A Comprehensive Guide on How to Set Up a Family Office in Singapore - Updated 2024
Singapore has had an influx of Single Family Offices, or SFOs, over the last few years, and the number keeps growing. But what exactly is the function of a family office? Why are they so important in Singapore? And how exactly do you set up a family office in Singapore?
We'll be answering those questions and more in this article.
What Exactly Is a Family Office?
According to the Monetary Authority of Singapore (MAS), a family office "refers to an organization that manages assets on behalf, or for, a family and is owned by members of that same family".
Family offices perform different tasks as part of the day-to-day administration of the assets they manage. Some of these tasks include tax planning, investment fund management and wealth planning. This is why some family offices in Singapore hire external service providers such as trust advisers, legal professionals (or attorneys), tax specialists, and investment specialists to help them with any of these tasks.
An SFO (single-family office) will also carry out other activities such as charity management, family relocation, wealth and succession planning, lifestyle management, and more.
What are the Roles of a Family Office?
A family office in Singapore typically has these roles:
Business management
Investment and financial
Secretarial and administrative
Business Management
It's not uncommon for a family office to hold shares in a subsidiary or other family businesses. When a family office has controlling shares of any of the mentioned firms, they take up the business manager role as they are responsible for making the key business decisions and appointing a board of directors.
Multiple businesses held by a singular family office is also a common occurrence in Singapore. As such, it's important for the family office to ensure that these firms are working at optimal capacity and that there are no conflicts of interest or competition between firms.
Investment and Financial
Family offices in Singapore also manage the family's finances, from taking care of the bills to paying the salary of their hired staff. Then you have the complicated tasks of wealth management and estate planning since family offices can hold shares and assets before they can be distributed to their beneficiaries.
To carry out these tasks, a family office might work with an investment team or external asset manager (EAM) to invest the liquid assets within the family office. The investment team is provided with instructions, often outlined in an investment management agreement (IMA) on carrying out these investments based on risks and returns specified by the family office.
On the other hand, a family office might hire an internal investment team to protect better their financial information and other processes instead of outsourcing it.
Secretarial and Administrative
A family office provides basic administrative needs that allow them to assist or manage a family's daily affairs. Such needs may include arranging school admissions for children, pursuing insurance protection, obtaining Permanent Residence, and so on.
Then you have other complex tasks, such as liaising with professional services on behalf of the family.
Why is Singapore a Great Location for Establishing a Family Office?
Singapore has had an impressive growth of wealthy families and individuals over the past decade. It's also worth mentioning that Asia has had the fastest-growing population of HNWIs or high net-worth individuals, so there's an obvious concentration of wealth in the continent.
In the The Wealth Report 2022, the number of ultra-high net worth individuals (at least a net worth of more than US$30 million) residing in Singapore increased in 2020, despite the Covid-19 pandemic. For that year, Singapore is ranked third in the fastest-growing population of HNWIs globally. For the previous year (2019), Singapore was ranked in 8th place.
These wealthy families and individuals are looking to grow, transfer, and preserve their health so that future generations might use it. As such, Singapore is known for being one of the top locations for wealth management, given its status as a leading financial centre in Asia. The country has regulations that benefit wealthy families and individuals, not to mention a very impressive tax regime. This is further augmented by the roster of professionals in the country's private banking, asset management, finance, and legal industry.
Geopolitics also play a key factor in why Singapore is heavily attracting HNWIs. The political tensions in Hong Kong have spilt over to other countries such as Indonesia and Malaysia. Singapore offered a level of economic and political stability that these aforementioned countries don't have, so high net worth families have considered the country to be a safe haven.
And with this growing number of wealthy individuals flocking to Singapore, the need for wealth management also increases.
What are the Incentives For Establishing Family Offices in Singapore?
One of the biggest incentives for establishing a family office in Singapore is the corporate tax rate. It's worth mentioning that Singapore has a competitive tax system, with a corporate tax rate of 17% for income sourced in the country or remitted to Singapore.
Singapore's double taxation treaties help you avoid taxation for certain types of gains and income at the source. Singapore doesn't tax capital gains either, which is one of the many tax exclusions that HNWIs might enjoy.
But the country plans to attract wealthy families and individuals through different tax incentive programmes. These programmes are also designed to encourage the formation of family offices in Singapore.
