WeDigest > Family Office > Navigating Wealth Management Hubs: Singapore vs. Hong Kong Download PDF
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WeDigest > Family Office > Singapore as an Ideal Location for a Family Office
While family offices have been well established in the US and Europe, its development is only nascent in Asia. The region experienced a boom in wealth creation largely in the last two generations, and as Asia is minting new ultra-wealthy individuals at a faster rate than any other in the world, there has been a surge in demand to preserve family legacy and wealth.
It is a colossal task navigating complex family needs today. As many of the older generations are looking for a structured way to hand over the reins, the younger generation is inclined to institutionalise the set-up, for example by having investment professionals manage disciplined investment mandates.
The Monetary Authority of Singapore (MAS) reports that the number of family offices grew by 5 times between 2017 and 2019. This is confirmed by much publicized activity in recent years as a slew of high-profile entrepreneurs have set up family office in Singapore, for example the richest man in Singapore now is Zhang Yong, Chairman of the popular Sichuan hotpot chain Haidilao. Other notable examples include Facebook CoFounder Eduardo Saverin, and Sir James Dyson, the British inventor entrepreneur.
It is heartening to see this development as Singapore remains a choice destination not only for Asians who are attracted by the stability of this city-state, as its surrounding neighbours are engulfed in political upheaval, but also, entrepreneurs from developed nations who see the opportunities Singapore present.
It is with these factors that we have seen interest towards Singapore surged. Due to an influx of foreigners wanting to work in Singapore in the past few years, it has become more difficult to get approvals for employment passes through the usual channels. Investors who are keen to explore immigration to Singapore may consider setting up a family office which offers employment passes as a springboard for their application to permanent residency status at a later stage.
There is no licensing requirement to set up a single family office which is only to manage assets within the family, however if the family office evolves to manage funds of external families/customers, then it’d need to be registered or licensed by the MAS, unless exempted. If relocation of certain family members is considered, where suitable, they should be appointed as members of the family office’s investment committee for the purposes of applying for Singapore employment passes.
The Singapore government has supportive tax incentive schemes to enhance the country’s attractiveness as a financial hub. Income and gains derived by underlying fund of the family offices may be subjected to tax in Singapore, depending on its taxable presence (onshore or offshore), however domestic legislation (under Section 13R and 13X) has provided tax exemption incentives which could effectively eliminate Singapore income tax on “specified income” from “designated investments”, which could cover almost all investment gains, subjected to meeting certain conditions.
| 13R - Singapore Resident Fund Scheme (STR) | 13X - Enhanced-Tier Fund Scheme (ETF) | |
|---|---|---|
|
Fund’s legal form |
Singapore-incorporated company |
No restriction |
|
Fund’s residence |
Singapore tax resident |
No restriction |
|
Fund manager |
Singapore-based and holding a CMS license, unless exempted |
• Singapore-based and holding a CMS license, unless exempted • Must employ at least 3 investment professionals |
|
AUM |
No restriction |
Min. SGD50mio at point of application |
|
Annual fund expenditure |
At least SGD200k business spending |
At least SGD200k local business spending |
|
Approval |
MAS approval required (no change of investment mandate after approval) |
|
|
Number of employment passes |
1 |
3 |
Family offices set up under the 13R and 13X scheme can also utilise the Variable Capital Company (VCC) structure which was introduced on 14 January 2020. This new corporate structure is constituted under the “VCC Act”, administered by Accounting and Corporate Regulatory Authority (ACRA), while coming under the purview of MAS. Just as the Undertakings for Collective Investments in Transferable Securities (UCITS) transformed the investment fund landscape in Europe, the VCC is touted as a “game-changer” for Singapore’s fund industry, as it pits itself against those of other well-known international fund domiciles.
This new corporate entity allows great flexibility; can be used as vehicles for both open-ended and close-ended strategies across traditional and alternative strategies. One of VCC’s most interesting features is encapsulated by its name “variable capital” which means that assets and liabilities of the investment fund is measured at fair value, which equates to its net asset value (NAV), thereby providing flexibility in distribution which can be made out of capital or income. It also bypasses the need to conduct a solvency test prior to the repayment of capital, which had been the case with corporates.
Unlike a corporate structure, where financial statements and shareholder lists can be easily retrieved from the ACRA website, there is no obligation for a VCC to make such information publicly available, thus confidentiality is preserved, and it could be valuable as a wealth management vehicle for family offices. The VCC requires an engagement of local service providers to maintain substance in the local structure, including a Singapore based licensed/regulated fund manager, this means that a single family office which is exempted from licensing from MAS will not be able to solely manage a VCC, however, they would be able to work with qualified fund managers. Instead of going through the lengthy process of acquiring such regulatory requirements, and substantial resources to employ investment expertise and to establish infrastructure, single family offices may outsource the asset management activities to a qualified fund manager who can help set up a VCC on their behalf.
For the sake of transparency, a family member can be appointed to be a director of the VCC. The VCC can be set up as a standalone or umbrella entity with multiple subfunds, serving as a pooling and investing vehicle, thereby dispensing with multi-tiered fund structures. Provisions stipulate that underlying assets and liabilities are ringfenced such that cross-contagion risk may be mitigated. Single family offices managing extended family’s assets would be able to set up various sub- funds which each has a customized asset allocation based on the individual risk profiles. This way, the single family office would be able to cut down costs as each VCC entity would only need to fulfil one set of requirements (one business plan, three investment professionals, one set of accounting, corporate secretary, tax filing fees).
To encourage the development of VCCs, the Singapore government has announced that it will be co-funding 70% of qualifying launch expenses (up to SGD150k and 3 VCCs per fund manager), until 14th January 2023. Since its introduction just five months ago, the fund industry has embraced this development, with 72 VCCs launched, as of 30 June 2020.
Today’s fast changing landscape necessitates the rise of global citizens and the long-term planning of wealth for future generations. Singapore offers attractive propositions for ultra-high net worth individuals, in terms of business, asset protection as well as personal aspects. Its strategic location with extensive air connectivity facilitates business; the multiracial society with a robust education system and sophisticated medical care are also compelling considerations for wealthy families to make the move. Lastly, the stable political environment and supportive government incentive schemes will continue to cement the country’s status as a base for asset management and global investments.
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WeDigest > Family Office > Navigating Wealth Management Hubs: Singapore vs. Hong Kong Download PDF
Effective from 5 July 2023, MAS has introduced revised conditions for Single-Family Offices (SFOs) interested in applying for the 13O/13U tax incentive schemes. The goal of these updated measures is to motivate SFOs to deploy their capital in a more purposeful manner, thereby fostering a purpose-driven approach that enhances the wealth management industry.
The Variable Capital Companies (VCCs) framework is an innovative and flexible investment fund structure that has gained prominence in the global financial landscape. Introduced in 2020 to facilitate the establishment and operation of investment funds.
Hong Kong is poised to become a prime hub for family offices with its well-established financial infrastructure, competitive tax system and robust government support for the industry. Its unique location grants the city unparalleled access to Mainland China and seize opportunities arising from the Greater Bay Area. Find out what Hong Kong has to offer in our latest publication.
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