Introduction

In our February 2022 newsletter, we elaborated on the launch of the Global-Asia Family Office Circle (“GFO Circle”) and how this new ecosystem for family offices in Singapore will allow new set-ups to grow and mature. In this month’s writeup, we will explore the conditions and advantages of setting up a Single-Family Office (SFO) in Singapore.

A SFO has no official legal definition but it generally 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. Here at Sim Mong Teck & Partners, we are experienced and familiar with the criteria and application process to the MAS either through the Section 13O (formerly known as 13R) Onshore Fund Tax Exemption Scheme or the Section 13U (formerly known as 13X) Enhanced-Tier Fund Tax Exemption Scheme.

There are currently 2 sets of SFO programmes in Singapore. On the one hand, the 13O and 13U SFO Programme, administered by the MAS allows foreign clients to get Employment Passes to relocate to Singapore as Investment Managers to run their own SFO. On the other hand, there is a separate SFO programme under the EDB administered Global Investor Programme (GIP) Option C, which allows eligible applicants to acquire fast track Permanent Resident (PR) status. We will do a full write up on the GIP in next month’s newsletter.

It has been openly announced that the number of SFO’s in Singapore has grown in recent years to about 400 as of December 2021. Singapore’s stable political system, modern infrastructure, overall emphasis on transparency and the rule of law makes it an ideal destination for HNWI not only from the region, but globally, to set up a SFO here.

The ongoing pandemic and current civil and global political tensions only accelerated the growth of this trend. The influx of applicants from China and Indonesia continues, while prominent HNWIs from the West such as Ray Dalio, Sergey Brin and James Dyson have also chosen to set up their family office in Singapore.

Conditions

For a 13O (formerly known as 13R) SFO structure, the key conditions are that the Fund Company must:

• Be incorporated in Singapore;
• Be tax resident in Singapore where the control and management of its business is exercised in Singapore;
• Use a Singapore-based fund administrator;
• Be managed or advised directly by a fund management company (FMC) in Singapore, which will typically be the applicant’s Family Office company;
• Successfully open a private banking account in Singapore for the purpose of holding the funds/assets managed by the FMC;
• The FMC managing or advising the Fund Company must employ at least one investment professional. This is typically the applicant him/herself or a family member.
• The FMC must either hold a capital markets services licence for fund management under the Securities and Futures Act (SFA), or, as is typically the case, obtain an exemption from this requirement from MAS to hold such a licence under the SFA;
• Incur at least S$200,000 in local business expenses in each financial year;
• Not use the Fund Company to serve other investment purposes apart from what it is approved for under the section 13O (formerly known as 13R) scheme;

Whilst, there is no minimum requirement for the fund size, based on our past experiences, we have successfully handled cases as low as a fund size of S$5 million for the assets under management (AUM) held by a 13O (formerly known as 13R) Fund Company.

For a 13U (formerly known as 13X) SFO structure, the key conditions are similar to the above save for the below differences, being:

• The Fund Company may either be a company incorporated in Singapore or overseas.
• The Fund Company must use a Singapore-based fund administrator if it is a company incorporated in Singapore, with its tax residency in Singapore, and where the control and management of its business is exercised in Singapore;
• Have a minimum fund size of S$50 million, and the fund size condition is only required to be complied with at the point of Formal application;
• The FMC managing or advising the Fund Company must employ at least three investment professionals. These can be the applicant and his family members.

Advantages for Foreign applicants

Global asset diversification

It is not an uncommon strategy as part of risk management and diversification for HNWI to seek to allocate part of their wealth to different areas in the world, if that suits their needs. Certain favourable features of Singapore’s current tax regime such as the lack of capital gains tax and inheritance tax also make it an ideal jurisdiction for HNWI to relocate their assets here.

Cost Efficiency via tax exemptions

As a tax exemption scheme, this incentive is the primary benefit that a Section 13O (formerly known as 13R) or Section 13U (formerly known as 13X) application will offer applicants. If approved, specified income from designated investments by the Fund Company will be entirely tax exempt. An example of such tax-exempt income are trading gains derived from stocks held by the Fund Company, or gains from Forex transactions by the Fund Company.

Singapore’s Geographic Location

Singapore has built on its advantageous geographical location to become one of the world’s top transportation hubs which attracts many HNWI that needs to travel for business purposes as Singapore provides multiple flights to major countries and cities around the world.

As Singapore is in the same time zone as China, it is a huge selling point for our Chinese clients as it allows them to control and operate their businesses without facing any time zone related issues. Many of our clients take into consideration that relocating to Singapore provides access to effective healthcare and education for their children and typically plan to settle down here after coming over.

Relocation

In setting up a SFO, foreigners acquire the flexibility to appoint themselves as the designated investment professionals to manage their very own family’s funds. In doing so, the need for an Employment Pass (EP) is hence well-justified and goes hand in hand with the MAS’s overarching present goal to attract HNWI and their funds to Singapore. Obtaining an EP successfully or potentially, 3 EP’s (required under the Section 13U (formerly known as 13X) Scheme) then opens up possibilities for applying for and obtaining either Dependant Passes (for spouse and children under 21 years) or Long-Term Visit Passes (for parents).

*Please note that the Dependant Passes and Long-Term Visit Passes are subjected to the prevailing requirements.

Strengthening Citizenship or PR renewal goals

Based on past experiences with our clients that came to Singapore through the former Financial Investor Scheme (FIS) or GIP, we observed that many clients have a common problem with their PR renewal due to lack of economic contribution. For clients who have no operating business in Singapore, setting up a SFO is one option that they can consider which can help them to establish economic contribution to Singapore in supporting their case for PR renewal.  We have precedents of such cases where we have successfully applied for a PR renewal using a SFO to support the PR renewal application.

Likewise for such former FIS and GIP clients who aspire to apply for Singapore Citizenship (SC), setting up a SFO can help to bolster the economic contribution aspect of the SC Application. For such cases, it can be argued that the SFO is evidential of the client’s intention and commitment to sinking roots in Singapore. For PR with the means and intention to do so, a strong economic contribution profile via a SFO could offer the twin benefits of a bolstered economic contribution profile to Singapore and the abovementioned tax exemptions on gains derived from their substantial investment assets. Needless to say, if ever the client decides to apply for SC down the road, it will always be helpful in building an overall stronger profile for the relevant authority’s evaluation of the client’s SC Application.

SMTP’s expertise

As one of our established areas of service, we are able to advise, guide and take interested applicants, be it in English or Mandarin, through the process of applying for the Section 13O (formerly known as 13R) or Section 13U (formerly known as 13X) tax exemption incentive schemes, set up the entities in the SFO structure for them as well as providing the necessary and required post-MAS approval annual compliance services for the respective entities.

Conclusion

As a specialised private client law firm, SMTP offers a bespoke, personal and service-oriented approach to navigating the application process for establishing a Section 13O (formerly known as 13R) or 13U (formerly known as 13X) SFO as simply as possible. We are prepared to assist interested applicants, be it Singaporeans, Permanent Residents or foreigners.

Should you or your clients be interested or require any assistance, please feel free to contact our Business Development Team to schedule a consultation with us.