Setting up a Family Office in Singapore

Singapore is considered to be one of the more prominent financial centre in South-East Asia due to its proximity to local and global private banks, investment banks and other financial service provider. It is also renowned for its stable governance and pro-business environment, as such, it has gained in popularity as a base for many high-net worth families to manage their assets and investments globally.

The Singapore Government have put in place tax incentives schemes for funds managed by family offices for both offshore and onshore vehicles to bolster Singapore’s appeal as a leading wealth management hub. These schemes are introduced under sections 13R and 13X of the Income Tax Act (“ITA”).

What is a family office?

Typically, a single-family office conducts various activities to facilitate the day-to-day management of a family’s assets. The activities involved are diverse and would include tax filing, the management of the family’s investments and consolidation of the family’s accounts. A simplified depiction of a typical ownership structure of a family office may be seen in the diagram below:

What are the important considerations in setting up a family office?

The objectives for establishing a family office will shape various rudimentary decisions that has to be made for the establishment of the family office vehicle, which includes:

  • the structure of the family office vehicle;
  • the types of assets which are intended to be injected into the family office;
  • the utilisation of tax incentives for certain investments; and
  • if relocation to Singapore of certain family members is considered, the appointment of these family members as members of the Family Office Investment Committee for the purposes of applying for the Singapore Employment Passes.

Tax incentives

In order to encourage the establishment of family offices in Singapore, the Government has introduced tax incentive schemes. These schemes allows funds managed by family offices to be exempted from Singapore income tax on almost all investment gains.

The exemption schemes are as follows:

  • Onshore Fund Tax Incentive Scheme (section 13R of ITA);
  • Enhanced-Tier Fund Tax Incentive Scheme (section 13X of ITA); and
  • Global Investor Program Family Office Option (GIP – FO Principals profile).

For more information regarding the GIP Family Office Principles option, its benefits and requirements, please refer to this article on the GIP Scheme here.

Onshore Fund Tax Incentive Scheme (section 13R) Enhanced-Tier Fund Tax Incentive Scheme ( section13X)
Assets under management (AUM) No restrictions Minimum of SGD50 million at the point of application
Fund administrator Singapore-based and holding a capital market services (“CMS”) licence or expressly exempted from holding a CMS licence
Fund’s residence Must be a tax resident of Singapore No restrictions
Shareholding/investors Must not be 100% owned by Singapore investors

Non-qualifying investors (i.e. Singapore non-individuals investing above a certain percentage in the fund) would have to pay a financial penalty to Inland Revenue Authority of Singapore (“IRAS”)

No restrictions on Singapore investors
Fund expenditure At least SGD200,000 business spending in a year At least SGD200,000 local business spending in a year
Reporting requirement Annual Statements to investors

Tax filing to IRAS for non-qualifying investors

Not required
Income tax filing Annual tax returns to IRAS Annual tax returns to IRAS
Approving Authority Requires Monetary Authority of Singapore (“MAS”) approval for tax exemption scheme to apply
Number of employment passes One Three

The eligibility of the funds under sections 13R and 13X tax incentive schemes are on a case-by-case basis. In assessing the eligibility of the funds, MAS will likely require information on the family office which includes:

  • the shareholding structure of the family office group;
  • information on how the family office is related to the investment fund vehicle and the beneficiaries;
  • names of the shareholders and directors of the family office;
  • information on the activities that will be carried out by the family office; and
  • information on the family whose assets will be managed by the family office.

13R and 13X funds which are approved for the tax incentive scheme before 31 December 2024 can enjoy the benefits of the scheme for the life of the fund, provided that the on-going operational conditions for the entities are met.

Ongoing operational requirements for family offices

Various administrative requirements may arise before and throughout the course of the family office’s operation. These may include the opening of bank accounts for the family office, preparations for annual tax reporting, and to fulfil other regulatory reporting obligations, such as the Common Reporting Standards (CRS) and the Foreign Account Tax Compliance Act (FATCA).

Variable Capital Company Structure

Family offices set up under the 13R and 13X scheme can also utilise the recently introduced Variable Capital Company (“VCC”) structure. The VCC Structure, which came into operation on 14 January 2020, is a highly flexible corporate vehicle for collective investment schemes (CIS). It offers numerous corporate and regulatory advantages over other forms of corporate vehicles, and the most significant of which are listed below:

  • A VCC can be set up as a standalone fund, or as an umbrella fund with two or more-sub-funds. This allows for cost efficiencies as fund managers are able to incorporate multiple sub-funds into a single VCC entity under the scheme.
  • Shares of a VCC are redeemable at the fund’s net asset value (NAV), and VCCs can pay dividends from the capital, which is not typically permissible in other forms of corporate vehicles. This allows a VCC to be flexible with in its distributions and return of capital.
  • A VCC structure is regarded as a single company, with a single identity for taxation purposes by the IRAS, which takes away the need to file multiple tax returns for individual sub-funds.

To read more about the VCC corporate vehicle, please refer to this article here.

Bayfront Law LLC can provide services to advise and assist you through the process of setting up a family office in Singapore and assess the availability of tax incentives that may be available for your unique circumstances under the ITA.

