Introduction

A prominent trend that took on a life of its own throughout 2020 was the increasing interest and establishment of family offices in Singapore. It is no secret that our Monetary Authority of Singapore (MAS) has the goal of building Singapore into a bastion for private wealth in Asia, a preferred destination for high net worth individuals (HNWI). The spill-on effects for Singapore are evident: increased assets-under-management by the banking industry, more business expenditure for ancillary services such as legal, accounting and/or administration services, future employment opportunities for locals, to name a few.

A Single-Family Office (SFO) has no official legal definition but it typically refers to an entity which manages assets for or on behalf of only one family and is wholly owned or controlled by members of the same family. Here at STMP, as well-versed and familiar with the criteria and application process to the MAS either through the Section 13R Onshore Fund Tax Exemption Scheme or the Section 13X Enhanced-Tier Fund Tax Exemption Scheme.

It has been openly announced in Parliament that the number of SFO’s in Singapore has grown in recent years to about 200 as of October 2020. Due to Singapore’s sound legal and regulatory framework, established financial services industry, modern infrastructure, overall emphasis on transparency and the rule of law, we are understandably an attractive destination for HNWI not just in the region, but global-ly, to set up a SFO here.

Potential push factors such as the ongoing pandemic and simmering civil and global political tensions only helped this trend. The influx of applicants from North Asia and South East Asian nations such as Indonesia continue, while prominent HNWI from the West such as Ray Dalio have also chosen to set up his family office in Singapore.

Conditions

For a 13R SFO structure, the key conditions are that the Fund Company must:
Be incorporated in Singapore;

• Be tax resident in Singapore where the control and management of its business is exercised in Singapore;
• Uses a Singapore-based fund administrator;
• Is managed or advised directly by a
• fund management company (FMC) in Singapore, which will typically be the applicant’s Family Office company;
• Successfully open a private banking account with a private bank in Singapore for the purpose of holding the funds/assets managed by the FMC;
• The FMC managing or advising the Fund Company must employ at least one investment professional. This is typically the applicant him/herself or a family member.
• The FMC must either hold a capital markets services licence for fund management under the Securities and Futures Act (SFA), or, as is typically the case, obtain an exemption from this requirement from MAS to hold such a licence under the SFA;
• Incurs at least S$200,000 in local business expenses in each financial year;
• Does not use the Fund Company to serve other investment purposes apart from what it is approved for under the section 13R scheme;

Whilst, not strictly a condition, through our experience we have observed that an appropriate fund size held by a 13R Fund Company is typically from S$5 million onwards.

For a 13X SFO structure, the key conditions are similar to the above save for the below differences, being:

•  The Fund Company may either be a company incorporated in Singapore or overseas. Typically, applicants may already have an existing offshore company or wish to set up one specif-ically for this purpose;
• The Fund Company must use a Singapore-based fund administrator if it is a company incorporated in Singapore, with its tax residency in Singapore, and where the control and management of its business is exercised in Singapore;
• Have a minimum fund size of S$50 million, and the fund size condition is only required to be complied with at the point of application;
• The FMC managing or advising the Fund Company must employ at least three investment professionals. These can be the applicant and his family members.

Functions – For Foreign applicants

As a tool for global asset diversification

It is not an uncommon strategy as part of risk management and diversification for HNWI to seek to allocate part of their wealth to different areas in the world, if that suits their needs. Singapore is an established financial hub with a growing asset management industry and global banks at the HNWI’s doorstep. Certain favourable features of Singapore’s tax regime such as the lack of capital gains tax and inheritance tax also make it an attractive jurisdiction for HNWI to move their assets here.

As a tool for relocation

In setting up a SFO, foreigners attain the flexibility to appoint themselves as the designated investment professionals to manage their very own family’s funds. In doing so, the need for an Employment Pass (EP) is hence well-justified and goes hand in hand with the MAS’s overarching present goal to attract HNWI and their funds to Singapore. Obtaining an EP successfully or potentially, 3 EP’s (required under the Section 13X Scheme) then opens up possibilities for applying for and obtaining either Dependent Passes (for spouse and children under 21 years) or Long-Term Visit Passes (for parents).

As a tool for cost savings via tax exemptions

As a titled tax exemption incentive scheme, this is the primary benefit that a Section 13R or Section 13X applica-tion will offer applicants. If approved, specified income from designated investments by the Fund Company will be entirely tax exempt. An example of such tax-exempt income are trading gains derived from stocks held by the Fund Company, or gains from Forex transactions by the Fund Company.

As a tool for strengthening Citizenship or PR renewal goals

For Permanent Residents (PR) who have previously obtained their PR status through an investor immigration scheme such as the Global Investor Programme, a Section 13R or Section 13X SFO’s, being administered by MAS, are a recognised and welcomed program by the Economic Development Board (EDB) for PR’s to bolster their economic contribution profile. This is a useful tool particularly for those who aims of applying for and attaining Singapore Citizenship; or simply to provide added impetus for the EDB to support their case for a renewal of their Re-Entry Permits. We have observed that the renewal processing times for REP applications are increasingly becoming longer. For PR’s with the means and intention to do so, a strong economic contribution profile via a SFO could offer twin benefits of a bolstered economic contribution profile to Singapore and the abovementioned tax exemptions on gains derived from their substantial investment assets.

Our Services

As one of our established areas of expertise, we are able to advise, guide and take interested applicants, be it in English or Mandarin, though the process of applying for the Section 13R or Section 13X tax exemption incentive schemes, set up the entities in the SFO structure for them as well as providing the necessary and required post-MAS approval annual compliance services for the respective entities.

Conclusion

At SMTP, as a specialised private client law firm, we offer a bespoke, personal and service-oriented approach to navigating the application process for establishing a Section 13R or 13X SFO as simply as possible. We stand ready to assist interested applicants, whether Singaporeans, Permanent Residents or foreigners. For the avoidance of doubt, the information above does not constitute legal advice of any sort. The information provided in [the presentation slides are current as at the date of publication but can be subjected to change without notice. Should you or your clients be interested or require any assistance, please feel free to contact our Business Development Team to schedule a consultation with us.