What is a Singapore Family Office (SFO)?
A Singapore Family Office usually 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. The term ‘family’ in this context refers to individuals who are lineal descendants from a single ancestor, as well as the spouses, ex-spouses, adopted children and step children of these individuals.
SFOs are exempted from engaging in fund management and financial advisory activities from licensing requirements. Under the statutory exemptions, an SFO may be exempted from licensing requirements if it was structured as either (a) a corporation which manages funds for its related corporations, or (b) a corporation that provides financial advisory services to its related corporations.
Requirements to be a SFO
MAS may consider the following to be of a SFO arrangement:
- where there is no common holding company, but the assets managed by the SFO are directly held by natural persons of a single-family;
- where assets are held under a discretionary trust, the settlor of the trust and the beneficiaries are members of the same family;
- where a family trust is set up for charitable purposes, the charitable trust is funded exclusively by settlor(s) from a single-family; and
- where non-family members such as key employees of the SFO are shareholders in the SFO for the purpose of alignment of economic interest and risk-sharing, the initial assets and additional injection of funds are funded exclusively by a single-family.
The business would need to have an interview with the MAS, which we will help to coordinate and prepare the client for.
After incorporation of the Single Family Office, various holding companies would be incorporated under the family office structure. There are some conditions that must be met if the corporation wants to qualify for the Enhanced Tier Fund Tax Exemption Scheme (also known as Section 13X).
For example, the office would need to hire at least three investment professionals, invest at least S$50 million into the fund entity and have local business spending of at least $200,000 a year.
The business would have to go through an interview with the MAS, which we will help to coordinate and prepare the client for as well as to see an investment strategy before granting approval for the business to qualify for Section 13X tax exemption.
The 13X exemption allows specified income derived from certain designated investments to be exempted from tax. The designated investments include a wide range of assets such as stocks, shares, securities and derivatives.
Family offices in Singapore could apply for a tax incentive under the Financial Sector Incentive-Fund Management Scheme (FSI-FM) which incentivises fund management and the provision of investment advisory services in Singapore.
Under this scheme, fee income derived by a Singapore fund manager from managing or advising a qualifying fund is taxed at a rate of 10% instead of the usual corporate tax rate of 17%.
To qualify for the scheme, a fund manager must hold a Capital Markets Services (CMS) licence, employ at least 3 experiences investment professionals earning at least S$3,500 per month and have a minimum AUM of S$250 million. This is very relevant for large family offices, where the scale of operations and the income derived from managing or advising qualifying funds could be substantial.
The company must first decide where the family office will be located in order to set up the family office. Other administrative tasks include establishing family governance guidelines and come up with a Family Constitution, opening of bank accounts, implementing IT systems for portfolio aggregation and so on.