A family office (FO) is a wealth management firm set up by ultra-high-net-worth (UHNW) families to oversee the day-to-day management of their assets. There are two main types of FOs: Single Family Office (SFO) and Multi-Family Office (MFO). An SFO serves one family, while an MFO serves multiple families. SFOs in particular are becoming an increasingly vital part of the wealth planning of UHNW families.
A report by KPMG showed that Singapore is a setup destination for 59 percent of FOs located in Asia. Among the most notable people to establish an FO in Singapore are Google co-founder Sergey Brin, the former CEO of Fosun International Liang Xinjun, and Chairman of Reliance Industries Mukesh Dhirubhai Ambani.
FOs in Singapore are on the rise and are increasingly becoming a prominent feature of the country’s private wealth landscape. In 2022 alone, 700 offices were opened, compared to 221 in the previous years and 129 in the year before that. This significant growth shows that people are realizing the value of an FO in managing their affairs and how it is gradually becoming integrated into Singapore’s wealth management ecosystem.
The purpose of establishing a single family office
SFOs have evolved over time to offer a wide range of services. The purpose of creating an SFO can be the following reasons:
- Protecting family wealth
- Controlling financial risk
- Improving generational transition and family cohesion
- Clarifying governance over how the family keeps its wealth
- Taking care of family members’ personal affairs
Given that 70% of families lose their fortune within a generation, many families are engaging in professional assistance to preserve wealth for future generations. SFO allows a family to have all personal information in one secure place where only accessible to selected people. The SFO can therefore act as the gatekeeper of the family’s privacy.
Furthermore, an SFO is established to operate with heightened professionalism. There is a growing trend among families to manage their wealth professionally, treating it as a separate business with a dedicated team of experts. Emphasizing professionalism is crucial for the success and global expansion of family businesses.
The number of Asian billionaires has surpassed that of North America, indicating the region’s increasing wealth. Singapore plays a significant role in this trend, with its ultra-high-net-worth individuals (UHNWIs) population showing a remarkable 6.9% increase in 2022, ranking eighth globally for the fastest-growing wealth populations. Projections suggest a substantial 17.7% growth by 2027.
Singapore has emerged as Asia’s largest hub for SFOs due to its reputation as a well-governed and well-regulated financial centre with political stability and a pro-business environment. The presence of local and global private banks, investment banks, and financial service providers further enhances the attractiveness of the city-state.
Notably, the COVID-19 pandemic further fuelled the growth of SFOs in Singapore, leading UHNWIs and their families to prioritize safeguarding and growing their wealth for future generations, as noted by Deloitte’s private leader for Southeast Asia, Richard Loi.
Singapore’s favourable tax environment, coupled with tax incentive schemes for funds managed by SFOs, has made it an even more attractive destination for establishing SFOs. Moreover, the launch of the Global-Asia Family Office Circle network in 2021 demonstrates Singapore’s commitment to creating a “trusted ecosystem” that fosters collaboration and support within the SFO community in the region. These efforts solidify Singapore’s position as a welcoming and supportive hub for SFOs.
Tax incentives for establishing family office in Singapore
SFO structures are exempt from regulation under the Securities and Futures Act 2001 (administered by the Monetary Authority of Singapore, MAS) and qualify for fund tax incentives under Sections 13O and 13U. SFO structures in Singapore commonly use the Onshore Fund Tax Incentive of Section 13O and the Enhanced-Tier Fund Tax Incentive of Section 13U as key tax incentive schemes. The following are the main conditions appliable for 13O and 13U:
The combination of an exemption from regulation and Singapore’s fund tax incentives means that a Singapore SFO structure can be highly tax-efficient with a relatively low regulatory burden. Additionally, when a Singapore company is used to manage the accumulated wealth of an HNW family, this tax efficiency can be further improved by taking advantage of Singapore’s extensive network of double taxation agreements.
Key changes of tax incentive requirements
It is worth noting that the above is the latest stricter criteria for SFOs to receive tax incentives since 5 July 2023. The key changes are:
- Higher minimum AUM for Section 13O from S$10 million to S$20 million.
- Increased the requirement to employ investment professionals (IPs) who are Singapore tax residents: Section 13O changes from one to two IPs; Section 13U remains at three IPs, but at least one of them needs to be a non-family member.
- Increased minimum business spending to a tiered framework depending on AUM size.
- Introduced a new requirement for Section 13O and 13U funds to make local investments.
The rationale behind these changes is to deepen the professionalism and quality of the SFOs sector and generate positive spin-offs for the Singapore economy. Further, the new conditions will enhance the transparency of SFOs in the country. This is to address instances of misuse for activities other than fund management. The government’s goal is to attract high-quality applicants and strengthen Singapore’s position as the top choice for SFOs.
How to setup single family office in Singapore
According to the EDB, the process of incorporation can be broken down into four steps: 1. Objectives, 2. Business plan, 3. Setup, and 4. Operations. As seen from the table above, setting up an FO involves fulfilling various administrative requirements, including registering the corporate entity, opening bank accounts, preparing for annual tax reporting, and meeting regulatory obligations like complying with the Common Reporting Standards (CRS) and the Foreign Account Tax Compliance Act (FATCA).
Given the potential complexity of setting up an SFO, Healy Consultants offers comprehensive solutions and expert guidance to help our clients seamlessly establish their SFOs in Singapore. Our services include assisting you with applying for tax incentives, designing tailored Family Charters, and recruiting skilled IPs, among other aspects. Furthermore, once assets are transferred under the SFO’s control, we will provide ongoing support for regulatory compliance, accounting, and taxation requirements as needed.