These programmes allow almost all investment profits to be exempted from Singapore income tax and are divided into three categories:
Enhanced-Tier Fund Tax Incentive Scheme (S13U, previously known as S13X)
Onshore Fund Tax Incentive Scheme (S13O, previously known as S13R)
Global Investor Program Family Office Option (GIP – FO Principals profile)
A new set of guidelines titled “S13O and S13U Application Process for Family Offices - Guidelines for Advisors” was issued on April 11 2022 by the Monetary Authorty of Singapore. The New Guidelines have updated the requirements, processes, and conditions for the mentioned tax incentive schemes.
But more importantly, The New Guidelines have laid out stringent criteria for family offices who want to avail of the tax incentive schemes under what was previously known as Section 13R and 13U schemes (now known was S13O and S13U, respectively).
Applicability of New Guidelines and Criteria
The New Guidelines will apply to funds that are managed directly or advised directly by a family office which:
Is an exempt fund management company which manages assets for, or on behalf of, the family or families, and;
Is wholly owned or controlled by members of the same family or families.
MAS has defined the term “family” as referring to individuals who’re lineal descendants from a single ancestor and will cover spouses, ex-spouses, adopted children, and step-children.
How Do These Investment Schemes Work?
The Monetary Authority of Singapore (MAS) administers both the 13O and 13U schemes (previously known as S13R and S13X respectively) under the Singapore Income Tax Act (SITA):
The SI3O scheme allows for more money to be easily domiciled in Singapore in order to attract capital from non-Singaporean investors.
The S13U scheme provides Singapore-based funds options for sourcing investment mandates. Investments made by Singapore residents are not subject to financial penalties and other limitations under the 13U Scheme.
What are the Different Tax Benefits That A Family Office in Singapore Enjoys?
Offshore and onshore family offices in Singapore enjoy the following tax benefits:
The Global Investor Programme (GIP) - The GIP is a permanent residence scheme that grants PR status to global investors as long as they invest a minimum of S$ 2.5 million in either new or existing Singapore-based SFO (single-family offices) and assets under management (AUM) of more than S$200 million and lock in for five years. Once their PR status is approved, investors can bring in their families via a Dependent Pass.
The Singapore Resident Fund Scheme (Section 13O) - The Singapore Resident Fund Scheme was established under Section 13 of the Income Tax Act. This scheme is intended for family offices with S$10 million minimum assets under management (AUM). This scheme exempts income from investments in funds managed by a Singapore family office from taxation. This exemption is only possible when at least S$200,000 is spent on worldwide business expenditures annually.
The Enhanced-Tier Fund Tax Exemption Scheme (Section 13U) is for funds with a minimum of S$50 million investment. It is subject to the participation of at least three investment professionals with at least S$200,000 in annual business expenditures in the country. Applicants who qualify for either 13O or 13U programmes will be given a work permit in Singapore so as long as they provide solutions or services to their employers.
A Variable Capital Company or VCC structure is also a lucrative choice for people looking to establish a single-family office under the 13O and 13U schemes. This is because umbrella investment does not have to deal with numerous tax filings, while VCC shareholders' registries are not visible to the public, guaranteeing investors their privacy.
One of the most significant changes to the conditions under Section 13O Tax Incentive Scheme (S13O scheme) is the addition of theminimum assets under management. Previously, S13R did not specify a minimum sum for assets under management, but the new guidelines have changed that.
To qualify for S13O, the fund has a minimum fund size of S$10 million at the time of application and that the fund is committed to increased its AUM to S$20 million within a 2-year grace period.
More of these changes can be found here.
What are the Steps to Setting Up Single Family Offices in Singapore?
Setting up a family office in Singapore entails the same processes as setting up any business in Singapore.
The crucial first step is to incorporate your company in Singapore. Given the nature and complexity of your business, Piloto Asia will be more than happy to assist you in setting up your family office in Singapore.
We'll also help you draft a family charter that governs the powers and activities of the family office before you transfer relevant assets to the family office's control. We'll also ensure that the family office complies with financial reporting and fulfills various tax obligations.
You also don't need to apply for a fund management license unless you provide said service to clients.
With that said, here's a detailed list of what you need to do after incorporating your family office in Singapore:
Establishment of Family Charter
The goal of the family office is to establish a family legacy for future generations, so a family charter is crucial to guiding your family office in the right direction.
