5 Things You Need to Know About Single Family Office Singapore
- including A Common Misconception About Obtaining Permanent Residency in Singapore Through Single Family Office in Singapore
1. WHAT IS A SINGLE-FAMILY OFFICE?
A single-family office (SFO) is a management entity that carries out the administration and management of proprietary moneys for ongoing investment management. Needless to say, SFO will not manage third party moneys, as this will require specific fund management licence/registration from the Monetary Authority of Singapore (MAS).
The term ‘single family office’ is not defined under the Securities & Futures Act (SFA). An SFO 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. The term ‘family’ in this context may refer to individuals who are lineal descendants from a single ancestor, as well as the spouses, ex-spouses, adopted children and stepchildren of these individuals.
In the context of fund management in Singapore, there are two entities involved. One is the management company which is also referred to as the SFO and the other is the fund entity (Fund).
As a multi-family office involves third-party entities which carry out licensed activities, this article will not deal with a multi-family office.
2. REGULATORY STRUCTURE OF AN SFO
As stated above, an SFO manages the assets of a family by way of it being held through a fund entity.
Fund management and financial advisory are regulated activities in Singapore. Though there are no mandatory licensing requirements to manage proprietary money in Singapore, most SFOs seek available exemptions from fund management/financial advisory licensing from the MAS.
One such option is to seek statutory exemption for a corporation to manage funds for its related corporation. An SFO may be structured as such in order to qualify for this related corporation exemption and subject to other considerations, as follows:
Aside from the above, MAS may grant an exemption on a case-by-case basis to SFOs that do not specifically fall into the statutory exemption. The overall entity structure in such cases may vary depending on different considerations. Some such situations are illustrated below:
(i) An SFO which manages assets directly held by natural persons of the same family with no common holding company for the SFO and the managed assets;
(ii) Where a discretionary trust holds the assets of the family and both the settlor of the trust and beneficiaries are members of the same family;
(iii) Where a family trust is set up for charitable purposes and funded exclusively by settlor(s) from the same family; and
(iv) Where, although the SFO consists of key employees and shareholders which are non-family members (such as for the purposes of aligning economic interest and risk-sharing), the initial assets and additional assets are funded exclusively by the same family.
In applying for licensing exemption by the SFO, MAS will consider all relevant information and will require information including identities of the directors, the shareholding structure of the SFO, profile of the family whose assets are managed by the SFO, and such other information which may be useful to expedite the application process. Each application is unique in its own way. MAS may ask additional questions as it deems fit.
3. POTENTIAL BENEFITS OF SETTING UP AN SFO IN SINGAPORE
(i) By establishing the SFO and the Fund managed by it in Singapore, it is easier to demonstrate an economic substance for the operations of the SFO.
(ii) Singapore as a world class financial services centre has the relevant ecosystem for the SFO to conduct its business.
(iii) There are certain specific tax exemptions/benefits which the SFO and the Fund can tap on, subject to fulfilling the prescribed requirements.
(iv) Singapore has over 80 tax treaties. If the Fund is considered a resident in Singapore for income tax purposes (i.e., if its management and control are deemed to be exercised in Singapore), it can access and qualify for the benefits under these tax treaties.
(v) The Fund may qualify for tax exemptions under the following schemes:
(a) The Onshore Fund Tax Exemption Scheme (s.13O ITA)
(b) Enhanced Tier Fund Tax Exemption Scheme (s.13U ITA)
These tax exemptions apply in relation to “specified income” which is derived by the approved fund which is from “designated investments” made by it, as defined under the relevant exemption scheme. The list of designated investments and the specified income may get revised periodically.
The requirements of each of these schemes are found in the table below.
@ An Investment Professional refers to portfolio managers; research analysts, and traders, who are earning more than S$3,500 per month, and must be engaging substantially in the qualifying activity.
#The “Qualifying Investor” test imposes a financial penalty on Non-Qualifying Investors exceeding a prescribed shareholding threshold in the s.13O fund.
