Introduction
As of the end of 2024, more than 2,000 Single Family Offices (“SFOs”) have been established in Singapore, reinforcing the city-state’s status as a global wealth management hub. With increasing interest from high-net-worth individuals and the growing appeal of Singapore as a stable jurisdiction for wealth preservation and succession planning, the number of SFOs continues to rise. However, one critical factor affecting the eligibility of SFOs for tax exemption under Sections 13O and 13U of the Income Tax Act is the tax residency of their Investment Professionals (“IPs”). Understanding the definition of tax residency under the Inland Revenue Authority of Singapore (“IRAS”) is essential to ensuring compliance with tax residency requirements for IPs under the tax exemption schemes.
Defining Singapore Tax Residency
According to IRAS, an individual is regarded as a Singapore tax resident for a given Year of Assessment if they meet one of the following conditions:
- 183-Day Rule – An individual who is physically present in Singapore for at least 183 days in a calendar year qualifies as a tax resident. These days do not have to be consecutive, and partial days of presence are counted.
- Two-Year Administrative Concession – A foreign employee who stays or works in Singapore for at least two consecutive years will be treated as a tax resident for both years, even if they do not meet the 183-day rule in each of the two years, so long as the period of stay is at least 183 days over those two years.
- Three-Year Administrative Concession – If an individual works in Singapore for three consecutive years, they will be considered a tax resident for all three years, even if they do not meet the 183-day threshold in the first or third year.
- Ordinary Residence Rule – This applies to individuals who can demonstrate that Singapore is their permanent home, such as Singapore citizens or permanent residents (PRs) with strong ties to the country.
Tax Residency Considerations for Foreign IPs
For foreign IPs employed by SFOs, achieving tax residency status in Singapore is crucial to meeting the Sections 13O and 13U requirements. Foreign individuals on employment passes (“EP”) must carefully track their days of physical presence in Singapore to satisfy the 183-day rule and/or qualify for administrative concessions. SFOs employing foreign IPs should ensure compliance by structuring their employment contracts and work arrangements to meet the required duration of stay.
It is important to note that only individuals who qualify as Singapore tax residents for a given Year of Assessment can be counted as a Qualifying Investment Professional (IP) for that Year of Assessment. If an IP does not meet the tax residency requirements for a particular Year of Assessment, the SFO will not be able to count that individual towards the minimum IP requirement under Sections 13O or 13U for that year.
Impact of IPs’ Tax Residency on SFOs’ Tax Exemption
For SFOs to qualify for tax exemptions under Section 13O and 13U, they must employ the required number of IPs who meet the tax residency criteria as follows:
- Section 13O – the SFO must employ at least two investment professionals who are Singapore tax residents throughout the incentive period (at least one being a non-family member); and
- Section 13U – the SFO must employ at least three investment professionals who are Singapore tax residents throughout the incentive period (at least one being a non-family member).
If the above are not met, the SFO will not enjoy the tax exemption for the corresponding Year of Assessment. For completeness and the avoidance of doubt, failing to meet any of the specified conditions (including, without limitation, having the requisite number of IPs who are Singapore tax residents) for the Sections 13O or 13U tax exemption for any basis period can result in the approved Sections 13O or 13U fund not enjoying the tax exemption on the specified income derived from designated investments for that basis period concerned. However, upon satisfying the specified conditions in any subsequent period, the Sections 13O or 13U fund can then resume enjoying the tax exemption in the Year of Assessment relating to that subsequent period.
Hiring Local Talent as a Strategic Solution
One viable approach to ensuring compliance with tax residency requirements is for SFOs to hire local talent. Employing Singapore citizens or Singapore Permanent Residents (“SPR”) who primarily live in Singapore as IPs eliminates concerns about meeting the 183-day rule whilst reducing administrative burdens related to keeping track of physical presence in Singapore. Additionally, hiring local professionals helps to integrate the SFO into Singapore’s financial ecosystem and enhance the SFO’s long-term operational sustainability.
Conclusion
With the continued rise of SFOs in Singapore, ensuring tax residency compliance for investment professionals is a crucial factor in maintaining tax-exempt status under Sections 13O and 13U of the Income Tax Act. SFOs should proactively assess their IPs’ residency status and consider hiring local talent to mitigate risks. A well-structured strategy not only ensures compliance but also strengthens the SFO’s foothold in Singapore’s wealth management landscape.
SMTP’s experience
As a law firm that has been established since 1994, our Immigration and Family Offices Practice has a wealth of experience in setting up Single Family Offices and applying EPs for our clients, their family members and their foreign investment professionals, including any subsequent conversions to SPR. Our lawyers work closely with clients and their advisors, adopting a tailored and holistic approach to address families’ specific needs and requirements.
Should you or your clients require any assistance or advice, please feel free to contact our Business Development Team to schedule a consultation.
