Family Offices
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 (Section 13CA)
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 (Section 13R)
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 (Section 13X)
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.
Updates arising from changes in the Income Tax Act wef 31 December 2021
The 2020 Revised Edition of Acts came into force on 31 December 2021. As a result of this, the following sections in the Income Tax Act has now been renumbered:
- Section 13CA is now renumbered as section 13D,
- Section 13R is now renumbered as 13O, and
- Section 13X is now renumbered as 13U.
More stringent criteria for Section 13O and 13U schemes wef 18 April 2022
The family office schemes are administered by the Monetary Authority of Singapore (MAS) which has announced more stringent criteria for the family office incentive schemes. These new requirements for new applications under section 13O (previously section 13R) and section 13U (previously section 13X) will be effective from 18 April 2022 onwards.
The updated criteria relate to a minimum fund size now being imposed on section 13O scheme, investment professionals to be employed by the manager, local business spending. There is also a new requirement for the funds to now have local investments.
A summary of the updated criteria for the two schemes is as follows:
| Section 13O | Section 13U | |
| Minimum AUM (based on Net Asset Value) | S$10 million at point of application which is to be increased to S$20 million within 2 years. | S$ 50 million at point of application (no change). |
| Investment Professionals | Minimum of 2, with a 1 year grace period that may be given to employ the 2nd investment professional. | Minimum of 3 with at least one of them not being a family member. A 1 year grace period may be granted to meet this requirement. |
| Local investments | 10% of AUM or $10 million, whichever is lower. A 1 year grace period will be granted if this cannot be met at time of application. | |
| Minimum total business spending (per year): | ||
| – AUM < S$50 m | S$200,000 | S$500,000 |
| – $50 m > AUM >= S$100 m | S$500,000 | S$500,000 |
| – AUM >= S$100 m | S$1 million | $1 million |
Local investments include investments in equities listed on local stock exchange, equity investments in unlisted Singapore companies, qualifying debt securities and funds distributed by fund managers in Singapore.
The minimum amount of total business spending is now based on amount of Assets Under Management (AUM).
Updated conditions for 13O and 13U Family Office tax incentive schemes from 5 July 2023
The Monetary Authority of Singapore (“MAS”) announced changes to the conditions for new applications for Sections 13O and 13U Fund Tax Incentive Schemes for Family Offices with effect from 5 July 2023.
The updated conditions to apply for the schemes under Section 13O and 13U with effect from 5 July 2023 are as follows:
| Section 13O | Section 13U | |
| ————————– | ——————– | ——————– |
| Assets Under Management (AUM) |
S$20 million in Designated Investments | S$50 million in Designated Investments |
| ————————– | ——————– | ——————– |
| Investment Professionals |
Minimum of 2 professionals, at least 1 of whom is not a family member of the beneficial owners | Minimum of 3 professionals, at least 1 of whom is not a family member of the beneficial owners |
| ————————– | ——————– | ——————– |
| Requirements for Investment Professionals |
|
|
| ————————– | —————————————- | |
| Spending Requirement |
Tiered Spending Requirement (see below) with at least S$200,000 in Local Business Spending (LBS) | |
Following amounts will be recognised in Tiered Spending Requirement computation:
|
||
| ————————– | —————————————- | |
| Capital Deployment Requirements |
1. Investment of lower of S$10 million or 10% of AUM in:
2. 1.5 or 2 times the amount invested in eligible investments will be included in the computation for Capital Deployment Requirement. |
|
| ————————– | —————————————- | |
| Private Banking Account |
Fund must have a private banking account with a MAS-licensed financial institution | |
| ————————– | —————————————- | |
Tiered Spending Requirement
Starting from 5 July 2023, there will be different spending requirements depending on the size of the AUM of the fund:
| Assets Under Management | |||
| Below S$50m |
S$50m or more but less than S$100m |
S$100m or more |
|
| ————————– | ——————– | ——————– | ——————– |
| Minimum spending requirement per YA |
S$200,000 |
S$500,000 | S$1 million |
| ————————– | ——————– | ——————– | ——————– |
| Local business spending |
S$200,000 |
S$200,000 |
S$200,000 |
| ————————– | ——————– | ——————– | ——————– |
| Other qualifying spending |
– |
|
|
| ————————– | ——————– | —————————————- | |
Grants refer to contribution with no return of principal and income.
Capital Deployment Requirement
Starting from 5 July 2023,
- Climate-related investments and blended finance will be recognised as eligible investments, and
- A multiplier will be applied to the amount of investments in certain types of eligible investments in determining whether the new Capital Deployment Requirement is met.
A multiplier of 1.5 times (1.5x multiplier) will be applied to investments consisting of concessional capital in blended finance structures with substantial involvement of financial institutions in Singapore.
A multiplier of 2 times will apply to the following types of investments:
- Deeply concessional capital in blended finance structures with substantial involvement of financial institutions in Singapore
- Equities listed on MAS-approved exchanges
- ETFs with primary mandates to invest in Singapore-listed equities on MAS-approved exchanges
- Non-listed funds distributed by licensed financial institutions in Singapore with primary mandates to invest in Singapore-listed equities on MAS-approved exchanges
Deeply concessional capital refers to capital that:
- has no income from the investment, or
- bears first loss before any other equity (including other capital contributions that are already concessional with lower returns) and earns lower return than any other equity.
Application to existing approved funds
Existing funds which applied and were approved for the schemes after 18 April 2022 can choose to fulfil the conditions under the Tiered Spending Framework and Capital Deployment Requirement with the new options when submitting their Annual Declarations that are due after 5 July 2023.
