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Setting Up a Family Office

Updated: May 27



What a Family Office is


A family office is an entity that has been established to provide services to high-net-worth (‘HNW’) families. A key function of the typical family office is the management of the assets of one or more HNW families. These assets may be held by captive investment vehicles which form part of a family office structure.


There are many types of assets which you can inject into a family office. These range from financial investments to even private or publicly-listed companies. Depending on the needs of the family, assets may include investing in financial portfolios, or managing charitable interests. They handle financial investments, shares, properties and other assets.


Family offices can also be investing assets in real estate, digital assets, impacting investing, private equity, real estate funds, niche direct private investment (pre-initial public offering, or IPO rounds) in selective sectors such as electric vehicles, biotech and disruptive big data applications.


These offices expand the pool of capital for Singapore-based start-ups and business ventures, as well as funds that invest in such companies.


A single family office (SFO) generally refers to an entity that manages assets in the name of only one family and is wholly owned or operated by the same family.


Why set up a Family Office


There could be many reasons for setting up a family office but increasingly families are looking to in-source the fund management function or at the minimum be more involved in the management of their financial assets. Many times, the investment team may also include the next generation family members who want to manage their own wealth.


The setting up of a family office is typically coupled with the setting up of a family fund. The set-up of a family fund institutionalises the holding structure for the family’s assets, facilitates succession planning and creates a more efficient and transparent structure.


Given the worldwide development on tax transparency and increasing scrutiny over structures in offshore jurisdictions, it is essential that families start considering whether they would need to institutionalise the management of their family matters and investment management through a family office structure.


The Purpose of Family Offices


- Consolidation of family wealth and centralized unit to manage the family assets

- Seeking clear and transparent tax regime

- Portfolio management, wealth planning and investments purposes

- Opportunity to create and formulate a family governance structure

- Philanthropic Planning


Investment Strategy and Mandate for Family Office


To begin, private bankers whom we partner will need to determine your investment objectives and risk profile. Thereafter, they determine the amount of personal assets that will be used for investments.


Once they have these details, they will propose an investment strategy and investment products that matches your risk profile and objectives.


For applications under the Monetary Authority of Singapore (MAS) and the Economic Development Board (EDB), the regulatory authorities would expect the family office to have a clear roadmap of the investment strategy and business mandate as part of its evaluation process.


Why Family Office is on the Rise


Complexity

Considering whether to set up a family office depends on many factors, but perhaps the biggest factor driving the interest in family offices is the complexity that individuals and families face when managing their own affairs today. Imagine trying to juggle household administration, law and tax, personal investment and philanthropy. At some point, these tasks will become full-time tasks, allowing jugglers to use more expertise.


Today’s low interest rate environment, turbulent financial markets, and increasingly volatile geopolitical conditions have led wealthy families to seek better returns, considering more complex investment tools, from private equity to real estate to hedge fund, usually available in overseas markets. Therefore, complexity is also related to asset management itself. This complexity requires more complex cash management and asset adjustments, putting pressure on family members or a trusted advisor.


Taxes

Another trend seen around the world is the sheer volume and complexity of the tax system. The globetrotting clan may find that their international footprint can create confusion from different tax and reporting requirements in each country in which they work, live or study.


Management to avoid reputation risk for violating local tax regimes also forces people to find a way out with the family office solution. Households based in various jurisdictions should consider setting up a family office in a tax neutral location to avoid tax duplication in jurisdictions with conflicting or overlapping tax rates.

Wealth transfer planning


Lifetime tax is not the only tax concern families face. Many wealthy families choose family offices to help in their succession planning. Families and individuals may want to reduce the impact of estate or wealth taxes on future generations. Family office advisors may be retained to help plan for the future. The family office usually plays a larger role in the “wealth” education of future generations.


Singapore's Growing Appeal to Family Offices

In recent years, the number of family offices established to run a wealthy family business has skyrocketed. Over the last two decades, global wealth growth is reflected in the increase in the number of family offices. The number of millionaires is increasing due to phenomena such as the Internet boom and the rise of technology.


Given the growth of wealth in Asia, it is not surprising that Asian families began to plan and institutionalize family wealth management.


With the increase in wealth in Asia, more and more families are consolidating their wealth in Singapore through family offices.


Singapore has become one of the leading wealth management centers in the world and Asia. It gives investors access to global and global opportunities and world-class wealth management capabilities. The breadth and depth of the institutions in Singapore gives them access to global and regional financial markets at all times while providing many wealth management services to meet their various needs.


