5 minute read 30 Jan 2024

Singapore has been actively positioning itself as a global family office hub and more can be done to enhance its attractiveness.

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How to propel Singapore’s growth as a family office hub

Desmond Teo
By Desmond Teo

EY Asia-Pacific Family Enterprise Leader; Asia-Pacific EY Private Deputy Leader; ASEAN and Asia-Pacific EY Private Tax Leader

Passionate about lifelong learning and building up new areas of work. Family of three children and two dogs, with a passion for all things old.

5 minute read 30 Jan 2024
Related topics Family enterprise Private Business Tax Government and Public Sector
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Singapore has been actively positioning itself as a global family office hub and more can be done to enhance its attractiveness.

In brief
  • With its robust regulatory framework, talented workforce and other favorable factors, Singapore is well-placed to boost its position as a family office hub.
  • To this end, the government can consider reducing compliance requirements, extending tax incentive schemes and providing flexibility in wealth structures.
  • Another key action is to enhance regulations and incentives for environmental, social and governance investments as affluent families focus more on this area.

Global wealth is at one of its highest levels today. The Asia-Pacific region accounts for 42% (or S$289 trillion) of total global wealth as at August 2023.1 Within the next decade, baby boomers are expected to impart S$25 trillion of collective wealth to the next generation. This has fueled the growth of family offices established by affluent families to manage their family assets.

Singapore is emerging as an attractive location for family offices in Asia. The nation’s robust regulatory framework, stable economy, favorable tax and regulatory conditions, talented workforce, and strategic geographical location are key draw factors. Additionally, Singapore is among the world’s least corrupt countries, and its advanced health care infrastructure and safe environment appeal to affluent families.

The growth of Singapore’s family office industry augments the city-state’s position as a leading financial center. Where wealth is brought onshore, positive spin-offs to the wider economy are bound to unravel, such as greater venture capital for local startups, more employment opportunities for residents and increased industry collaboration.

Singapore’s attractiveness has not been left to chance. The country has been actively positioning itself as a global family office hub, implementing numerous initiatives to attract family offices. For example, Singapore-based Single Family Offices (SFOs) are exempt from licensing in Singapore if they manage proprietary wealth. Other incentives include the Enhanced-Tier Fund Tax Incentive (Section 13U), the Singapore Resident Fund Scheme (Section 13O) and the Philanthropy Tax Incentive Scheme for family offices.

These efforts have gained traction. According to the Economic Development Board, the number of family offices in Singapore increased from about 400 in late 2020 to around 1,100 around the end of 2022. Yet this is a mere fraction of the estimated 20,000 family offices worldwide today.

What can Singapore do to elevate its position as a family office hub?

How EY can help

Family Office

Today, private family capital is larger than private equity and venture capital combined. The increasing concentration of wealth held by very wealthy families and rising globalization are fueling the growth of family offices.

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Reduce compliance requirements and extend tax incentive schemes

Singapore introduced Section 10L of its Income Tax Act, which pertains to the taxation of gains from the sale or disposal of foreign assets occurring on or after 1 January 2024 that are received in Singapore by businesses without adequate economic substance in Singapore. This is in line with the nation’s focus on anchoring substantive economic activities in the country.

Section 10L excludes from its application business entities that are part of certain tax incentive schemes. However, it does not explicitly exclude companies that are tax-exempt under Sections 13O and 13U of Singapore’s Income Tax Act, which are tax incentive schemes for funds managed by Singapore-based fund managers, including SFOs. The conditions for the tax incentive schemes for investment vehicles managed by SFOs have been tightened to instill economic substance. Therefore, the government can consider the automatic exclusion of investment vehicles eligible for tax incentives under Section 13O and Section 13U of the Income Tax Act from Section 10L of the act.

This will reduce the duplicative administrative and compliance burden for family offices to self-assess for Section 10L as well as comply with Sections 13O or 13U. It will also simplify regulatory considerations for families that wish to set up their family office vehicles in Singapore.

