A Family Office Can be Set Up in Singapore to Manage Intergenerational Wealth

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Many families from all over the world who have amassed an ultra-high-net-worth (UHNW) are setting up family offices in Singapore to manage their wealth. If this is handled properly, it can be an invaluable resource.

This must be done very carefully as there are numerous factors that need to be understood and considered, so that your family office proves to be rewarding.

 

Why Set Up a Family Office?

In simple terms, a family office is set up to manage multigenerational wealth.

It is a business entity that is legally set up to manage the money and investments of an extremely wealthy family or perhaps a small number of families. These families are referred to as UHNW families. To fall into this category these individuals or households typically have liquid assets valued in the realm of at least US$30 million.

Considered to be an overall solution, this entity is dedicated to managing the wealth and investments held by UHNW individuals and intergenerational families. A properly run family office can assist these families in attaining sustainable, long-term asset and inheritance protection by managing a full range of financial functions from setting budgets to estate planning and if needed, asset protection while travelling. 

“Family” in this case, primarily refers to individuals who have descended from one ancestor. In addition to biological and adopted children, family members would include spouses, former spouses, and stepchildren.

 

Types of Family Offices

The most common types of family offices, are as follows:

1. Single-Family Office (SFO); and
2. Multi-Family Office (MFO).

An SFO is set up for the purposes of managing the wealth of or on behalf of a single family, and this family owns and controls this family office in its entirety. 

SFOs in Singapore are exempt from having certain licenses be registered with the Monetary Authority of Singapore (MAS), like Licensed Fund Management Companies and Registered Fund Management Companies are required to do.

On the other hand, an MFO is considered to be more like an outside financial services provider. They act more like a typical private wealth management company that grows their business by managing the wealth of a large number of clients.

An MFO is created by combining families that do not have to be related. They come together in one of the following ways:

1. The expansion of an already existing SFO by the addition of other families;
2. A subsidiary MFO is started by a bank or another financial institution; or
3. A new MFO is set up by a group of professional investment and tax experts.

MFOs are required to have LFMC and RFMC fund licences, unlike SFOs.

 

What Purpose Does a Family Office Serve?

Family offices are customised to manage the financial interests of an ultra-wealthy family or small group of families. It serves not only to protect existing assets and investments, but to also expand the family’s financial interests. The primary benefit of setting up a family office is to receive assistance in achieving your financial goals.

Rather than having your family members handle their assets on their own, your family’s combined wealth would be managed by a professional team of financial experts hired by your family office. This doesn’t mean that the assets would be combined, but that the family office would act to coordinate everything, so that everyone’s assets are preserved and hopefully grown. This will allow your family to benefit from shared services, which also saves costs.

By having specialists in charge with expertise in financial planning, taxes, and legal compliance, you can be sure that their entire focus will be on safely managing all of your assets.

 

Why Would a Family Office be Better Than Other Types of Wealth Management Entities?

Wealthy families are looking for ways to be more directly involved in managing their assets, and family offices provide a secure way for families to be involved.

For example, by setting up a family office, members can participate in the decision-making process themselves. Family members commonly work with the investment team in expanding their wealth. They also acquire the experience needed to handle their finances more wisely.

Traditionally, UHNW families often used Special Purpose Vehicles (SPVs) or holding companies to manage their assets because these are so easy to set up.

But, as the amount of wealth increases, these structures are likely to become too time-consuming, complex, and difficult to manage. This is obvious when additional SPVs have to be created to accommodate various jurisdictions when trying to ring-fence assets. 

Fundamentally, when you compare a family office to other wealth management structures, it acts more like a fund manager in that it provides a broader range of financial services while operating within a much simpler structure. This simplicity also makes tasks like tax preparation and reporting much easier.

Another consideration would be the tax exemptions that family offices can benefit from compared to other wealth management service providers.

Both family offices and SPVs in Singapore are subject to a corporate tax of 17%. But SPVs only qualify for a single tax exemption scheme and only if the company is a new start-up. However, family offices may qualify for an additional number of tax exemption schemes.

 

Why is Singapore the Best Place to Set Up My Family Office?

Singapore has robust regulatory frameworks along with economic and political stability, which makes it a very favourable place for UHNW families.

 

Robust Business Environment

The World Bank in its annual ranking has consistently ranked Singapore as among the top two countries to conduct business in. This is after considering issues like the abundance of tax exemption schemes that the country has set in place.

Singapore also has local and international banks, and a broadly skilled talent pool to choose from in staffing your family office. Singapore offers a wide range of resources that you can benefit from.

 

Financially Advantageous Tax System

One of the factors that makes Singapore highly advantageous as compared to other countries, is the number of tax exemptions it offers.

In order to encourage an increase in the number of family offices in Singapore, the government offers an array of license exemptions as well as tax advantages, like no capital gains tax. 

However, when you use a discretionary fund manager, the income you earn through this fund manager will be taxable.

