Setting up a Family Office in Singapore
Singapore is considered to be one of the more prominent financial centre in South-East Asia due to its proximity to local and global private banks, investment banks and other financial service provider. It is also renowned for its stable governance and pro-business environment, as such, it has gained in popularity as a base for many high-net worth families to manage their assets and investments globally.
The Singapore Government have put in place tax incentives schemes for funds managed by family offices for both offshore and onshore vehicles to bolster Singapore’s appeal as a leading wealth management hub. These schemes are introduced under sections 13R and 13X of the Income Tax Act (“ITA”).
What is a family office?
Typically, a single-family office conducts various activities to facilitate the day-to-day management of a family’s assets. The activities involved are diverse and would include tax filing, the management of the family’s investments and consolidation of the family’s accounts. A simplified depiction of a typical ownership structure of a family office may be seen in the diagram below:
What are the important considerations in setting up a family office?
The objectives for establishing a family office will shape various rudimentary decisions that has to be made for the establishment of the family office vehicle, which includes:
- the structure of the family office vehicle;
- the types of assets which are intended to be injected into the family office;
- the utilisation of tax incentives for certain investments; and
- if relocation to Singapore of certain family members is considered, the appointment of these family members as members of the Family Office Investment Committee for the purposes of applying for the Singapore Employment Passes.
In order to encourage the establishment of family offices in Singapore, the Government has introduced tax incentive schemes. These schemes allows funds managed by family offices to be exempted from Singapore income tax on almost all investment gains.
The exemption schemes are as follows:
- Onshore Fund Tax Incentive Scheme (section 13R of ITA);
- Enhanced-Tier Fund Tax Incentive Scheme (section 13X of ITA); and
- Global Investor Program Family Office Option (GIP – FO Principals profile).
|Onshore Fund Tax Incentive Scheme (section 13R)||Enhanced-Tier Fund Tax Incentive Scheme (section 13X)|
|Assets under management (AUM)||No restrictions||Minimum of SGD50 million at the point of application|
|Fund administrator||Singapore-based and holding a capital market services (“CMS”) licence or expressly exempted from holding a CMS licence|
|Fund’s residence||Must be a tax resident of Singapore||No restrictions|
|Shareholding/investors||Must not be 100% owned by Singapore investors|
Non-qualifying investors (i.e. Singapore non-individuals investing above a certain percentage in the fund) would have to pay a financial penalty to Inland Revenue Authority of Singapore (“IRAS”)
|No restrictions on Singapore investors|
|Fund expenditure||At least SGD200,000 business spending in a year||At least SGD200,000 local business spending in a year|
|Reporting requirement||Annual Statements to investors|
Tax filing to IRAS for non-qualifying investors
|Income tax filing||Annual tax returns to IRAS||Annual tax returns to IRAS|
|Approving Authority||Requires Monetary Authority of Singapore (“MAS”) approval for tax exemption scheme to apply|
|Number of employment passes||One||Three|
The eligibility of the funds under sections 13R and 13X tax incentive schemes are on a case-by-case basis. In assessing the eligibility of the funds, MAS will likely require information on the family office which includes:
- the shareholding structure of the family office group;
- information on how the family office is related to the investment fund vehicle and the beneficiaries;
- names of the shareholders and directors of the family office;
- information on the activities that will be carried out by the family office; and
- information on the family whose assets will be managed by the family office.
13R and 13X funds which are approved for the tax incentive scheme before 31 December 2024 can enjoy the benefits of the scheme for the life of the fund, provided that the on-going operational conditions for the entities are met.
Ongoing operational requirements for family offices
Various administrative requirements may arise before and throughout the course of the family office’s operation. These may include the opening of bank accounts for the family office, preparations for annual tax reporting, and to fulfil other regulatory reporting obligations, such as the Common Reporting Standards (CRS) and the Foreign Account Tax Compliance Act (FATCA).
Potential avenue for migration to Singapore
The 13R and 13X schemes allows access to Singapore employment passes (one per 13R entity and three per 13X entity). This provides a platform for investors to file for their permanent residency applications down the road.
The GIP Family Office Principals option offers a much shorter path to permanent residency, though the qualifying requirements and demands are set at a higher bar.
For more information regarding the GIP Family Office Principals option, its benefits and requirements, please refer to this article on the GIP Scheme here.
Variable Capital Company Structure
Family offices set up under the 13R and 13X scheme can also utilise the recently introduced Variable Capital Company (“VCC”) structure. The VCC Structure, which came into operation on 14 January 2020, is a highly flexible corporate vehicle for collective investment schemes (CIS). It offers numerous corporate and regulatory advantages over other forms of corporate vehicles, and the most significant of which are listed below:
- A VCC can be set up as a standalone fund, or as an umbrella fund with two or more-sub-funds. This allows for cost efficiencies as fund managers are able to incorporate multiple sub-funds into a single VCC entity under the scheme.
- Shares of a VCC are redeemable at the fund’s net asset value (NAV), and VCCs can pay dividends from the capital, which is not typically permissible in other forms of corporate vehicles. This allows a VCC to be flexible with in its distributions and return of capital.
- A VCC structure is regarded as a single company, with a single identity for taxation purposes by the IRAS, which takes away the need to file multiple tax returns for individual sub-funds.
To read more about the VCC corporate vehicle, please refer to this article here.
ZICO Insights law can provide services to advise and assist you through the process of setting up a family office in Singapore and assess the availability of tax incentives that may be available for your unique circumstances under the ITA.
If you have any questions or require any additional information, please contact Ryan Lin or any partner of ZICO Insights Law LLC.
This alert is for general information only and is not a substitute for legal advice.