If you have any questions or require any additional information, please contact Ryan Lin or any partner of Bayfront Law LLC.

This alert is for general information only and is not a substitute for legal advice.

Variable Capital Companies: Singapore introduces an alternative vehicle for fund management

The Variable Capital Company Act (“VCC Act”) is an extensive legislation administered by the Accounting and Corporate Regulatory Authority (“ACRA”) and came into operation on 14 January 2020. The VCC Act introduces the Variable Capital Company (“VCC”) as a form of corporate vehicle for collective investment schemes (“CIS”).

The VCC structure is highly versatile and can be implemented for a wide array of uses. It provides fund managers with greater flexibility in share issuance and the payment of dividends. Cost efficiencies may also arise as fund managers are able to incorporate multiple sub-funds into a single VCC entity under the scheme.

Before the VCC Act, offshore investment funds (even if they operate in Singapore) are predominantly incorporated and domiciled in jurisdictions that allows for greater flexibility in capital, shares and taxation, such as the Cayman Islands. Being a product of Singapore’s legislation, the VCC structure allows for these similar benefits of greater flexibility and cost efficiency while also cutting down on the traditional cross border administrative and compliance hurdles that may encumber offshore funds operating in Singapore.

Key attractions of the VCC

The VCC offers numerous corporate and regulatory advantages over other forms of corporate vehicles.  The most significant are listed below:

  • a VCC can be set up as a standalone fund, or as an umbrella fund with two or more-sub-funds;
  • shares of a VCC are redeemable at the fund’s net asset value (“NAV”). VCCs can pay dividends from capital, which is not typically permissible in other forms of corporate vehicles. This allows a VCC to be flexible with its distributions and return of capital;
  • a VCC is regarded as a single company, with a single identity for taxation purposes by the Inland Revenue Authority of Singapore, which takes away the need to file multiple tax returns for individual sub-funds;
  • tax incentives applicable to funds under sections 13R (Onshore (Singapore Resident Company) Fund Tax Exemption Scheme) and 13X (Enhanced Tier Fund Tax Exemption Scheme) of the Income Tax Act are similarly extended to VCCs. Furthermore, if the applicable incentive conditions are met, VCC may also be able to enjoy GST remission for funds and the Financial Sector Incentive Scheme for fund management;
  • VCC investors enjoys a greater degree of privacy as shareholders, registers of VCCs are not required to be publicly disclosed as opposed to the requirements imposed on traditional company fund structures; and
  • a VCC structure can be used for both open-ended and closed-ended fund strategies.

Requirements of a VCC

A VCC has to fulfil some regulatory obligations with regards to its function and operations which includes the following:

  • the VCC must appoint a fund management company (“FMC”) that is licensed or registered by the Monetary Authority of Singapore (“MAS”) or is an exempt financial institution in Singapore;
  • the VCC must fulfil the minimum requirements in relation to Singapore, such as maintaining a Singapore registered office address and having at least one director who is ordinarily a resident in Singapore;
  • at least one director of the VCC must be a director or a qualified representative of the VCC’s fund manager (who may or may not be a resident of Singapore);
  • the VCC will have to comply with Anti-Money Laundering/Countering the Financing of Terrorism (“AML/CFT”) procedures, as required by MAS; and
  • if a fund is offered to certain types of investors, for example, retail investors, a custodian of assets is additionally required.

Cellular segregation of assets and sub-funds

VCC utilises a cellular structure, where VCC is a single legal entity with its sub-funds operating as separate cells. While the individual sub-funds do not have an individual legal personality, it will be issued a unique sub-fund identification number when registered with ACRA.

This enables the consolidation of multiple asset classes while simultaneously providing for the segregation of risks and liabilities of the sub-funds so as to prevent cross-cell contagion. This is expressly provided for by the VCC Act as the assets of a sub-fund cannot be used to discharge any claims against or the liabilities of the VCC or any other sub-fund(s) under the umbrella VCC. Any liability incurred on behalf of the sub-fund must be discharged solely from the assets of that sub-fund. To mitigate against any cross-cell contagion, the VCC Act voids any provisions that is inconsistent with the segregation of assets and liabilities of sub-funds.

VCC offered to retail investors

Under the VCC Act, funds which are offered to retail investors must meet additional requirements, which includes the requirement to have an approved custodian to supervise the assets held by the VCC. In order to protect retail investors, MAS requires the FMC to be allowed to invest in assets located in jurisdictions that does not have a cellular company structure only if the risk of cross-cell contagion between the sub-fund has been reasonably mitigated.

The custodian has a duty to protect the interest of shareholders of the VCC. The custodian performs that duty through various means, including disclosing the risk of cross-cell contagion to shareholders of VCCs and notifying MAS of any breaches of the VCC or FMC.

Re-domiciling investment funds

Foreign corporate funds with comparable structures may be able to re-domicile to a VCC in Singapore if certain prescribed conditions are fulfilled. This can be done through a simple registration process similar to that for the registration of a company under the Companies Act.