To provide a conducive operating environment for Singapore-based fund managers, including SFOs, the government may also wish to extend the tax incentive schemes for funds under Sections 13D, 13O and 13U that are due to expire on 31 December 2024 for another five years. 

Automatic exclusion of investment vehicles that qualify for tax incentives under Sections 13O and 13U of the Income Tax Act from Section 10L will reduce the compliance burden for family offices.

Enhance regulations and incentives for environmental, social and governance (ESG) investments

There is growing interest among ultrawealthy families to look beyond conventional performance metrics in investing. According to the 2022 EY Single Family Office Study, 44% of respondents plan to exclude investments that do not align with the family’s ethics and values. Affluent families are also considering ESG factors and customer and stakeholder influence when investing their wealth. The next generation is notably behind this shift as it is keen to explore positive impacts alongside financial gains.

While current tax incentives are broad enough to cater to companies that prioritize ESG, more can be done. Enhanced government support, through clearer ESG regulations and incentives, will boost the growth of the ESG ecosystem. In turn, this will attract more ESG-compliant businesses and startups and increase ESG investments. As affluent families increasingly consider ESG factors in their investment strategies, having more defined ESG regulations and incentives becomes crucial for Singapore to stay relevant and competitive as a hub for SFOs.

Refine the list of designated investments under Sections 13O and 13U

The use of carbon credits is expected to increase with the growing global demand for voluntary carbon credits and they could form a meaningful component for investment portfolios. The current list of designated investments only includes emission derivatives and emission allowances and not carbon credits.

To facilitate Singapore’s growth as a carbon trading hub, high-quality carbon credits available for offset against carbon tax should be included in the list of designated investments for investment funds and SFO investment vehicles.

The next generation is also keen to explore burgeoning areas, such as digitalization, artificial intelligence, FinTech and the green economy. In particular, digital assets, such as tokens and cryptocurrencies, are becoming a significant asset class for global investors. Amid the changing attitudes on this asset class, the government can consider expanding the list of designated investments to include alternative assets, such as certain digital assets. 

Provide flexibility in wealth structures

The Variable Capital Company (VCC) framework is a corporate structure for investment funds in Singapore. Since its introduction in 2020, it has seen an encouraging uptake among fund managers.

The use of the VCC framework can be extended to investment vehicles managed by SFOs. This affords SFOs greater flexibility in deciding how to organize their asset-holding structures to reap the benefits of using the framework, such as access to double-tax treaties and the ability to segregate assets and liabilities to avoid comingling of assets. This would be especially useful for multigenerational families.

Singapore has established a firm foundation as a destination for family offices. To be a leading global family office hub, the nation needs to continuously refine its policies to align with international standards and the evolving needs and interests of affluent families.

This article was first featured in The Business Times on 26 January 2024.

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  • Show article references#Hide article references

    1. “Intergenerational wealth and the great wealth transfer,” The Business Times website, businesstimes.com.sg/wealth/wealth-investing/whos-who-private-banking-aug-2023/intergenerational-wealth-and-great-wealth, accessed 12 January 2024.

Summary

To enhance Singapore’s position as a family office hub, the government can consider several key actions. These include reducing compliance requirements and extending tax incentive schemes while enhancing regulations and incentives for environmental, social and governance investments. It is also important to refine the list of designated investments under Sections 13O and 13U of Singapore’s Income Tax Act and provide flexibility in wealth structures.

About this article

Desmond Teo
By Desmond Teo

EY Asia-Pacific Family Enterprise Leader; Asia-Pacific EY Private Deputy Leader; ASEAN and Asia-Pacific EY Private Tax Leader

Passionate about lifelong learning and building up new areas of work. Family of three children and two dogs, with a passion for all things old.

Related topics Family enterprise Private Business Tax Government and Public Sector
Upvote