Family Office Schemes: Singapore vs Hong Kong
The Singapore tax incentive scheme for single family offices (“SFO”), also referred to as the Section 13O and Section 13U of the Income Tax Act (“SG Scheme”), has been attracting global high-net-worth individuals (“HNWIs”) to Singapore when looking to set up their SFOs for wealth preservation and management. Similarly, Hong Kong has a concessionary tax regime for SFOs (“HK Scheme” and together with the SG Scheme, hereinafter referred to as the “Schemes”) in a bid to entice more wealthy families as the location of choice when setting up SFOs. This article examines the similarities and differences between the Schemes, as well as the holistic approach taken by most HNWIs and their families when looking for a choice jurisdiction to anchor their wealth for the long term.
Overview of the Schemes – Key Similarities
Both Schemes offer attractive tax benefits for investment profits generated by the fund vehicle, subject to conditions. If all conditions are met and the SFO qualifies for tax incentives under the SG Scheme, then tax exemption will apply to specified income1 derived from Designated Investments for that basis period concerned. Similarly, if all conditions are met and the SFO qualifies for tax incentives under the HK Scheme, then tax exemption will apply to investment profits from qualified assets.
The typical SFO structure under the SG Scheme comprises of at least 2 corporate entities, 1 being the SFO which is the fund management company, and the other is the fund vehicle in which the assets are held. Similarly, the HK Scheme SFO structure typically consists of the SFO, which manages the assets of the family, and a Family-owned Investment Holding Vehicle (“FIHV”), the fund vehicle which holds the assets. For both jurisdictions, the SFO is required to hire employees to manage the investment activities of the fund vehicle. The fund vehicle for both Schemes can either be established locally or overseas, but the entities within the SFO structure must be managed and controlled locally in its own jurisdiction.
Both Schemes do not require regulatory licensing as the SFO only serves the family. For the SG Scheme, the definition of “family” includes lineal descendants from a single ancestor, as well as the spouses, ex-spouses, adopted children and stepchildren of these individuals. “Family” has a broader definition under the HK Scheme, which can include spouses, lineal descendants, spouses of lineal descendants, lineal ancestor or spouse of such ancestor, and a sibling of any of those as aforementioned, including the spouse and lineal descendant of such sibling.
Overview of the Schemes – Key Differences
|Ownership of fund vehicle
|Must be 100% beneficially owned by the family. The SG Scheme would not apply to fund vehicles which hold assets for or on behalf of third parties outside of the family.
|At least 95% beneficially owned by the family. Family ownership can be 75% if the remaining 25% is held by tax-exempt charities.
|Yes. Applications for the S13O and S13U tax incentive schemes must be submitted to the Monetary Authority of Singapore (“MAS”) for approval.
|No. If the conditions of the regime are met, a prescribed self-declaration containing information relating to the SFO structure will be submitted to the Inland Revenue Department along with its tax return.
|Minimum Assets-Under-Management (“AUM”)
|S$20m (S13O) or S$50m (S13U) in Designated Investments1.
|At least HK$240m (approx. S$41m) in qualified assets2.
|Minimum No. of Employees
|· At least 2 Investment Professionals (“IPs”) (S13O) or 3 IPs (S13U), with at least 1 IP who is not a family member.
· IPs can be foreigners but must be Singapore tax residents.
· IPs must have relevant academic qualifications (CMFAS, CFA or finance degrees) or formal work experience.
· Wealth creators without relevant academic qualifications/formal work experience but possess ample experience managing their personal funds may qualify as IPs.
|· At least 2 full-time qualified employees who can be family members.
· Employees can be foreigners.
· No specific requirements in respect of qualifications or educational background, but should have capability and experience to manage the family assets.
|Minimum Spending Requirement
|Minimum S$200,000 in Local Business Spending (“LBS”) across all AUM sizes, subject to the Tiered Spending Requirement based on AUM size*.
*AUM < S$50 million: LBS ≥ S$200,000
S$50 million ≤ AUM < S$100 million: LBS ≥ S$500,000**
AUM ≥ S$100 million: LBS ≥ S$1 million**
**Minimum S$200,000 LBS + balance can be made up of:
(i) Eligible donations to local charities; and
|Minimum HK$2m (approx. S$340,000) of local operating expenditure.
|Local Investments Requirement
|Fund must invest at least 10% of its AUM or S$10 million (whichever lower) in any of the investment options stipulated by the MAS by the end of the first full-year Annual Declaration and in each subsequent financial year (also known as the minimum Capital Deployment Requirement, or “CDR”). Investments into certain categories will be scaled up by a 1.5x or 2x multiplier.
|No local investment requirement.
Taking a holistic approach
Unless a HNWI has very specific concerns and requirements when it comes to setting up the family’s SFO, a macro view at both Schemes would typically yield the view that both are relatively similar in terms of tax benefits offered. As such, choosing the choice of jurisdiction would require taking other factors into consideration, as HNWIs and their families typically do not only have wealth preservation as the sole and only purpose when looking at a suitable location to set up their SFOs. Many HNWIs have chosen Singapore as their preferred base for setting up their SFOs largely due to the country’s financial and political stability, robust infrastructure and its established position as a wealth management hub in Asia. Singapore has always been known as a front runner in its quality of education, with high standards of living, a largely literate population, and a diverse and multi-cultural environment. Many HNWIs who are foreign nationals often consider Singapore as a second home, with many choosing to relocate here permanently given the educational benefits for their children, as well as the ample opportunities available for business owners and foreign investors.
