What is a Family Office?
The term “family office” is generally used to describe an entity which carries out the day-to-day management of the assets and investments of high net-worth individuals or families for the purposes of wealth preservation or growth for their future generations.
Family offices may manage assets on behalf of only 1 family or for multiple families. The former is referred to as a Single Family Office (SFO) and the latter is referred to as a Multi Family Office (MFO). This update will focus on SFOs.
Regulation of SFOs
SFOs in Singapore are not subject to licensing. There are existing class exemptions from licensing under the Securities and Futures Act as well as the Financial Advisers Act for the provision of fund management and financial advisory services respectively to related corporations.
If an SFO does not neatly fall within the scope of the existing class exemptions from licensing, it may seek a licensing exemption from the Monetary Authority of Singapore (MAS) under section 99(1)(h) of the Securities and Futures Act. MAS would require the following information to assess an application for a licensing exemption:
- Names of the shareholders and directors of the SFO,
- A chart depicting the shareholding structure of the SFO,
- A description of how the SFO is related to the investment fund vehicle and the family/beneficiaries,
- A description of the profile of the family whose assets will be managed by the SFO, and
- A description of the nature of activities to be carried out by the SFO.
Generally, the following are arrangements which the MAS considers to be broadly typical of SFOs and grant a licensing exemption:
- Where there is no common holding company, but the assets managed by the SFO are held directly by natural persons of a single family.
- Where assets are held under a discretionary trust, the settlor of the trust and the beneficiaries are members of the same family.
- Where a family trust is set up for charitable purposes, the charitable trusts are funded exclusively by settlor(s) from a single family.
- Where non-family members such as key employees of the SFO are shareholders in the SFO for the purpose of alignment of economic interest and risk-sharing, the initial assets and additional injection of funds are funded exclusively by a single family.
The expected processing time of the application for a licensing exemption is generally between 2 to 4 months.
Tax incentives available to fund vehicles managed by SFOs
Fund vehicles that are managed by a SFO may apply for any of the following two tax incentive schemes,1 which are administered by the MAS:
- Onshore fund tax incentive scheme under Section 13O of the Income Tax Act
- Enhanced-Tier Fund Tax Incentive Scheme under Section 13U of the Income Tax Act
Funds which are managed by a Singapore-based fund manager/family office may be liable to tax in Singapore. The activities of the family office create a taxable presence in Singapore for the fund and therefore, certain income and gains derived by the fund may be deemed as sourced in Singapore and therefore liable to tax. The tax incentive schemes serve to exempt “specified income” (including gains) which is derived from “designated investments”.
The conditions for eligibility for these tax incentive schemes were tightened recently in April 2022. We set out a summary of the conditions below:
¹ These tax incentive schemes were previously known as Section 13R and Section 13X schemes. The conditions for these schemes were tightened with effect from 18 April 2022.
² Investment professionals include portfolio managers, research analysts or traders who earn more than $3,500 a month and who engage substantially in the qualifying activity.
³ MAS has specified that “total business spending” should relate to the operating activities of the fund and does not include financing activities. For example, typical expenditure includes, but are not limited to, remuneration, management fees, tax advisory fees, and operating costs.
⁴ Note that the local investment is to be met at “any one point of time”, meaning that if the AUM of the fund subsequently increases, then the family office would need to increase their local investments accordingly to satisfy the requirements.
The tiered business spending framework is as follows:
We will be able to assist and guide you in the process of setting up a family office. If you have any questions, please do not hesitate to contact lawyers listed below or any of our lawyers in our Private Client practice area at Wee Swee Teow LLP.
References:
- Income Tax Act 1947
- Securities and Futures Act 2001
- FAQs on the Licensing and Registration of Fund Management Companies published by the Monetary Authority of Singapore
This article is authored by Jacqueline Teo (Partner).
Lawyers
Lee Soo Chye
lee.soochye@wst.com.sg
6854 3164
Jacqueline Teo
jacqueline.teo@wst.com.sg
6854 3167
Disclaimer: The material in this article is prepared for general information only and is not intended to be a full analysis of the points discussed. This article is also not intended to constitute, and should not be taken as, legal, tax or financial advice by Wee Swee Teow LLP. Any illustrations used in this article may not be applicable or suitable for your specific circumstances or needs and you should seek separate advice for your specific situation. Any reference to any specific local law or practice has been compiled or arrived at from sources believed to be reliable and Wee Swee Teow LLP does not make any representation as to the accuracy, reliability or completeness of such information.
