Establishing a Family Office in Singapore: A Complete Guide

Introduction

Singapore has emerged as a prime destination for the world's wealthiest families looking to establish family offices, a testament to its growing reputation within the global private wealth landscape. The increasing number of family offices in Singapore underscores its appeal as a secure and thriving financial hub, especially for ultra-high-net-worth individuals (UHNWIs).

Contributing Advisor

David Stepat

Country Director

According to the Monetary Authority of Singapore (MAS), the number of single-family offices in the region has seen a significant uptick, with 200 awaiting approval by mid-2023. This influx is in line with the broader trend of net inbound migration of high-net-worth individuals, which is projected to rise from 2,800 in 2022 to 3,200 in 2023.

The rise in family offices in Singapore is supported by substantial industry growth figures. By the end of 2022, Singapore was home to approximately 1,500 family offices managing around S$90 billion (US$66.8 billion) in assets, a significant part of the S$5.4 trillion (US$4 trillion) managed in the city-state overall. The number of family offices has dramatically increased, nearly doubling from 400 at the end of 2020 to 700 by 2021, indicating a robust expansion driven by wealthy individuals, particularly from China, looking to capitalize on the economic opportunities in the ASEAN region.

Understanding family offices

Family offices are specialized private wealth management advisory firms designed to serve ultra-high-net-worth individuals (UHNWIs). They are not just about asset management; they provide a holistic suite of services aimed at long-term wealth preservation and growth across generations. The purpose of a family office is multifaceted, encompassing investment management, financial planning, family governance, philanthropy, and various administrative tasks to streamline the management of wealth.

Single Family Offices (SFOs) vs. Multi-Family Offices (MFOs)

The following table concisely contrasts SFOs and MFOs across various aspects such as their service scope, cost efficiency, privacy, investment opportunities, and level of personalized service offered.

Core functions of family offices

• At the heart of a family office's functions is managing the family’s investment portfolio. This includes not just traditional asset classes like stocks and bonds but also alternative investments such as real estate, private equity, and hedge funds.
• Family offices assist in planning for the family’s financial future, including cash flow management, financial risk assessment, and strategic asset allocation.
• Establishing and maintaining a family governance structure is crucial. This involves creating a family constitution, setting up family councils, and managing inter-generational transfer of wealth, ensuring that wealth sustains through various family generations.
• Many family offices manage the philanthropic activities of the family, aligning charitable goals with overall family values and legacy aspirations. This can include setting up charitable trusts, foundations, and other structures to facilitate effective giving.
• Family offices handle a range of administrative duties such as legal matters, tax planning, and compliance services. They ensure that all financial activities are conducted within the legal frameworks and benefit from optimal tax scenarios.

Why Singapore?

Economic and political stability

Singapore stands out as a beacon of economic resilience and political serenity, making it a prime destination for family offices. The city-state enjoys a global reputation for being highly regulated, politically stable, and having a pro-business environment.

This is underscored by its high rankings in global indices for operational stability and ease of doing business. Singapore's commitment to maintaining a stable legal and economic framework significantly mitigates risks associated with political and economic turmoil, providing a safe haven for substantial private wealth.

Favorable legal and regulatory environment

The legal and regulatory frameworks in Singapore are uniquely tailored to meet the needs of family offices and the wider financial services sector. Singapore offers a transparent and efficient regulatory environment, which simplifies the process for market entry and operations.

Family offices benefit from specific tax incentives under schemes like:

• The Onshore Fund Tax Exemption (Section 130);
• Offshore Fund Tax Exemption (Section 13D); and,
• The Enhanced-Tier Fund Tax Incentive (Section 13U).

These frameworks not only exempt most investment profits from income tax but also provide a clear and conducive environment for managing substantial assets.

This aspect is crucial for family offices, which require a reliable and predictable legal environment to manage global assets effectively.

Strategic geographic location and benefits for global investments

Singapore's geographic positioning at the crossroads of East and West offers unparalleled advantages for family offices looking to tap into global investment opportunities. Its strategic location within a six-hour flight radius of all major cities in Southeast Asia makes it an ideal hub for managing and overseeing investments across the region and beyond.