Singapore is gradually becoming the main jurisdiction to set up family offices and family funds. It meets the criteria required by many families, including:


1. Strong regulatory framework and sound financial oversight;

2. Political and economic stability;

3. Advanced financial services industry and infrastructure;

4. Stable business-friendly government policy;

5. Transparency and very strong legal regulations;

6. Existing private banking business relationships;

7. Skilled workforce and availability of talent pools; and

8. Substance exists where family offices and investment teams can establish and operate.


The family office trend is expected to continue to grow, and simplicity, efficiency, clarity and cost savings associated with setting up a family office will make Singapore the base for these family offices.


Singapore as a Family Office Jurisdiction


- Reputation and Stability

- Major Finance Centre - pro business environment & availability of talent

- Ease of creating economic substance in Singapore

- Ease of relocating family / decision makers / employees to Singapore

- Availability of tax treaties, investment protection treaties and trade agreements

- Availability of tax incentives

- Licensing exemption available for Single Family Offices

- Pathway to establish Singapore residency


Families have been attracted by the residency and tax schemes in Singapore.


Key Processes to start your Family Office in Singapore


As one of the world's easiest places to do business, setting up a family office in Singapore is seamless and efficient. Here are some of the key processes.


Setting up company in Singapore


In order to incorporate a company in Singapore, one must file an application on the Accounting and Corporate Regulatory Authority (ACRA) website. Please refer to the link for more information on the application requirements, such as registration of businesses, incorporation of companies and compliance matters.


The SFO structures in Singapore are typically designed to be exempt from regulation under local securities law. This avoids the need for the SFO to obtain a license or become registered to provide fund management services to the investment vehicles held by a HNW family.

There are existing class exemptions from licensing for the provision of fund management or financial advisory services to related corporations. Where an entity in substance only manages funds on behalf of a single family but does not fall neatly within the scope of existing class licensing exemptions, it may apply for a licensing exemption from the Monetary Authority of Singapore (MAS) under the Securities & Futures Act.

Applying for Employment Pass (EP)


If key family members with specialised skillsets want to acquire a legitimate status to work and be based permanently in Singapore to work in family offices, these family members will need to be appointed as members of their Family Office Investment Committee, and apply for an Employment Pass (EP) Learn more about the EP.


A Singapore SFO may even be used as part of an application for permanent residency by HNW family members under the Global Investor Programme which is administered by the EDB.

Your incorporation journey

1. OBJECTIVES

Family's vision & goals

Extent of family's involvement

Assets to be managed


Families can discuss internally to determine the family's needs and goals


2. BUSINESS PLAN

Jurisdiction analysis

Legal structure

Tax planning

Operating cost & budget

Services to be provided (e.g. SFO/MFO)


Constructing a business plan


Set up a business plan for the operating model of the family office, its functional setup and infrastructure, reporting and control systems, and governance – including boards such as the investment committee and family council.


Write a detailed plan covering financial projections, short- and long-term timelines, detailed job descriptions, lists of employee qualifications, performance goals, and qualitative goals. Include growth projections for the family office to allow for strategic hiring of employees and expansion of infrastructure.


Align the goals of the family with those of the family office management, and incentivize accordingly.


A written business plan, solid long- and short-term strategic plans, and the right staff are the foundations for a family office.


A business plan should include:

  • The vision and mission

  • The relationship to the family business

  • The structure of the office, including legal structure and ownership and intended regulatory and tax impact

  • Jurisdiction

  • Governance

  • Services

  • Staffing

  • Operations, including what key technology is needed

  • Financials including funding and budgeting

  • Work plan - how will the office be implemented?


An independent advisor can lead and facilitate the process, answer inconvenient but essential questions and help to bring new perspectives as well as develop holistic solutions.


Families can engage family office service providers e.g. tax, legal, finance and banking professionals to be advised on efficient structures to manage their wealth and assets and assist in the entire setup process.


3. SET UP


3.1 Incorporation

Licensing exemption application


Family office service providers can assist in the incorporation of family office structure, assessment and application for licensing / licensing exemption.


3.2 Recruitment

Establish advisory, investment committees, family board

Infrastructure & governance - office space, IT, bank accounts

Standard operating procedures


Recruitment and real estate service providers can assist in the hiring of professionals and sourcing of both office and residential space for key family office principals and executives to spearhead the family office set up in Singapore


3.3 Grants and tax incentives application


Family office service providers can advice and assist in the application of the grants and tax incentives.


