Plan Intergenerational Wealth With a Singapore Family Office
As more ultra-high-net-worth (UHNW) families turn to family offices, family offices have established themselves as a popular vehicle for wealth management and can prove to be your greatest resource.
However, there are many factors you need to consider and understand to set up a family office that will be the most rewarding for you. This article will explain:
What is a Family Office?
In short, a family office is a multigenerational means of fund management.
It is a legal business entity that serves one or a small number of extremely wealthy families. These families are otherwise known as UHNW families and are generally defined as people or households that own at least US$30 million of liquid assets.
Regarded as an all-encompassing solution, a family office is a platform dedicated to overseeing the wealth and investments of UHNW individuals and families. A family office can help such families achieve sustainable, long-term inheritance and asset protection by covering a full range of functions from budgeting to estate planning, and even asset protection services when travelling.
In this case, “family” often refers to individuals who are descendants of a single ancestor, and includes spouses, ex-spouses, adopted children and stepchildren of the individual.
What are the Types of Family Offices?
There are two main types of family offices:
- Single-Family Offices (SFO); and
- Multi-Family Offices (MFO).
An SFO is defined as an entity that manages the wealth for or on behalf of solely one family, and is owned and controlled entirely by that family.
In Singapore, SFOs are exempted from the registration of certain licences with the Monetary Authority of Singapore (MAS), like those of a Registered Fund Management Company (RFMC) or Licensed Fund Management Company.
On the other hand, if an SFO is a proprietary office that serves the interests of just one family, then an MFO is more akin to an external service provider.
MFOs are more closely related to traditional private wealth management institutions that seek to build their business by serving a wide pool of clients.
MFOs are created by a mix of families that are not necessarily related to each other, and can come about in one of three ways:
- Expansion from an SFO as other families join the existing family office;
- An MFO subsidiary created by existing financial institutions like a bank; or
- A start-up created by professionals, e.g. specialists in investment and tax.
Unlike an SFO, MFOs require RFMC and LFMC fund licences.
What is the Purpose of Setting Up a Family Office?
Family offices are custom-tailored and accommodate the wealth management needs of a family. From protecting your wealth to expanding your financial interests, a family office can be set up to accomplish your every financial goal.
Instead of leaving your family members to deal with their assets individually, your combined wealth will be managed by a dedicated team of professionals employed by the family office. This is not to say that your assets will be merged, but rather that the family office acts as a central point to help coordinate and preserve everyone’s wealth. In turn, your family will share the best services and save costs.
With professionals in charge of specialised areas such as legal compliance or financial planning, you can be assured that there will be complete focus on the safe management of your resources.
Why should I set up a family office over other wealth management methods?
As more families look to be more involved in the management of their wealth, family offices can serve as a secure platform to fulfil that.
For instance, a family office allows members of a family to participate in wealth management matters themselves. It is common for family members to join the investment team to not only build their wealth, but also gain experience in the handling of financial matters.
Traditionally, families often managed their wealth through holding companies or Special Purpose Vehicles (SPVs) as these are relatively simple to set up.
However, as your wealth grows, these corporate holding structures may become more complex and time-consuming to manage. This is especially evident when more SPVs are created for different jurisdictions just to achieve ring-fencing of assets.
Simply put, compared to other wealth management methods, a family office is like a fund manager, offering a wider range of services and operating with a far simpler structure. This simple structure also makes issues like tax reporting easier to handle.
Another consideration would be the available tax exemptions for a family office and other wealth management entities.
Both SPVs and family offices in Singapore are subject to a flat 17% corporate tax rate. Yet, SPVs are eligible for only one tax exemption scheme and on the condition that they are a new start-up company. On the other hand, family offices may be eligible for several more tax exemption schemes.
Why Should I Choose Singapore as the Base For My Family Office?
With strong regulatory frameworks and both political and economic stability, Singapore is a highly favoured destination for UHNW families.
Established and well-developed business environment
Singapore has consistently been ranked as one of the top 2 countries to do business in by the World Bank’s annual ranking, which considers aspects like the many tax exemptions schemes that have been set in place.
With both local and global banks present on the scene in Singapore, and a vastly skilled workforce and talent pool available to help build up your family office, you have an abundance of resources at your disposal.
Highly competitive tax system
One of the most advantageous factors that sets Singapore apart from other countries would be the tax exemptions offered.
In its efforts to facilitate the growth of family offices, the Singapore government grants attractive licence exemptions and tax incentives, such as by not taxing capital gains.
On the other hand, discretionary fund managers will create a taxable presence, which makes any income gained through a fund manager taxable.
