What’s in this article
Singapore Family Offices, popular among ultra-high net worth individuals (HNWIs), benefit from the city’s status as a global financial hub with a business-friendly environment. Be it the high living standards, international connectivity and the pool of talent, Singapore has much to offer. There is little surprise to know that assets under management (AUM) by Singapore-based managers grew in tandem with global trends, rising over 15 per cent in 2019 to reach S$4 trillion.
What are Family Offices?
A family office is a private wealth management advisory firm for one or a small number of HNWI.
Family offices generally provide the full spectrum of financial services such as financial planning and investment management. Aside from these services, family offices offer a variety of other services as well, from wealth transfer planning to private schooling and travel arrangements.
Given that the services provided are flexible, one can find easily find a clientele to serve. For example, some families may require a dedicated team of financial specialists for high-calibre advice, while others may need a family office to organise their lifestyle needs.
Differences Between Single Family Offices (SFO) and Multi-Family Offices (MFO)
What’s the difference between a SFO and MFO? The difference lies in the number of clients served. An SFO only serves a HNWI or affluent family, while MFO take on multiple clients—similar to traditional wealth management shops. In setting up a family office, deciding whether to opt for an SFO or MFO depends on your objective.
An SFO is often limited to just one ultra-affluent family, and while high paying, does not enable much in the way of expansion. On the other hand, a family office structured as an MFO allows you to build the business by taking on more clients, with the added bonus of economies of scale (cost sharing among the families).
Benefits of Setting Up a Singapore Family Office
According to Channel News Asia, Singapore currently has about 700 family offices, up from 400 in end-2020 and up sevenfold from 2017.
This comes about as more affluent families are setting up offices in Singapore to manage their wealth. In particular, demand from Asia is soaring as private wealth in the region accelerates faster than anywhere else in the world; India tops the list for the fastest rate of growth of millionaires.
Opting for a family office to manage your assets provides a secure method for handling your wealth to benefit your family now and for future generations. Additionally, some countries provide tax incentives that can significantly boost the cost-effectiveness of using a family office to save on taxes.
So why Singapore?
Family offices located in Singapore can also benefit from Singapore’s wide network of 25 free trade agreements and more than 80 Double Taxation Agreements (DTAs), lowering withholding taxes from overseas investments, for example.
Asia Pacific is a growing target: 54% of global family offices plan to boost their allocations there in the next five years. Being situated at the heart of Asia provides unparalleled connectivity to capture this growth.
How to Set-Up Family Office in Singapore?
With the influx of international demand for family offices, how do you leverage this business opportunity? In order to set up a family office, these are the conditions required:
| Minimum AUM | Minimum Staffing | Business Spending |
|---|---|---|
| S$10 million at the point of application; must increase to S$20 million within 2 years | At least 2 investment professionals (‘IPs’). There would be a 1-year grace period to do so. | For AUM
|
The Monetary Authority of Singapore (MAS) exempts Single Family Offices (SFOs) from registration or licensing because they don’t manage funds for others. In contrast, Multi-Family Offices (MFOs) must obtain a license or register with the MAS.
Tax Benefits for Singapore Family Offices
Singapore is a preferred destination for establishing family offices due to its attractive taxation schemes. There are three main tax exemption schemes designed to encourage family offices in Singapore, each with its own eligibility criteria and benefits.
| 13CA (Offshore Fund Scheme) | 13R (Resident Fund Scheme) | 13X (Enhanced Fund Scheme) | |
|---|---|---|---|
| Basis | Section 13CA of the Income Tax Act (ITA). | Article 13R of ITA. | Article 13X of ITA. |
| Eligibility | Available to residents outside Singapore with a fund structure of a company, trust company, or individual. | Available to entities tax-resident in Singapore with a fund structure of a domestic company. | No restrictions on the place of residence or fund structure. |
| Tax Exemption | Provides exemption for specified income generated from designated investments. | Provides exemption for specified income generated from designated investments. | Provides exemption for specified income generated from designated investments. |
| Income Tax Return | Not required. | Required. | Required. |
| VCC | Not applicable. | Applicable. | Applicable. |
| Considerations | This scheme is ideal for families residing outside Singapore. However, it comes with certain restrictions, including limitations on the fund’s structure and the inability to utilise Variable Capital Companies (VCC). | A minimum annual expenditure of S$200,000 is mandated.
While this scheme necessitates tax residence in Singapore, it offers more flexibility compared to 13CA.
|
A minimum annual expenditure of S$200,000 or more, and a minimum fund size of S$50,000,000 at the time of application are required.
This scheme offers the highest level of flexibility as there are no residency requirements. However, it comes with specific hurdles, including substantial funding requirements. |
In summary, Singapore’s tax exemption schemes cater to a wide range of family office structures and residency situations. The 13CA scheme is suitable for families residing outside Singapore, while the 13R and 13X schemes offer flexibility but come with varying requirements and obligations.
Investment Approach
With the new mandate by the MAS, the family office must make local investments constituting at least 10% of the fund’s AUM or S$10 million at any point in time. A grace period of 1 year is given to reach this level. Local investments include:
Alternative to setting up a family office in Singapore
If family office is not for you, you can consider setting up a company in Singapore instead. Locals have an easy path, while foreigners face challenges when moving to Singapore.
You can read more about how to register a company here: https://www.paulhypepage.com/singapore-company-registration/
Residency for Foreigners
Besides the business opportunity, setting up a family office also affords another perk for foreigners. Under the Global Investors Programme, family office principals with at least 5 years of entrepreneurial, investment or management track record and net investible assets of at least S$200 million are eligible for permanent residency (PR).
Outsourcing to External Agencies
Companies typically rely on a mix of in-house staff and outsourced services. While they employ full-time staff and specialists for core functions, they can outsource certain tasks to third-party providers. Consider outsourcing bookkeeping and corporate secretarial roles to corporate service firms. This option is often recommended because it offers cost savings and access to greater expertise. Outsource to focus on core competencies and deliver bespoke services to optimise your spending and your time.