Tax incentive schemes for the establishment of an SFO-based structures


Singapore’s fund tax incentives in the Singapore Income Tax Act (Cap 134) (‘ITA’) provide an SFO an exemption from Singapore tax on income and gains made in relation to most types of financial assets. Notably, this tax exemption does not apply to income or gains from Singapore real estate and certain other financial assets which confer an indirect ownership interest in Singapore real estate.


The Singapore Resident Fund Scheme of Section 13O of the ITA and the Enhanced-Tier Fund Tax Incentive of Section 13U of the ITA are common tax incentives sought by the investment vehicles which are managed by an SFO.


The 13U 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.


If the business is planning to apply for the Exemption Scheme, there are requirements that need to be met.


SINGAPORE RESIDENT FUND SCHEME SECTION 13O (FORMERLY KNOWN AS 13R)


APPROVALS: Must be approved by the MAS, Changes in investment strategy must be approved by the MAS


LEGAL FORM: Must be Singapore company or variable capital company, Cannot have previously carried on business


SPENDING: AUM < $50 million: S$200,000 minimum business spending per year,

AUM >/= S$50 million and < S$100 million: S$500,000 business spending,

AUM >/= S$100 million: S$1 million business spending


Expenses incurred should relate to the operating activities of the fund (as opposed to financial activities). Typical expenditure includes, but are not limited to, remuneration, management fees, tax advisory fees, and operating costs.


ADMINISTRATOR: Must appoint a local fund administrator


ASSETS: Acquisition of assets on market terms, Minimum fund size of S$10 million at the point of application, Fund commits to increasing its Asset under Management ("AUM") to S$20 million within a 2-year grace period


INVESTOR MAKE-UP: Subjected to ownership restrictions, otherwise financial penalty restrictions apply


INVESTMENT PROFESSIONALS ("IPs"): Must be licensed or exempt as a fund manager, Must manage or advise the fund, where the family office employs at least two IPs.


Investment professionals refer to portfolio manage, research analysts and traders who are earning more than S$3,500 per month and must be engaging substantially in the qualifying activity.


In the event that the family office is unable to employ two IPs by the point of application, the fund would be given a one-year grace period to employ the second IP.


LOCAL INVESTMENT: The fund managed by the family office will invest at least 10% of its AUM or S$10 million, whichever is lower, in local investments at any one point in time. In the event that the fund is unable to invest at least 10% of its AUM or S$10 million, whichever is lower, in local investments by the point of application, the fund would be give a one-year grace period to do so.


Products may include: i) equities listed on Singapore-licensed exchange, ii) qualifying debt securities, iii) funds distributed by Singapore-licensed/registered fund managers, iv) private equity investments into non-listed Singapore-incorporated companies (e.g., start-ups) with operating business(es) in Singapore.


ENHANCED-TIER FUND INCENTIVE SECTION 13U (FORMERLY KNOWN AS 13X)


APPROVALS: Must be approved by the MAS, Changes in investment strategy must be approved by the MAS


SPENDING: AUM >/= S$50 million and < S$100 million: S$500,000 minimum business spending per year,

AUM >/= S$100 million: S$1 million business spending


ADMINISTRATOR: Must appoint a local fund administrator


ASSETS: Invest at least S$50 million into the fund entity at time of application


INVESTMENT PROFESSIONALS ("IPs"): Must be licensed or exempt as a fund manager, Must manage or advise the fund, where the family office must employ at least three IPs with at least one IP being a non-family member.


In the event that the family office is unable to employ one non-family as an IP by the point of application, the fund would be given a one-year grace period to do so.


LOCAL INVESTMENT: The fund managed by the family office will invest at least 10% of its AUM or S$10 million, whichever is lower, in local investments at any one point in time. In the event that the fund is unable to invest at least 10% of its AUM or S$10 million, whichever is lower, in local investments by the point of application, the fund would be give a one-year grace period to do so.

Singapore’s fund tax incentives are complimented by an exemption on interest withholding tax which can be relied upon by qualifying funds. These qualifying funds are also able to reclaim most of the Singapore Goods and Services Tax (‘GST’) charged by local suppliers which includes GST which may be charged by a Singapore SFO.


The combination of an exemption from regulation and Singapore’s fund tax incentives means that a Singapore SFO structure can be highly tax-efficient with a relatively low regulatory burden. Where a Singapore company is used to hold the accumulated wealth of a HNW family, this tax efficiency can be further enhanced by the ability to claim benefits under Singapore’s extensive network of double taxation agreements.


4. OPERATIONS

Key performance metrics (KPI)

Monitor & review

Plug into family office and investment networks in Singapore

Build and expand family office functions (e.g. philanthropy)


Besides commencing the family office operations, families can also explore family office related networks, events and initiatives to be exposed to investment opportunities and be plugged into Singapore's vibrant family office ecosystem to achieve the continuation of family legacy across generations.

