With Asia’s billionaire population increasing by 16.5 percent last year, the continent is now home to over a quarter of the world’s ultra-rich. If this trend continues, that number is projected to account for a third of the world’s billionaires by 2023. This explosive growth has spurred a wealth of investment opportunities for Asian families. In order to preserve their wealth, these families have created a bloom of Single-Family Offices in the region to manage their wealth.
This already large yet rapidly expanding industry has been a key focus for the Singapore Government over the last decade, rightly seeing it as a major business opportunity and doing whatever it can to attract the region’s wealthy to set up family offices here. To maintain its attractiveness, Singapore boasts some of the most tax-friendly incentives in the world.
Related Read: Why Singapore is chosen for Family Office setup? »
Fund Tax Incentives
To assist family offices in managing their wealth funds, the Singapore Government provides several tax incentives, which can exempt a broad range of investment gains. Unlike other jurisdictions, the Government also concessionary exempts single family offices from licensing requirements.
The combination of exemption from a Capital Markets Services License and tax incentive allows a Singapore-based family office to be tax efficient with minimal regulatory obligation.
Current vs. New Criteria
In order to ensure that the Family Offices started in Singapore are of the highest standards, the government maintains a comprehensive set of criteria to ensure that the above tax incentives are only granted to funds that demonstrate they are sound, credible, and robust.
Recently, Singapore’s Monetary Authority of Singapore (MAS) imposed new and stricter conditions for single family offices looking to tap on the 13O and 13U tax incentive schemes to refresh the criteria and address the current economic outlook. The new conditions are outlined in the following table:
| Current | New (w.e.f. 18 April 2022) | |||
| 13O (formerly known as 13R) | 13U (formerly known as 13X) | 13O (formerly known as 13R) | 13U (formerly known as 13X) | |
| Assets Under Management (AUM) | No Restrictions | Minimum of S$50 million (committed capital concession available for real estate, infrastructure, private equity funds, and debt or credit funds). |
|
No change |
| Fund Manager | Must be licenced by MAS or exempt as a fund manager | Must be licenced by MAS or exempt as a fund manager | No Change | No Change |
| Fund’s Residence | Must be a tax resident of Singapore – Singapore Company | No restrictions | No Change | No Change |
| 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 | No Change | No Change |
| Fund Expenditure | At least S$200,000 business spending in a year | At least S$200,000 local business spending in a year | At least S$200,000 in total business spending in each basis period relating to any year of assessment, subject to a new tiered business spending framework (see below). | At least S$500,000 in local business spending in each basis period relating to any year of assessment, subject to a new tiered business spending framework (see below). |
| Income Tax Filing | Annual tax returns to IRAS | Annual tax returns to IRAS | No Change | No Change |
| Number of Investment Professionals (IP) | Employs at least one IP | Employs at least three IPs | Employs at least two IPs (if the family office is unable to employ two IPs by the point of application, a one-year grace period is given to employ the second IP). | Employes at least three IPs, with at least one IP being a non-family member (if the family office is unable to employ one non-family member as an IP by the point of application, the fund would be given a one-year grace period to do so) |
| Local Investment | – | – | At least 10% of its AUM or $$10 million, whichever is lower, in local investments at any one point in time, or given a one-year grace period to achieve this. | |
| Tiered Business Spending Framework | ||
| Minimum Total Business Spending | Minimum Local Business Spending | |
| AUM Range | 13O | 13U |
| AUM < S$50 million | S$200,000 | S$500,000 |
| S$50 million ≤ AUM < S$100 million | S$500,000 | |
| AUM ≥ S$100 million | S$1 million | |
How Will This Impact Funds in Singapore
These new conditions are stricter compared to previous standards set for wealth managers and family fund offices. At a surface level, this may appear to go against Singapore’s long-standing business-friendly stature. Three key conditions stand out:
- At least two investment professionals for 13O and 3 professionals for 13U (one of which must be a non-family member), where previously only 1 for 13O and no non-family professionals were required for 13U
- A minimum AUM of SGD10m and subsequently SGD20M in 2 years for 13O, where no restrictions applied previously
- A new condition of 10% investment in local industries across both 13O and 13U.
While these conditions may appear harsher, this is far from the case. The Family Office industry has grown and expanded rapidly since 2019. Singapore has become the preferred base for high-net-worth individuals (HNWIs) to set up family offices. Singapore’s banking and finance sector has long been globally recognized as one of the best in the world, and measures must be taken to ensure that funds approved to operate in Singapore are of the highest standard, so that Singapore can continue to enjoy this well-deserved status.
Eric Chin, InCorp Global’s Chief Business Development officer, believes this is a masterstroke by the Singapore Government:
The higher barrier will ensure that only the serious HNW families consider this route to create long-term substance in the country, and not simply use this as an easy way to get tax-exempt income without ever creating real economic impact and substance.
Regardless of your views on these new regulations, they only serve to protect consumers by ensuring that the funds operating in Singapore are of the highest standard. If you would like to learn more about setting up a Single Family Office in Singapore, InCorp Global is always ready to support you. As a full-suite corporate business solutions provider, we have the expertise to support family offices and help HNWIs and their families to use Singapore as their base to manage their wealth. If you would like to learn more, please feel free to contact us.
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As a full-suite corporate business solutions provider, we have the expertise to support family offices and help HNWIs and their families to use Singapore as their base to manage their wealth.
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