Consideration for a Family Office in Singapore

Government policy, economic development, and global politics has contributed to the growth of wealth management in Asia, and in Singapore, in particular.  The global pandemic, the last year of the chaotic Trump administration, and the realities of climate change, coupled with a more assertive China, has driven growth in the industry, and the movement of funds, and the growth of family offices in Singapore. 

The wealth management industry is expected to grow, and be one of the main drivers of growth for the economy.  According to the World Wealth Report, high net-worth (HNW) wealth in Asia-Pacific rose 7.9% in 2019.  This was despite a global economic slowdown, international trade wars, and geopolitical tensions.  The number of high net-worth individuals (HNWI) also grew 7.6% over the same period.  Those numbers are expected to be bettered in coming years. 

One of the major recent developments is the transfer of wealth from Hong Kong to Singapore.  Where previously, Hong Kong’s geographical proximity to China was an advantage, it is now a major liability.  For many HNWIs, having their money under Chinese control is uncomfortable, and constitutes a major political risk.  Furthermore, Hong Kong is no longer the sole gateway to China.  Shanghai is a major financial centre in her own right. 

The recent events in China, from the protests, to the Chinese crackdown, to the fallout in terms of Hong Kong’s special status, has made transacting from the city expensive, and risky.  The Chinese government is actively discouraging large movement of funds out, which further makes investors nervous.  It is only natural that HNWIs are looking to diversify their risk, and Singapore is the obvious choice. 

In fact, problems in Hong Kong, and with the wider trade conflict between China and the United States have actually enhanced Singapore’s reputation as a stable, neutral, strategic haven.  It helps that Singapore is in the centre of Southeast Asia, one of the major growth regions of the world.  Indonesia is expected to become the fifth largest economy in the world by the end of the decade.  Vietnam, Thailand and Malaysia are expected to benefit from the shift of light and low technology manufacturing from China for cost and strategic reasons. 

Here are some key factors why Singapore is the most attractive place for HNWIs. 

Government Policy

The Singapore government has consistently introduced policies, over the last few quarters, to enhance compliance and streamline the regulatory framework.  MAS has also introduced the variable capital company (VCC) structure, which is every attractive for family offices and funds.  Further initiatives we expect to see include a digital currency, and further policy measures to attract UHNWIs, funds, and family offices to Singapore. 

Tax Regime

Singapore has one of the lowest personal income tax rates in the world.  Singapore has no capital gains, and no estate tax.  The tax system is consumption based, not income based.  Tax laws are transparent and compliance is aligned with the highest international standards.  There is a good balance between discretion, and transparency.  Singapore is as close to a tax haven any place can get, without actually crossing the line.  With the use of trust structures and distinct legal entities, tax liability can be further mitigated.  This makes Singapore a very attractive place to park funds. 

Financial Connectivity & Openness

Singapore is a major financial centre.  Almost every major bank, financial institution and insurer is present here.  There is a depth of talent to service the industry, from consultants, lawyers, bankers, accountants, asset managers, compliance officers, actuaries, financial advisors, and many more.  Singapore is open to foreign talent.  The country is cosmopolitan.  The connectivity allows funds to be moved quickly and efficiently into or out of the country.  Singapore’s investment rating for her sovereign debt is also AAA.  There is a Global Investor Programme to facilitate relocation to Singapore. 

In light of the above, it is very attractive to open a family office in Singapore to park and manage funds.  Singapore has already been successful in attracting some of the wealthiest individuals in the world.  For individuals with enough assets, they can open single family offices (SFO), a family office to service a single family.  In the process of opening a family office, there are key considerations that need to be addressed.  They are as follows: 

1. What is the objective of the family office?  This determines the structure, among other things.

2. What sort of assets will the family office manage?  This affects the compliance, and other legalities.  This also influences the people to be employed, and the size of the team.

3. What is the investment strategy, investment horizon, risk profile, and investment mandate?  This determines the operational structure, and the overall strategy.

4. What are the licensing requirements?  What are the incentives such as tax incentives and fee rebates that the office would qualify for?  This also considers exemptions.

5. What are the operational requirement of the family office?  This determines the physical layout of the office, the sort of media connectivity, the size of the team, and the sort of skills required to run the family office.

6. What sort of risk would the assets and the family office be exposed to, and how can they be mitigated?  This determines things such as risk management and insurance coverage. 

It is when these considerations are addressed, that we can have a conversation about actually setting up a family office in Singapore.