Global family office trends: Spotlight on Singapore

Singapore is increasingly synonymous with family offices. Just consider the high-profile businesspeople who have established family offices in the Southeast Asian country since July 2019: Sergey Brin, cofounder of Google; Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds; Sir James Dyson, founder of Dyson Limited, a British technology company perhaps known best for its vacuum cleaners; and Zhang Yong and Shu Ping, the couple behind Haidilao International Holding Limited, the world largest chain of Chinese hotpot restaurants. Their family offices are among approximately 200 established in Singapore as of October 2020, collectively managing about $20 billion of assets. And those numbers are set to increase.

So, why Singapore, exactly?

In addition to tax incentives, interest is being fueled by the potential growth in Asia, where many see the island nation as a gateway to the region. Also, many families have been impressed by how Singapore’s government has handled the pandemic and consider it a safe haven of sorts.

Family offices are essentially corporate vehicles established to manage and structure investments with a view of preserving the wealth of a family. In Singapore, family offices have two forms—a single-family office and a multifamily office. A single-family office, which serves one affluent family only, is typically set up by a family and staffed with its own team of professionals to handle the affairs of that particular family. A multifamily office allows the pooling of resources to handle the affairs of two or more families.

To entice more families to set up family offices in Singapore, the government introduced tax incentives allowing family investment vehicles to enjoy tax exemption on specific types of income from designated investments. Specifically, three main tax exemption schemes are the Offshore Fund Tax Exemption Scheme, Onshore Fund Tax Exemption Scheme and Enhanced Tier Fund Tax Exemption Scheme. The salient requirements under these schemes, which are administered by the Monetary Authority of Singapore (MAS), are summarized below:

Broadly speaking, the tax exemption is the same under all three schemes. It covers all types of income and gains from designated investments, and the list of designated investments includes most investment types (e.g., stocks, shares, securities, derivatives, bonds, treasury bills, etc.). Notably, the designated investments list excludes Singapore real estate and shares of private companies that hold Singapore real estate as investments. In addition, Singapore abolished estate duties (i.e., inheritance tax) on Feb. 15, 2008. This is particularly important to Asian families that expect founding patriarchs and matriarchs to pass on wealth to the next generation in the coming decade.

A family office administered in Singapore is generally subject to income tax at the rate of 17% of its net profits (unless it qualifies for special tax incentives). The effective tax rate, however, may be lower due to an applicable partial tax exemption and/or tax rebate. Further, these family offices can take advantage of Singapore’s extensive network of comprehensive double tax treaties and agreements.

Apart from tax, Singapore has also created a separate track under the Singapore Global Investor Program for family offices. Under the track, family office principals can apply for Singapore permanent residency status to reside and work in Singapore, provided that they are able to meet the requisite conditions, which include having investable assets (excluding real estate) of at least SG$200 million ($148.8 million) and at least five years of an entrepreneurial or business track record.

For families looking to relocate their existing single-family offices or family investment vehicles to Singapore, there is an inward re-domiciliation regime. Under the regime, foreign corporate entities may transfer their registration to Singapore (i.e., the entity becomes a Singapore company) without affecting their obligations, liabilities, properties or rights. For transfer of registration, the entity would need meet the size criteria as well as solvency criteria.

To further enhance Singapore’s offerings, the MAS is looking to allow single-family offices to manage variable capital companies (VCCs). At present, VCCs must be managed by permissible fund managers, such as a firm with a capital market services license for fund management, an exempt financial institution or a registered fund management company. MAS generally exempts single-family offices from obtaining any fund management licensing, as single-family offices usually do not offer investment or portfolio management services for third-party monies. If allowed by the MAS, families could structure their family investment vehicles as VCCs.

Like umbrella funds, the VCCs allow for legal segregation of assets and liabilities for each sub-fund. At the same time, the VCCs provide safeguards against comingled risks while enabling various family branches to co-invest. The VCCs also offer cost efficiencies by using a single board of directors and shared service providers across the sub-funds. Coupled with the single-family office established in Singapore, the VCCs would be able to demonstrate increased substance in Singapore, thereby allowing them to take advantage of Singapore’s extensive network of comprehensive double tax treaties and agreements. This enhancement—if approved—may attract even more families to establish single-family offices in Singapore.