There are two types of Family Offices – Single Family Office (SFO) and Multi-Family Office (MFO). A SFO manages the assets of a single family and may be owned by the family whereas a MFO is usually set up by professionals and manages the assets for multiple families or funds.
One key benefit of setting up family offices in Singapore is the tax incentives available to them, under which the income of family offices can be exempt from tax in Singapore. If the family office is set up as a Singapore company – for example, under the onshore fund scheme – the dividends from the company are exempt from tax in the hands of the shareholders.
There are currently three tax incentive schemes for family offices in Singapore:
- Offshore fund
- Onshore fund
- Enhanced-tier fund
The offshore fund scheme is meant for non-Singapore Citizens and non-residents. The onshore fund scheme requires the fund to be held by a company which incorporated and resident in Singapore. The enhanced-tier fund scheme requires the amount of Asset Under Management (AUM) of at least S$50 million.
Offshore Fund Scheme
Under the Offshore Fund Scheme, the specified income of from designated investments which are managed in Singapore by any fund manager will be exempt from tax. This applies to income of individuals who are not Singapore Citizens or residents and non-resident companies without any PE in Singapore. Funds which are set up as companies must not be wholly owned by Singapore Citizens or residents (with certain exceptions). A company is considered as tax resident in Singapore if the control and management of the business is in Singapore.
It should be noted that only specified income from designated investments qualify for this tax exemption.
There are financial penalties payable if the beneficial ownership of fund (being a company or a trust) belongs to certain persons and/ or their associates which exceed the prescribed percentages or if the ownership of the fund (company or trust) is held through non-bona fide entities. There are no such financial penalties if the beneficial owners of the fund are individuals.
There is no approval required to qualify for this tax exemption.
Onshore Fund Scheme
Under the onshore fund scheme, the specified income of an approved company from designated investments which are managed in Singapore by a fund manager or an approved person will be exempt from tax. The family office must be a company which is incorporated and resident in Singapore and must have a minimum business spending (both local and overseas) of S$200,000 per year. There is no minimum fund size required. A company is considered as tax resident in Singapore if the control and management of the business is in Singapore.
To qualify for tax exemption under the onshore fund scheme, the beneficial ownership of Singapore Citizens or residents in Singapore in the onshore fund must be less than 100%. The investment strategy must also remain unchanged after approval of the family office has been given. The income must not be derived from investments transferred from a person carrying on business in Singapore except for those sold on market terms and conditions.
There are financial penalties payable if the beneficial ownership of fund belongs to certain corporations which exceed the prescribed percentages. There are no such financial penalties if the beneficial owners of the fund are individuals.
Fund management is a regulated activity and a fund manager is required to hold a capital markets services (CMS) licence unless exempted from holding such a licence. One such exemption is available to a fund manager which is a corporation providing the fund management services to its related corporations – for example, fellow subsidiaries. A common structure for the family office will be to form a Singapore holding company with two subsidiaries, one of which is the fund manager and the other holding the managed funds.
Approval is required to qualify for the tax incentive. There is a preliminary submission for the application followed by a formal submission. Information required for the application includes information on the family, shareholders and directors, relationships within the structure, source of funds, estimated fund size and investment strategy. The process is expected to take 2 to 4 months.
Enhanced-Tier Fund Scheme
The Enhanced-Tier Fund Scheme applies to approved persons, master funds, feeder funds, SPVs (special purpose vehicles), master-feeder fund structures, master-feeder fund-SPV structures or master fund-SPV structures.
The exemption applies to specified income from designated investments which must be managed in Singapore by a fund manager. Among other conditions, the size of the funds managed by the fund manager must be at least S$50 million.
Approval under the scheme is required.