The relative ease of getting an Employment Pass (“EP”) under the fund management company also makes SFOs attractive to those looking to move to Singapore, as the EP is likely the first step in the family’s mid to long-term relocation plans. This is because an EP holder is eligible (subject to conditions) to apply for Singapore Permanent Residency (“SPR”), which is highly competitive and sought after due to the many benefits accorded to a SPR. For those looking to be on the fast-track to obtain SPR, the Global Investor Programme (“GIP”) administered by the Singapore Economic Development Board (“EDB”) grants SPR status to eligible individuals who establish a Singapore SFO with a minimum AUM of S$200 million (where at least S$50 million must be deployed in the investment categories specified by the EDB), provided that all other conditions have been met. Under the GIP, the applicant can include the spouse and unmarried children below 21 years old in the PR application (parents and unmarried children above the age of 21 years old may apply for a Long Term Visit Pass). Obtaining SPR is also the next crucial step to eventually obtaining Singapore Citizenship, which would enable the individual to hold the world’s most powerful passport. As such, Singapore would be a logical choice to set up a SFO for families looking to take up residency here.
Many wealthy families are also increasingly looking to boost their philanthropic activities. Although the HK Scheme allows 25% of the fund vehicle to be held by tax-exempt charities, the SG Scheme recently introduced the Philanthropy Tax Incentive Scheme (“PTIS”). The PTIS allows SFOs under the SG Scheme to claim 100% tax deduction (capped at 40% of the Qualifying Donor’s statutory income) for overseas donations if they are approved as a Qualifying Donor, subject to other conditions. This allows the family to use their SFO as a vehicle for charitable causes with greater flexibility in deciding which charitable organisations and foundations to endow, whilst enjoying tax deduction benefits.
In addition, the SG Scheme requiring MAS approval provides the regulatory oversight that lends itself to Singapore’s reputation as a safe and established financial hub, which bolsters investor protection and maintains stability in the economy. The MAS reviews each application thoroughly, considering long-term economic impact and the sustainability of responsible investment and financial growth. This is also in line with the SG Scheme requiring local investments, which aims to channel funds into local investments to promote Singapore’s economic growth. Therefore, having a governmental authority sanctioning the SFO structure would provide investor confidence for HNWIs and their families who are looking to invest, as well as preserve, their wealth and legacy.
To date, Hong Kong has over 400 family offices, trailing behind Singapore which has 1,100 SFOs set up and awarded tax incentives by MAS by end of 2022. The figures clearly show that Singapore is leading the race with the number of SFOs established, although Hong Kong is closing the gap rapidly as it continues to review its family office tax incentive scheme. Nonetheless, the SG Scheme continues to remain attractive as clients look at it as a means to settle down in Singapore. As such, choosing a choice jurisdiction to set up a SFO is clearly not just about the tax incentives that are awarded, as there are many other reasonable considerations when deciding where to manage and control the family’s assets. As such, many HNWIs and their families usually adopt a holistic approach, ensuring that the choice of location would be one which can safeguard the family’s legacy for years to come.
As a private client firm, SMTP has helped many clients set up SFOs and successfully apply for tax incentives schemes over the years. The firm has years of experience in helping clients meet the requirements to get approval for the S13O or S13U incentive award so that the SFOs can benefit from statutory tax exemptions. Our Immigration and Family Offices department also has a wealth of experience in EP applications and renewals for investment professionals who are employed by the SFO, subsequent EP conversions to SPR, as well as the setting up of SFOs under the GIP for obtaining SPR status for families. Our lawyers work closely with clients and their advisors, adopting a tailored 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.
 As defined in the Income Tax (Exemption of Income of Prescribed Persons Arising from Funds Managed by Fund Manager in Singapore) Regulations 2010.
 As set out in Schedule 16C of the Inland Revenue Ordinance.
 Ownership by any other unrelated persons (individuals or entities which no family members have any interest) cannot be more than 5%.
 As set out under Section 88 of the Inland Revenue Ordinance.
 Expenses paid to local entities which include but are not limited to remuneration, management fees, tax advisory fees, and operating costs. Expenses such as taxes, penalties, or expenses relating to financing activities are excluded.
 Contributions with no return of principal and income.
 Includes blended finance structures that are substantially arranged, managed, executed or originated in Singapore.
 Those whose profiles are either (i) Established Business Owners, (ii) Next Generation Business Owners, (iii) Founders of Fast Growth Companies or (iv) Family Office Principals, subject to the respective qualifying criteria for each profile.
 A Qualifying Donor can be (a) the SFO of the SG Scheme fund, (b) an Ultimate Beneficial Owner of the SG Scheme fund, (c) a beneficiary of the SG Scheme fund, or (d) a related Family Business.