Sit down with a family office service provider and family members to develop your family office's culture, goals, and ideals that you want the legacy to achieve.
Decide on Which Assets Will Be Controlled by Family Office
Your investments will be highly varied at one point in your family office's lifetime. You'll be handling stocks, shares, properties, and other assets.
Each class of assets has their fair share of tax responsibilities, so you'll need to work with a tax consultant on how to treat and tax each asset.
Choose What Services You Want to Provide
A family office can choose to undertake different services, so take a look at the partial list of services you want to be offered by your SFO:
Planning
Budgeting
Tax services
Legal services
Wealth management
Concierge services
Property management
Charitable giving
Family governance
Wealth succession
Investment education for the family’s next generations
Establishment and operations of private foundations
Payroll and human resources
These services may need to have their dedicated staff and experts, so you'll be able to offer them throughout the year.
Draft the Business Plan for the Family Office
The next step is to draft the business plan for your family office, so you'll need to work with the family office service provider. Here at Piloto Asia, we can help you put the pieces together for your family office and develop a solid business plan.
Decide on Leadership Structure
When choosing your family office's CEO, CIO, and other leaders, we suggest working with a family office service provider. The provider will use their network to recruit the best people with your family office.
Structure the Family Office for Tax Optimization
Singapore is undoubtedly famous for its competitive tax rates, so your business needs to be structured in a way that will allow you to enjoy the benefits of certain tax programmes, namely the Onshore Fund Tax Incentive Scheme or S13O, and the Enhanced-Tier Fund Tax Incentive Scheme or S13U. Your family office service provider will know more about structuring the family office.
Knowing how to structure the family office will also help you in determining what audit requirements you need to comply with.
Organize the Family Office Operational Infrastructure
This is the most boring part of setting up the family office, but absolutely essential. You'll need to consider the inner operations of the family office, ranging from operational practices to cybersecurity concerns.
There's nothing more important than guaranteeing the privacy and security of your family office, so this part will need to be done. But don't worry. A family office service provider like Piloto Asia will be able to help you get through the nitty gritty part.
What Are Some Things You Need to Consider Before Setting Up Singapore Family Offices?
Even as the world struggled with the Covid-19 pandemic, the HNW or high-net-worth sector of Asia grew by as much as 7.9%, and the world's second-largest group of billionaires are now living in Mainland China.
The silent expansion of wealth into Asia has brought about new challenges for HNWIs and ultra-high-net-worth individuals (UHNWI). Wealth management is no longer the bigger picture but a part of it. Budgeting, estate planning, succession, and charitable donations have now appeared.
A traditional fund manager may not be equipped when dealing with large holdings while still meeting the needs of the HNWI and UHNWI.
This is where the family offices come in, which is now a brand new vehicle for wealth management that HNWIs and UHNWIs are riding into the future.
But before you set up a family office, it's worth reviewing some considerations.
What are the Goals of the Family Office?
The goal of the family office should always be clear and defined. But the biggest goal, or one of them, is to secure the legacy of the future generation. You'll need to strategize not only for the next year but for the next generation.
Your goal could also be attributed to something along the lines of a Mission-Vision statement, albeit a bit more complicated. You'll probably end up asking questions like
Where do you see the family office working?
Do you see the company's legacy investing in finance, technology, or property?
Are you eager to work with charitable foundations?
Are you open to the idea of protecting the environment now to ensure the future of not only your family's next generation but also the country's?
What Is Your Plan For Succession?
A family office is designed to secure the legacy of the family for many generations. A lot of HNWIs and UHNWIs are worried that they have no clear path for succession and that their children won't have access to the experience or tools necessary to manage the wealth when the time comes.
A family office provider such as Piloto Asia can help you establish family governance and guidelines through the family charter. Part of the charter will include educating the children on how to manage their wealth in order to guarantee that they'll be able to pass it down to their children.
Sometimes, It's Not About the Money
Most importantly, some HNWIs and UHNWIs believe that legacy is only limited to wealth and finances. A family office can help you set up philanthropic endeavours with the help of the family office service providers.
Whether you create your own non-profit organization or donate to a large and established charity every year, a family office has all the options to ensure that the future generation will see your family name in a positive light.