Moreover, Singapore’s extensive network of Free Trade Agreements (FTAs) and Double Taxation Agreements (DTAs) extends beneficial terms and reduced tariffs, further boosting its attractiveness as a center for international business and investment management. These agreements not only streamline the tax burdens but also enhance returns on international investments, making Singapore a compelling case for family offices looking to optimize their global operations.

Regulatory and tax framework

Singapore's regulatory environment favors Single Family Offices (SFOs) and Multi-Family Offices (MFOs) with a 'light touch' approach. The Monetary Authority of Singapore (MAS) generally provides SFOs an exemption from fund manager licensing if they qualify as 'related corporations' within the same family group. This exemption streamlines the operational process, though a legal opinion may be required for SFOs and their funds that are not directly related to confirm eligibility.

Proposed regulatory updates:

• Recent proposals aim to introduce a new regulatory framework for SFOs, enhancing oversight to prevent money laundering.
• The new framework suggests a class licensing exemption for SFOs meeting strict criteria:

• • Ownership by family members;
  • Managing funds solely for family entities; or,
  • Family-funded charitable organizations.

• A designated Singapore-resident employee is required as a point of contact with MAS under the new framework.

Tax incentives and benefits

Here is a comprehensive comparison table summarizing the fund tax exemptions for Single Family Offices (SFOs) under Sections 13O and 13U in Singapore:

Offshore and onshore family offices in Singapore could also enjoy the following tax benefits:

• Global Investor Programme (GIP): This program offers permanent residency (PR) to global investors who invest a minimum of S$2.5 million in new or existing Singapore-based single-family offices (SFOs) with assets under management (AUM) exceeding S$200 million. The investment must be maintained for five years. Upon obtaining PR status, investors can also sponsor their families for Dependent Passes.
• Variable Capital Company (VCC): The VCC structure is particularly advantageous for establishing a single-family office under the 13O and 13U schemes. This structure simplifies the investment process by eliminating the need for multiple tax filings and ensures privacy for investors as the VCC shareholders' registry is not publicly accessible.

Role of Government initiatives

The Singaporean government has taken active steps to attract and support family offices through various initiatives. One such initiative is the Family Office Development Team (FODT), established by the Monetary Authority of Singapore (MAS) and the Economic Development Board (EDB). The FODT's primary role is to streamline processes and provide a supportive regulatory environment for family offices looking to establish or expand their operations in Singapore.

This team assists family offices in navigating the regulatory framework, understanding local investment norms, and tapping into tax incentives and exemptions designed to enhance their operational efficiency.

A step-by-step setup guide

Establishing a family office in Singapore involves careful planning and strategic decision-making. Here’s a guide to setting up a family office, from the preliminary considerations to operational setup.

Step 1: Preliminary considerations

Define objectives and structure

• Determine whether the family office will focus on investment management, wealth preservation, philanthropy, or a combination of these areas.
• Decide between a Single Family Office (SFO), which serves one family, or a Multi-Family Office (MFO), which caters to multiple families. Consider factors like privacy, control, cost efficiency, and the desire for collaboration.
• Assess the range of services needed such as estate planning, tax management, investment strategy, and philanthropy. This will influence the complexity of the office setup.

Step 2: Establishing a Family Office

Legal structuring

• Register a legal entity in Singapore to serve as the family office. This entity will typically handle investments and manage family assets.
• Consider setting up trust structures for asset protection, estate planning, and succession planning. Trusts can be governed by Singapore law or other jurisdictions, depending on the family's requirements.

Operational setup

• Recruit professionals including investment managers, accountants, and legal advisors. At least one investment professional should not be a family member to meet certain regulatory incentives.
• Choose a suitable office space in Singapore that meets the operational needs and reflects the family office’s status.
• Invest in robust IT systems for financial management, secure communication, and data protection.

Step 3: Key considerations in choosing service providers and managing operational logistics

Selecting service providers

• Vet potential service providers such as legal firms, accounting firms, and investment advisory services. Ensure they have experience with family offices and understand the regulatory environment in Singapore.
• Establish relationships with banks, investment firms, and other financial institutions that can offer additional resources and expertise.

Operational logistics

• Familiarize with and adhere to the Monetary Authority of Singapore (MAS) regulations. This may involve obtaining necessary licenses or registrations, depending on the family office activities.
• Set up accounting and reporting systems to manage assets effectively, ensuring compliance with Singapore’s tax obligations and taking advantage of available tax incentives.

