Other BriefingsNew Criteria for Family Offices in Singapore to Receive Tax Incentives
The Monetary Authority of Singapore (MAS) announced new stricter criteria for family offices to receive tax incentives in Singapore. The new rules apply as of April 18, 2022.
The updated conditions apply to Section 13O and Section 13U of the Income Tax Act of 1947, which includes increasing the minimum assets under the management of the family office, hiring investment professionals, and mandatory spending on local investments, among others.
What are the updated conditions for the S13O scheme?
Minimum assets under management
For family offices registering under the S13O scheme – locally incorporated structures – the minimum fund size is now at S$10 million (US$7.3 million), at the point of application. Further, the fund must increase its assets under management (AUM) to S$20 million (US$14.6 million) within two years.
Hiring investment professionals
Family offices under the S13O scheme must now hire at least two investment professionals (IP). In the event the family office is unable to hire two IPs by the point of application, they will be given one year to hire the second IP.
An investment professional includes:
- Traders;
- Research analysts; and
- Portfolio managers.
Previously, the S13O scheme only required the fund to be managed or advised by a fund management company (FMC) in Singapore where the FMC is licensed under the Securities and Futures Act 2001.
Local investment requirements
The fund managed by the family office must invest at least 10 percent of its AUM or S$10 million (US$7.3 million) — whichever is lower — in local investments. Products may include:
- Qualifying debt securities;
- Equities listed on Singapore-licensed exchanges;
- Funds distributed by Singapore-licensed/ registered fund managers; and
- Private equity investments into non-listed Singapore-incorporated companies, like startups, that have operating businesses in Singapore.
If the fund is unable to invest in local investments by the time of application, it will be given a one-year grace period to do so.
Business spending
Family offices under the S13O scheme must incur a minimum total business expenditure of S$200,000 (US$146,000) per year. This is governed by a tiered framework based on the value of the AUM.
|
Business Spending for Family Offices Under the S13O Scheme |
|
|
Assets under management range |
Minimum total business spending per year |
|
Below S$50 million (US$36.6 million) |
S$200,000 (US$146,000) |
|
From S$50 million (US$36.6 million) to below S$100 million (US$73.2 million) |
S$500,000 (US$366,000) |
|
S$100 million (US$73.2 million) and above |
S$1 million (US$732,000) |
The type of expenditures includes tax advisory fees, management fees, and remuneration, among others.
What are the updated conditions for the S13U scheme?
Minimum assets under management
The value of the minimum assets under management remains unchanged at S$50 million (US$36.6 million).
Hiring investment professionals
The fund must be managed or advised by at least three IPs and one IP must be a non-family member. If this criterion is not met upon application, the fund will be given a one-year grace period to hire a non-family member IP.
Local investment requirements
As with S13O schemes, the fund must invest at least 10 percent of its AUM or S$10 million (US$7.3 million) in local investments.
Business spending
Unlike the S13O scheme, family offices under the S13U scheme must incur a minimum local business spending of S$500,000 (US$(US$366,000).
|
Business Spending for Family Offices Under the S13U Scheme |
|
|
Assets under management range |
Minimum total business spending per year |
|
Below S$50 million (US$36.6 million) |
S$500,000 (US$366,000) |
|
From S$50 million (US$36.6 million) to below S$100 million (US$73.2 million) |
S$500,000 (US$366,000) |
|
S$100 million (US$73.2 million) and above |
S$1 million (US$732,000) |
For the local business spending requirements, expenses incurred should relate to the operating activities of the fund, as opposed to financing activities.
Which funds do the new criteria apply to?
The updated conditions apply to family offices that fulfill the following conditions:
- An exempt FMC, which manages assets on behalf of the family(ies); and
- A family office wholly owned or controlled by members of the same family(ies). Families are lineal descendants from one ancestor and include spouses and ex-spouses, children, and adopted and stepchildren.
To be an exempt FMC, the company must be exempted from the requirement to hold capital market services (CMS) license.
Date of effect and applicability
The new conditions come into effect from April 18, 2022 – although this does not apply to applications submitted before the date and correspondences with MAS in the last six months.
Moreover, the new conditions do not apply where a formal application has been submitted to MAS via MASNET — the communication hub set up to provide data exchange services between MAS and financial institutions — before April 18, 2022, but the application was approved after April 18, 2022.
What impact will the new criteria have on Singapore’s family offices sector?
With the new criteria, MAS hopes to deepen the professionalism and quality of the family offices sector. Further, the new conditions will improve the transparency of family offices in the country since they sometimes have been misused for activities other than fund management under the current requirements.
The new requirements can also stimulate Singapore’s COVID-19 battered economy through the enhancement of positive spillovers to the economy, such as by creating jobs and stimulating greater capital flows to local businesses.The family offices sector has seen robust growth in Singapore over the last decade and the city-state has gained prominence as a hub for family offices with 400 established as of 2020, compared to 200 in 2019.
What are family offices?
Family offices are wealth management advisory firms that serve ultra-high-net-worth investors and their families. Research conducted by Wealth-X, a firm specializing in researching high-net-worth individuals, estimates US$1.9 trillion of wealth in Asia will be passed on to the next generation in the coming decade.
Further Reading
- Singapore to Implement New Points System for Employment Pass Applicants From 2023
- Malaysia-Singapore Land Border Reopens: Implications for Businesses
- Singapore to Reap Long-Term Benefits Under RCEP
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