Aside from the many tax incentives under the Income Tax Act, a family office may also apply for a tax incentive under the Financial Sector Incentive – Fund Management Scheme (FSI-FM). Under this scheme, fee income derived by a fund manager from managing a qualifying fund will be subject to a tax rate of 10% instead of the usual corporate tax rate of 17%.
Furthermore, as long as a company is managed and controlled in Singapore, it will be considered a Singapore tax resident entity. This enables benefits to be claimed under Singapore’s large network of more than 90 tax treaties with other jurisdictions.
A family office may look to apply for licensing exemptions such as an exemption from holding a financial adviser’s licence, and the exemption from the need to hold a Capital Market Services (CMS) licence when handling securities.
In addition, recognising that there are vast possibilities of SFO structures that do not fall within the scope of existing class licensing exemptions, the Monetary Authority of Singapore (MAS) also grants licensing exemptions on a case-by-case basis.
Such instances include when there is no common holding company, but the assets managed by the SFO are held directly by natural persons of a single family.
How Should I Set Up My Family Office in Singapore?
Seeing as SFOs are a more common route to an MFO, this section will delve deeper into the setting up of an SFO.
There is no one-size-fits-all solution when deciding on the structure of your SFO.
An SFO is highly customisable, and its structure will heavily depend on your family’s needs. To kickstart your family office planning, here are some questions that you should ask yourself:
- What are my goals for setting up a family office?
- What assets will I inject into the family office?
- Are there any regulatory requirements and tax incentives available?
What can a family office structure look Like?
Though there is no fixed structure as to what a family office may look like, there are several common SFO structures that qualify for the aforementioned regulatory and license exemptions with the MAS.
One such SFO structure may look like this:
Under this structure, a holding company typically owns both the SFO and investment fund. The holding company and fund entity can be, although they need not be, Singapore companies.
The SFO provides financial advisory services to its related corporations (which, in the above illustration, is the investment fund entity) and can rely on the previously mentioned exemption from holding a financial adviser’s licence.
What are the general procedures for setting up a family office in Singapore?
Once you have decided on the structure of your family office, the first thing you should do is register it with the Accounting and Corporate Regulatory Authority (ACRA) of Singapore.
Following this, if you intend to apply for licensing exemptions with the MAS, do note that it usually takes two to four months to review your application.
Are There Any Compliance Requirements That a Family Office in Singapore has to Abide By?
While Singapore’s legal and tax environment makes it an ideal place for setting up an SFO, there are several regulations that you should take note of. Here are some of them:
Tax compliance obligations
Both you and your family office will be required to submit any relevant tax returns to the Inland Revenue Authority of Singapore (IRAS) on an annual basis.
Reporting obligations under the Common Reporting Standard (CRS)
The CRS is an international agreement for the exchange of financial account information in tax matters to identify tax residents of other participating jurisdictions. It is meant to regulate tax compliance while reducing tax evasion.
You will be required to report your financial account information to IRAS on an annual basis to facilitate the verification of all account holders. This is to help detect tax evasion by other offshore accounts.
Tax residency of the fund company
Referred to as Double Tax Agreements (DTAs), Singapore has signed more than 90 tax treaties with other countries to date. DTAs prevent double taxation on cross-border activities and transactions like trades and investments.
As mentioned earlier, if your family office is managed in Singapore, then it will be considered a Singapore tax resident entity and be eligible for this tax exemption.
However, to claim this benefit, your family office must submit a Certificate of Residence (COR) to the IRAS as evidence of its tax residency. Grant of the tax exemption is still subject to other conditions.
For example, for foreign-sourced income, the IRAS lists a “foreign headline tax rate of at least 15%” condition, which requires companies to have been incorporated in a jurisdiction that has a minimum 15% corporate tax rate (headline tax).
How Can a Corporate Services Firm Help with Compliance Requirements?
As a firm that provides business support and solutions, a corporate services firm typically offers numerous services ranging from incorporation to accounting.
This means that such a firm would be well-equipped to aid you in your family office journey from start to end. This includes helping with tedious and complicated procedures like yearly audits and annual reporting and bookkeeping.
A corporate services firm may also help with the calculation of net asset values to assess and track your investment portfolio’s value and performance. Other services provided by a corporate services firm that your SFO would likely require include assistance with the opening of bank accounts, and the appointment of a company secretary to maintain and comply with corporate governance guidelines.
Setting up a family office in Singapore is an effective way of handling and growing family assets, but its formation should be subject to careful and precise deliberation.
The process of setting up a family office entails many factors. It is advisable that you seek out a family office lawyer who will be able to guide you and help you make an informed decision.
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