Developing an investment strategy

• Create a diversified investment portfolio that aligns with the family’s financial goals and risk tolerance.
• Implement strategies to monitor and mitigate risks associated with different investments.

Establishing governance structures

• Develop a family governance framework that defines the processes for decision-making, dispute resolution, and succession planning.
• Draft operational policies and procedures to guide daily activities and ensure consistency in service delivery.

Leveraging local and global networks

Harnessing Singapore's Free Trade Agreements (FTAs) and Double Taxation Agreements (DTAs)

• Minimizing bureaucratic hurdles: FTAs often reduce or eliminate trade barriers, streamline customs procedures, and simplify regulatory processes. For family offices, this translates to faster and less cumbersome procedures when moving capital and assets across borders, enabling quicker response to market changes.
• Enhancing compliance and efficiency: Utilizing FTAs and DTAs helps ensure that family offices adhere to international tax laws and investment regulations, reducing the risk of legal complications. This regulatory compliance not only protects the office from potential penalties but also enhances its reputation in the global market.
• Reducing tax burdens: DTAs directly benefit family offices by decreasing the effective tax rate on foreign income such as dividends, interest, and royalties, thus increasing the returns on international investments.
• Safeguarding assets against double taxation: By strategically structuring investments in jurisdictions covered under Singapore's DTAs, family offices can protect their assets from being taxed twice. This protection is crucial for maximizing the efficiency of asset management and preserving capital.
• Diversification opportunities: FTAs open access to new markets by reducing trade restrictions on goods and services. For family offices, this means a broader range of investment opportunities across different sectors and geographies, allowing for better risk management through diversification.

Benefits of engaging with local and international Family Office communities

Engagement with both local and international family office communities offer the following multifaceted benefits:

• Participating in local seminars, forums, and workshops enables family offices to stay ahead of:

• • The latest financial trends;
  • Investment strategies;
  • Market dynamics;
  • Consumer behaviors; and,
  • Regulatory developments.

• Networking opportunities with local events provide a platform for family offices to connect with peers, wealth managers, and financial experts. Networking helps in building relationships that can lead to future collaborations or sharing of best practices.
• Active participation in both local and international family office networks enhance a family office’s reputation. Being seen as an active member of the community can increase credibility and attract potential clients or partners.

Risk management and compliance

This section highlights the key risk factors specific to family offices in the city-state and outlines best practices for maintaining regulatory compliance and managing operational risks effectively.

Risk factors and compliance issues

Regulatory compliance

Singapore's stringent regulatory environment requires family offices to stay updated with ongoing changes in laws and regulations. Non-compliance can result in hefty fines and reputational damage. This includes adhering to:

• The Financial Advisers Act (FAA);
• The Securities and Futures Act (SFA); and,
• Anti-Money Laundering (AML) regulations.

Market volatility

Family offices are exposed to market risks across various asset classes. Given the concentration of wealth, the impact of market downturns can be significant, requiring robust risk assessment and mitigation strategies.

Data security and privacy

With increasing digitalization, family offices must safeguard sensitive financial information against cyber threats. Compliance with data protection laws, such as the Personal Data Protection Act (PDPA), is crucial.

Best practices for regulatory compliance and risk management

Establish comprehensive governance structures

Implementing strong governance frameworks with clear policies and procedures helps in aligning the family office’s operations with regulatory requirements and ethical standards.

Regular risk assessments

Conducting regular risk assessments enables family offices to identify potential vulnerabilities early and adjust their risk management strategies accordingly. This includes financial, operational, and reputational risks.

Professional development

Continuous training and development for staff on the latest regulatory and market developments is critical. This ensures that the team can anticipate and respond to changes effectively.

Leverage technology for compliance

Utilizing advanced technological solutions can streamline compliance processes. Software tools that assist with regulatory reporting, risk analysis, and compliance monitoring can reduce errors and improve efficiency.

Engage with legal and financial advisors

Regular consultations with legal and financial experts can provide insights into the best practices for compliance and risk management. These professionals can offer guidance on complex issues like tax planning, estate planning, and regulatory filings.

Transparent reporting

Maintaining transparency with regulatory bodies and stakeholders through regular and detailed reporting of the family office’s activities helps in building trust and ensuring compliance.