Class Exemptions from Licensing under the Securities And Futures Act (SFA) and Financial Advisers Act (FAA)


Family offices in Singapore are typically structured with an investment holding company and an asset management arm.


A SFO typically 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 may refer 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.


There are existing class exemptions from licensing under the SFA and FAA for the provision of fund management and financial advisory services respectively to related corporations.


A SFO may rely on the exemption which applies automatically provided for a corporation which manages funds for its related corporations, under paragraph 5(1)(b) of the Second Schedule to the Securities And Futures (Licensing And Conduct Of Business) Regulations [SF(LCB)R]. An example of an ownership structure for a SFO which could fall under this exemption is illustrated below:


SFO (a corporation) Manages / Advises Investment Fund for its related corporations, 100% owned by a Common Holding Company


A SFO that provides financial advisory services to its related corporations may rely on an existing exemption from licensing under regulation 27(1)(b) of the Financial Advisers Regulations.


Application for a case-by-case licensing exemption by a Single Family Office which does not fall within the scope of existing class licensing exemptions


An entity that is in substance managing funds on behalf of a single family only, but that does not fall neatly within the scope of existing class licensing exemptions may seek a licensing exemption from MAS under section 99(1)(h) of the SFA.


The following information would be useful to facilitate MAS’ assessment of such an application for exemption to be a SFO:


· Names of the shareholders and directors of the SFO;


· A chart depicting the shareholding structure of the SFO;


· A description of how the SFO is related to the investment fund vehicle and the family/beneficiaries;


· A description of the profile of the family whose assets will be managed by the SFO; and


· A description of the nature of activities to be carried out by the SFO.


The following arrangements are broadly considered typical of SFO arrangements. A SFO which has (or plans to have) these arrangements is advised to include the information when applying for licensing exemption:


· Where there is no common holding company, but the assets managed by the SFO are held directly 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 trusts are funded exclusively by settlor(s) from a single family;


· 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 MAS may grant this exemption where an SFO only manages assets which are held by members of the same family. MAS may take between two and four months to review an application for licensing exemption, depending on, inter alia, the complexity of the arrangement, quality of the information submitted, and responsiveness of the applicant.


Apply to MAS for licensing and tax exemption


Once the business has been incorporated as a Single Family Office, various holding companies would be incorporated under the family office structure. If the business is planning to apply for the Enhanced Tier Fund Tax Exemption Scheme (Section 13U), requirements need to be met.


The business would need to have an interview with the MAS, which we will help to coordinate and prepare the client for.


The MAS would want to see an investment strategy before granting approval for the business to qualify for Section 13U tax exemption.


General Timeline


Application Timeline


Weeks

1-2 • Schedule meeting with MAS

• Collect documents for incorporation of FO/companies


3-4 • Incorporate companies and open bank account

• Prepare and submit EP application forms to MOM (if needed)


5-6 • Prepare slides for interview with MAS

• Coordinate interview with MAS


7-8 • Submit proposal deck to MAS

• Attend to MOM queries to ensure smooth EP application


9-10 • MOM to release outcome of EP application

• Meet with MAS


11-12 • Set up MASNET account, complete incentive application form and prepare other

documents for application


>13 • Submitted forms for incentive application and MAS to release results after

assessment


Ongoing operational requirements


To set up the family office, the business would need to determine the family office’s premises.


We will also assist family offices in other administrative matters including opening the required bank accounts, implementing IT systems for portfolio aggregation and so on.


We would also help prepare annual tax reporting as well as other mandatory reporting such as on CRS and FATCA.


We will also be external auditors conducting annual financial audits as well as ongoing investment strategy reviews for the family offices.


Bestar Family Office services


Bestar can assist in the incorporation of family office structure, assessment and application for licensing / licensing exemption. We can advice and assist in the application of the grants and tax incentives


Our tax advisers will explain to the family the different reporting requirements and tax exemption schemes to see how to best maximise the available tax benefits.


Bestar works with top-notch private bankers to offer the best and most holistic advice to our clients.


Our services:


• Structuring and tax advisory

• Corporate governance, regulatory and compliance advisory

• Due diligence

• Philanthropy consulting

• Corporate secretarial

• Virtual family office – accounting, bookkeeping and payroll

• Statutory and non-statutory audit

• Licensing and regulatory compliance

• CRS and FATCA advisory and compliance

• Income tax and GST compliance

• Personal tax and immigration

• Transfer pricing analysis and documentation


How we can help, contact us.



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