In addition to all the tax incentives available from the government’s Income Tax Act, your family office can also apply for another tax incentive from the Financial Sector Incentive – Fund Management Scheme (FSI-FM). This scheme allows income from fees derived by managing a qualified fund to be subject to a 10% tax rate rather than the standard 17% corporate tax rate.

Moreover, while a company continues to be controlled and managed in Singapore, it is regarded as a Singapore tax resident entity, which allows it to claim benefits under the over 90 tax treaties Singapore has with other jurisdictions.

 

Licencing Exemptions

A family office in Singapore may apply for certain licensing exemptions, like being exempt from the requirement to hold a financial adviser’s license, and an exemption from being required to hold a Capital Market Services (CMS) license for managing securities.

Also, because there are many ways of structuring SFOs that do not fall within the range of current class licensing exemptions, licensing exemptions can be granted on a case-by-case basis by the Monetary Authority of Singapore (MAS).

For example, when no common holding company exists, but the investments and assets that the SFO is managing are directly held by natural members of a single family.

 

How Should My Family Office be Set Up in Singapore?

Because SFOs are commonly used as a vehicle for setting up an MFO, this part of the article will delve more deeply into how to set up an SFO.

There is no one way to structure an SFO, which means that you can customise it to meet your family’s specific needs.

In starting to plan your family office, you should ask yourself the following questions:

• What goals am I trying to reach by establishing a family office?
• Which assets will I have the family office manage?
• Which regulatory requirements and/or tax incentives would be available?

 

What might the structure of the family office look like?

While there is no set structure for all family offices, there are a number of common structures for SFOs that qualify for the previously discussed license and regulatory exemptions from the Monetary Authority of Singapore (MAS).

One of these SFOs is structured like this:

Under the structure above, the holding company itself owns the SFO and the assets in the investment fund entity. These can both be Singapore companies, but that’s not a requirement.

The SFO in this structure provides financial management services for the assets in the investment fund entity without needing to hold a license as a financial adviser, as previously discussed.

 

What procedures need to be followed to set up a Singapore family office?

Upon deciding how you want your family office structured the first step would be to register it with Singapore’s Accounting & Corporate Regulatory Authority (ACRA).

Next, if you plan on applying to MAS for licensing exemptions, keep in mind that this could take them anywhere from two to four months just to evaluate your application.

 

Are There Any Formal Rules and Regulations That a Singapore Family Office Must Comply With?

Even though Singapore is the perfect place to set up an SFO due to its laws and tax exemptions, there are a number of regulations that you need to be aware of, which are as follows:

1. Compliance Obligations for Taxes: All relevant tax returns must be submitted annually to the Inland Revenue Authority of Singapore (IRAS) by you as well as your family office.
2. There are reporting requirements that must be followed as per the Common Reporting Standard (CRS). The CRS is an internationally agreed upon method for exchanging financial information regarding tax matters. The purpose of this agreement is to identify tax residents belonging to other jurisdictional participants in order to make sure tax laws are being complied with in an attempt to reduce tax evasion. You will need to comply with the requirement to report your financial information to IRAS every year. This is so that all account holders can have their accounts verified in an attempt to discover tax evasion by means of offshore accounts.
3. Evidence of your family office’s tax residency must be submitted to IRAS.

Singapore is party to more than 90 tax treaties with other countries at this point in time, which are known as Double Tax Agreements (DTAs). These prevent people and entities from being double taxed on cross-border financial activities like trades and/or investments.

As discussed previously, if you have a family office being managed in Singapore, the entity is a Singapore tax resident and thus would qualify for this tax exemption.

But in order to claim this tax exemption, your family office is required to submit to the IRAS a Certificate of Residence (COR) to prove its tax residency. However, before IRAS would grant this tax exemption other conditions must also be met.

For example, the IRAS has a “foreign headline tax rate of at least 15%” which means that companies must be incorporated in a jurisdiction with a minimum corporate tax rate of 15% (headline tax).

 

Is a Corporate Services Firm Capable of Assisting with Compliance Requirements?

Corporate services firms are in the business of providing many types of support and solutions to businesses. There are too many to name, but they include incorporation, tax preparation, and accounting.

Therefore, a corporate services firm would certainly be capable of helping you set up and run your family office. Their duties would include assisting with complicated and detailed procedures like regular bookkeeping, annual audits, and yearly reporting.

Corporate services providers are also involved in calculating net asset values to evaluate and track the performance of your investment portfolio. Other types of services that your SFO would probably need would be help opening bank accounts, and the selection of a company secretary to ensure that corporate governance guidelines are routinely maintained and complied with.

Wealthy families in Singapore often set up a family office to manage and grow their assets and investments. However, creating one should be done very carefully in order to achieve full benefit. 

Forming a family office involves a myriad of factors, which is why it would be wise to engage a reputable family office lawyer who could guide you through the process and explain all the regulations that must be complied with. 

 

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