust companies are needed to collect and maintain information about the ultimate beneficial owners of the trusts they administer, but there is no public register of trusts or their ultimate beneficial owners.
Several regulatory and administrative requirements are involved in establishing an SFO including the registration of the corporate structures, bank account opening, annual filing of tax returns and adhering to common reporting standards (CRS) and foreign account tax compliance act (FATCA).
By incorporating your Singapore Company on an SFO platform, you will enjoy several benefits including easy wealth transfer without probate, asset protection, asset allocation flexibility considering future succession planning, confidentiality, and ease of charities and donations.
Singapore Trust Companies Act (Cap. 336) applies to SFOs with the MAS as the regulatory authority. Wealthy families can either choose to outsource a licensed professional trustee or set up their own Private Trust Companies (PTC) requiring no licence. A licensed trust company however must be engaged in monitoring counter money laundering and terror financing activities.
Setting up an SFO in Singapore is mostly simple and straightforward however corporate service providers with adequate fund management and administration expertise often become the necessity for effective SFO operations who can help evaluate ongoing NAVs and performance about other asset classes, identify annual audit and exemption requirements, choose annual and semi-annual financial reporting, register with ACRA, engage a company secretary and appoint a nominee shareholder for signing company’s constitution.
The prevailing corporate tax rate is 17% in Singapore on income sourced and/or remitted in the country. There is no capital gains tax with many tax exemptions available. Singapore also entered the Double Tax Avoidance Agreement (DTAA) with many countries and offers tax exemption to resident corporate taxpayers on foreign dividends.
The legal and tax environment makes Singapore a preferred destination for establishing an SFO and the following points are considered from a taxation perspective
- Individual tax residency based on the number of days spent in Singapore.
- Compliance obligations.
- Reporting requirements under CRS.
- Transfer pricing.
- Immigration under Global Investor Program.
Both onshore and offshore family offices in Singapore benefits from tax incentives irrespective of resident and non-resident status and include:
- Singapore Resident Fund Scheme as per Section 13R of the Income Tax Act allows tax exemption on income generated from investments in funds managed by Singapore family offices if a minimum of 200,000 SGD per annum is spent as global business expenses.
- Enhanced-Tier Fund Tax Exemption Scheme for funds with minimum SGD 50 million investment following Section 13X of the Income Tax Act and subject to the engagement of a minimum of three investment professionals and SGD 200,000 business expenses annually in Singapore.Applicants eligible under the 13R and 13X schemes are also granted employment pass in Singapore offering solutions to an employer. Life long benefits are granted to the 13R and 13X funds receive a tax incentive scheme approval before 31 December 2024.Variable Capital Company (VCC) structure can be a lucrative option for SFOs under 13R and 13X schemes as an umbrella investment will not require multiple tax returns and VCC shareholders registers not publicly available offer privacy to investors.
- Global Investor Programme (GIP) is a permanent residence scheme providing Singapore Permanent Resident (PR) status to eligible global investors with at least SGD 2.5 million in a new or existing Singapore-based SFO and AUM of more than SGD 200 million and lock in for a minimum of five years. Once a PR status is granted, SFOs can arrange to bring wives and children of the family on dependent pass in Singapore.
Besides the tax exemption schemes, Singapore SFOs are allowed to apply for a tax incentive under the Financial Sector Incentive – Fund Management Scheme (FSI-FM) that grants a lower flat tax rate of 10% on fees earned by providing advisory services. A Capital Markets Services (CMS) licence is needed by the fund manager unless otherwise approved by MAS and the SFO must employ at least three experienced investment professionals with monthly SGD 3,500 payment as well as an AUM of SGD 250 million minimum.
Depending on goals and objectives, there can be many investment planning that an SFO can be resorted to. However, no change in investment is possible once approval from MAS is received under 13X and 13R.
The SFOs normally don’t focus on equity investment of other companies shares and normally make their major investments in
- Buying residential properties.
- Buying shares of private equity firms.
- Real estate investment.
- Ownership and investment in fund structures.
The following are the three issues encountered by SFOs in Singapore
- Cross-border tax issues at the individual level due to the presence of a family in several tax jurisdictions due to its global presence.
- Inefficient tax structure due to inappropriate business form.
- Lack of a formalised governance structure due to the absence of proper policies and procedures.
High-net-worth families have currently embraced Singapore for setting up SFOs though traditionally they have been popular and well-established in North America and Europe.
The high growth trajectory of SFOs in Asia is comparatively recent and projects the unprecedented economic upliftment of this continent. Wealth accumulation has become faster by businesses in Asia than in any other part of the world and also driving new SFOs being formed in Singapore.
The need for proper succession planning has never been so important before the tremendous rise in family wealth and can only be successfully addressed by outsourcing professional service providers.