Tax exemption under the Financial Sector Incentive Fund Management Scheme
In addition to the tax exemptions under the ITA, an SFO managing a qualifying fund may enjoy the benefits provided by the Financial Sector Incentive Fund Management Scheme (FSI-FM). Fee income derived by a Singapore fund manager from managing or advising a fund is taxed at the prevailing Singapore corporate tax rate of 17%. Under the FSI-FM, this fee income may instead be subject to a concessionary tax rate of 10%.
An application under the FSI-FM is for a minimum of five years and the general qualifying requirements are as follows:
(i) The fund manager holds a capital market service (CMS) license, or is expressly exempted from holding a CMS license in respect of its fund management activities;
(ii) The fund manager has a minimum AUM of S$250 million; and
(iii) The fund manager must employ at least three investment professional employees earning at least S$3,500 per month.
4. SETTING UP AN SFO
The key steps in setting up an SFO are summarised below:
(i) Planning and finalisation of the overall structure of the SFO setup and its investment fund(s)/vehicle(s).
(ii) Setting up of the legal entity for the SFO (e.g., private company).
(iii) SFO to seek exemption from fund management licensing requirements
(iv) Setting up of the relevant investment fund(s)/vehicle(s).
(v) Execution of the Investment Management Agreement(s) (IMA) between the SFO and investment fund(s)/vehicle(s).
The above steps are a simplification of the steps necessary in setting up an SFO. Due to its nature as a bespoke wealth management tool, the SFO structure may vary according to the client's needs and various other factors. These include the investment objectives of the family, and tax and regulatory considerations that will impact the eventual structure of the SFO setup.
5. A COMMON MISCONCEPTION ABOUT OBTAINING PERMANENT RESIDENCY IN SINGAPORE THROUGH A SINGLE-FAMILY OFFICE IN SINGAPORE
One option for an interested applicant to seek permanent resident (PR) status in Singapore through the Singapore Global Investor Programme (GIP), is achieved by setting up a single-family office that meet certain qualifying requirements and conditions, which are of a higher threshold.
It is a common misconception that the SFO dealt with in the earlier part of this article is the same as the single-family office which qualifies under the GIP program. While the SFO (referred in the earlier part of this article) may enable seeking of employment passes to work in Singapore, the single-family office (referred in the latter part of the article) enables applicant to seek PR status in Singapore upon fulfilling higher requirements.
An investor who is interested in investing in Singapore through a single-family office may qualify for Singapore PR status through the GIP scheme, subject to the following requirements:
(i) the investor possessing at least 5 years of entrepreneurial, investment or management experience;
(ii) an investment of S$2.5 million an existing or in the establishment of a Singapore-based single-family office; and
(iii) the single-family office having Net Investible Assets of at least S$200 million, with at least S$50 million of that being transferred into and held in Singapore. Net Investible Assets include all financial assets, such as bank deposits, capital market products, collective investment schemes, premiums paid in respect of life insurance policies and other investment products, excluding real estate.
Having satisfied the prescribed requirements, the applicant must submit a 5-year business plan with projected employment and annual financial projections which will be evaluated by the Economic Development Board (EDB) of Singapore which will assess the feasibility of the business plan based on the factors including but not limited to:
(i) the applicant’s role in the SFO;
(ii) functions of the SFO;
(iii) proposed investment sectors;
(iv) asset types; and
(v) geographical focus.
There are ongoing requirements to comply with and this scheme too, seeks to create value add to Singapore’s economy, encourage local talent development, and to further strengthen Singapore’s standing as a vibrant international financial services hub.
Prepared by Avant Law LLC
Avant Law LLC is a law firm in Singapore specialized in capital markets and mergers & acquisitions. Our corporate lawyers in Singapore are dual qualified in both Singapore laws and Malaysia laws.
For more information, please visit us at https://www.avantlawllc.com/
This guide is solely for informational purposes only. It is not intended to be or nor should it be regarded as or relied upon as legal advice. Please do not act or refrain from acting based on anything you read on this guide. Avant Law LLC does not accept and fully disclaim responsibility for any loss or damage which may result from accessing or relying on this guide.