Singapore’s stricter rules for family offices to qualify for tax incentives, including investing either 10% of assets under management or S$10 million (US$7.22 million) locally, are expected to shore up its position as a regional wealth management hub, according to industry players.
The move comes as rich individuals from the region and beyond look to set up shop in the city state to manage their family wealth.
Industry players say that longer wait times for registration and an influx of inquiries to financial advisers in recent months underscore rising interest in Singapore from the affluent.
Interest from North Asia is especially pronounced as investors and asset owners worry about further fallout from China’s zero-Covid policy and uncertainties created by the national security law in Hong Kong, Singapore’s main rival as an Asian financial hub.
The Monetary Authority of Singapore, the city state’s central bank and financial regulator, received 100 applications for tax incentive schemes for family offices in the first four months of the year.
The new tax rules, rather than hurting Singapore, are seen as indicative of the stability of the local business environment and financial industry, while providing the impetus for investors to decide where to set up shop.
“It's also to get people thinking about how this whole regime, this landscape is expected to professionalise more,” Kevin Ho, chief operating officer of fund management and financial advisory firm Pilgrim Partners Asia, tells Asia Asset Management.
The rules kicked in on April 18 for the so-called 13O and 13U schemes.
They require both schemes to invest 10% of assets under management or S$10 million, whichever is lower, locally. This could be in debt securities, equities listed on Singapore exchanges, funds distributed by Singapore-registered fund managers, or private equity investments into non-listed Singapore-incorporated companies.
Under the 13O scheme, family offices will now need to have at least S$10 million of assets under management at inception, doubling to S$20 million in two years. They will also need to eventually hire two investment professionals, and incur S$200,000 in annual business spending.
Minimum assets under the 13U scheme remain at S$50 million. Also intact are requirements to employ three investment professionals and incurring S$500,00 a year in business expenses. What’s new is that one of the three investment professionals must not be a family member.
Knight Frank’s 2020 wealth report forecast Asia to surpass Europe as the second largest wealth hub after North America by 2026, with 225,391 ultra-high-net-worth individuals holding more than $30 million of assets, including 6,000 in Singapore. The Singapore projection marks a 268% surge in ten years.
MAS’ most recent count of single family offices in the city state was 400 as of end-2020 following a five-fold increase between 2017 and 2019, a spokesman for the regulator says in an email reply to questions from AAM.
Requiring family offices to expand their commitments locally is seen as part of a broader strategy to evolve the financial industry to bolster economic growth.
“The tax incentives are meant to encourage strong roots in Singapore beyond a banking account of cash,” Eric Chua, chief investment officer & family partner of Singapore-based Harvest Family Office LLP, tells AAM. “We would like to see that more if not all family offices' activities take place in Singapore with more employment of locals and use of Singapore's wealth and professional services.”