It is no surprise that Singapore remains one of the best destinations in South-East Asia for those seeking business and investment opportunities. This is because the government of Singapore has, over the past decades, been proactive and intentional in incorporating solid and enticing corporate laws to build a better business environment.
Singapore’s accessibility to local and international private and investment banks makes it an ideal destination for some of the world’s High-Net-Worth Individuals (HNWIs). This is also the result of the enticing tax incentives the government of Singapore has made available for family offices in the country.
What is a Family Office?
In all honesty, there’s no single, universal definition of a family office. It’s much easier to understand the concept by its functionality. However, Investopedia broadly defines home offices as “private wealth management advisory firms that serve ultra-high-net-worth individuals (HNWI).”
In Singapore, there are two categories of family offices – Single Family Offices (SFOs) and Multi-Family Offices (MFO). In this article, we will be discussing only SFOs. The Monetary Authority of Singapore (MAS) and EDB are the bodies tasked with supervising and regulating the activities of these SFOs. There are about 200 SFOs in Singapore that help manage the assets for or on behalf of High-Net-Worth families. The members of the family themselves often manage these SFOs.
Functions of a Family Office
A Single Family Office’s functions include one or more of the following:
- Managing investments: portfolio investment management, private equity, real estate management, and other assets.
- Administrative services: account consolidation, asset custody and aggregation, concierge services, cash flow, expense and payroll management.
- Tax services: tax compliance, tax planning, and tax filing.
- Legal services: legal advisory and structuring, banking investments, M&A contracts, and trusts & fiduciary structures.
- Wealth transition & legacy planning: NextGen education and family governance/constitution planning.
- Philanthropy: grant-making, grant review, and project management.
Why Choose to Set Up Family Offices in Singapore?
The family office is a type of private equity fund dedicated to investing in, and managing, the investments of a limited number of individuals. It is unique because it allows its managers to focus on the long-term goals of a single family rather than trying to meet the short-term goals of all the other investors in other types of funds.
Family offices are generally based in countries with a stable economy and an established legal framework relating to investment management firms. This means that they can take advantage of low-cost structures and procedures, as well as reliable laws and regulations governing business practices.
Singapore is one of the best places to set up a family office. This is because it has a large number of wealthy families who are willing to invest their money in high-return financial products. The country also has world-class infrastructure and facilities that make it easy for expatriates to set up their own offices.
Setting up a family office in Singapore is a great way to leverage your wealth, take advantage of the country’s strong legal protection, and give yourself the best possible shot at achieving your financial goals.
It’s important to understand that Singapore has never been more prosperous. The population is growing at an astounding rate (the number of people living in Singapore is expected to double by 2025), and the economy is booming. This means that opportunities are plentiful for anyone who wants to start their own business and work hard to make it succeed.
Tax Incentives for Family Offices in Singapore
With an ever-proactive government, Singapore has set in place several tax incentive schemes to make the country a haven for HNWIs to set up a family office. These schemes would allow for almost all the investment profits from funds managed by a family office to be exempted from income tax.
Business owners know how appealing tax incentives can be, especially when involving large investment funds. These tax incentive schemes include:
- Enhanced-Tier Fund Tax Incentive Scheme (section 13U of ITA)
- Onshore Fund Tax Incentive Scheme (section 13O of ITA)
- Global Investor Program Family Office Option (GIP – FO Principals profile)
The Monetary Authority of Singapore governs and regulates the Enhanced-Tier Fund and Onshore Fund schemes. When the 13O scheme (formerly 13R) was set up, it was designed to attract foreign capital investors into Singapore. It would give tax exemption to companies incorporated and based in the country. Their income would have to come from investment funds managed by a fund manager resident in Singapore.
On the other hand, 13U (formerly 13X) offers tax exemption from income from funds managed by a fund manager in the country, irrespective of whether the company is incorporated in Singapore.
Let’s take a look at them, one after the other, for a better understanding of both schemes.
Features of the 13O scheme
To be eligible for this scheme, the fund operated by the family office should fulfil these requirements.
- The fund manager must have a CMS license and be based in Singapore.
- Must hire at least two investment professionals (IP), which should include research analysts, traders, and portfolio managers. Salary should also not be below $3,500 monthly.
- Must invest at least 10% of its assets under management (AUM) or $10 million locally.
- Must have MAS approval.
- The fund’s resident manager should be a Singapore Tax Resident.
- Must not be fully owned by a Singapore citizen or PR.
- Yearly spending must be a minimum of $200,000 for the AUM.
- Must file annual tax returns with the Inland Revenue Authority of Singapore (IRAS).
- Must provide annual financial reporting to investors.
- Minimum fund size of $10 million, with AUM increased to $20 million within two years.
- Allowance for a maximum of 1 Employment Pass (EP) application.
Features of the 13U scheme
Like the 13O, businesses and funds managed by the family office must meet these requirements under 13U:
- The fund manager must have a CMS license and be based in Singapore.
- Must be managed by at least three investment professionals (IPs), of which one must be a non-family member.
- Must invest at least 10% of its AUM or $10 million.
- Must have MAS approval.
- Not required to be a resident fund.
- Must have annual local business spending of at least $500,000.
- Business annual spending must be a minimum of $50 million for AUM.
- Business is not mandated to submit annual financial reporting.
- Allowance for up to 3 Employment Pass (EP) applications.
Features of Global Investor Program Family Office Option (GIP – FO Principals profile)
This family office option is for investors seeking Permanent Residency through the Global Investor Program (GIP). Under this scheme, the investor can qualify for tax incentives if these requirements are met:
- Make an investment with a minimum of $2.5 million in a Singapore-based family office having an AUM of at least $200 million.
- Individual or direct family net worth of a minimum of $400 million.
- Minimum of 5 years experience with a track record as an entrepreneur, manager, or investor.
Conclusion
Singapore remains a business destination for foreign investors because of its friendly economic environment. It provides tax incentives to High-Net-Worth Individuals (HNWIs) to incentivise them to have family offices in the country. These HNWIs can easily take advantage of any of the three tax incentive schemes that may suit the needs of their own investment funds.
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