Variable Capital Companies Grant Scheme

On 15 January 2020, MAS launched the Variable Capital Companies Grant Scheme with a view to encourage industry adoption of the VCC by helping fund managers defray the costs of incorporating or registering a VCC. Under the Variable Capital Companies Grant Scheme, MAS will co-fund up to 70% of eligible expenses paid to Singapore-based service providers, capped at S$150,000 for each application, with a maximum of three VCCs per fund manager. The Variable Capital Companies Grant Scheme will last for a period of three years from the date of the announcement.

The flexible nature of the VCC structure is a significant development to Singapore’s fund industry and it is hoped that the structure will be widely embraced by fund managers and professionals alike.

Bayfront Law LLC can provide services to advise and assist you through the process of incorporating a VCC in Singapore and assess the availability of grants that may be available for your unique circumstances under the VCC Act.

If you have any questions or require any additional information, please contact Ryan Lin of Bayfront Law LLC.

This alert is for general information only and is not a substitute for legal advice.

Diners Club Acquisition

Bayfront Law LLC advised Ezy Net Pte. Ltd. (the “Purchaser”) on its purchase of all issued shares in Diners Club (Singapore) Private Limited (“Diners Club”) from Johan Investment Pte. Ltd. (the “Seller”) for a total consideration of S$103,586,103 (the “Transaction”). The Transaction was successfully completed on 9 July 2021.

The Purchaser is one of the pioneer and leading secure end-to-end electronic payment solutions providers in the Singapore market, providing terminal rental, setup, reprogramming services.

Diners Club, parent of DinersPay Pte. Ltd., is principally in the provision of charge card and credit card services in Singapore under the Diners Club card franchise. The services rendered by Diners Club used to be under the hospitality and card business segment of the Seller. Due to the increasing competition in the hospitality and payment gateway businesses, the Seller decided to dispose their shares in Diners Club to Purchaser and the Purchaser agrees to purchase all the shares from the Seller.

Bayfront Law LLC assisted the Purchaser in conducting an extensive due diligence on the Seller and facilitated necessary applications to the Monetary Authority of Singapore. Bayfront Law has also drafted, reviewed, revised and finalised agreements entered into between amongst others, the Purchaser and Seller after rounds of negotiation with the Sellers in relation to the Transaction.

Advisers to the Purchaser were Bayfront Law Director Ryan Lin, assisted by Associates Alvin Ngai and Guo Ziyong.

Investing your way to a Singapore Permanent Residency: The Singapore Global Investor Programme 2020

Inbound investments to Singapore are a mainstay of the country’s economy. To attract such investments, Singapore is renowned for its safety, attractive tax incentives, modern infrastructure and business-friendly policies.  As a result, the Singapore Permanent Residency (“PR”) is highly valued among foreigners looking to stay in Singapore for the long-term.

If you are a serious investor seeking to obtain a Singapore PR and take advantage of Singapore’s business-friendly policies for your assets and investments, the Global Investor Programme (“GIP Scheme”) is be an ideal option in acquiring PR status and securing your relocation to the city-state.

 

What is the GIP Scheme?

The GIP Scheme allows a foreign investor who is interested in starting a business or investing in Singapore to obtain PR status in order to drive their business and investment growth. The scheme is jointly administered by the Economic Development Board (“EDB”) and the Ministry of Manpower (“MOM”).  Note that there have been some recent changes to the GIP Scheme which will come into effect in March 2020.

We summarise the key requirements and options under the GIP scheme below.

 

What are the requirements?

There are specific sets of criteria to be eligible for the GIP Scheme:

 

Profile Established Business Owners Nest Generation Business Owners Founders of Fast Growth Companies Family Office Principals
To qualify: ·         You should possess at least three  years of business and entrepreneurial track record;

·         You should currently be running a company with an annual turnover of at least SGD200 million in the year immediately preceding the application, and at least SGD200 million per annum on average for the three years immediately preceding your application;

·         If your company is privately-held, you should have at least 30% shareholding in the company; AND

·         Your company must be engaged in one or more of the industries in the Annex B industries list below.

 

 

 

 

 

·         Your immediate family should have at least 30% shareholding or is the largest shareholder in the company you use to qualify;

·         This company’s annual turnover must be at least SGD500 million in the year immediately preceding your application, and at least SGD500 million per annum on average for the three years immediately preceding your application;

·         You must be part of the management team of the company (e.g. C-suite / Board of Directors); AND

·         Your company must be engaged in one or more of the industries in the Annex B industries list below.

·         You must be a founder and one of the largest individual shareholders of a company with a valuation of at least SGD500 million;

·         Your company must be invested into by reputable Venture Capital /Private Equity firms; AND

·         Your company must be engaged in one or more of the industries in the list below.

 

 

·         You must possess at least five years of entrepreneurial, investment or management track record; AND

·         You must have net investible assets of at least SGD200 million.

 

List of industries (‘Annex B industries’):

Aerospace Engineering, Alternative Energy/Clean Technology, Automotive, Chemicals, Consumer Business (e.g. flavours and fragrances, food ingredients, nutrition, home and personal care), Electronics, Energy, Engineering Services, Healthcare, Infocomm Products & Services, Logistics & Supply Chain Management, Marine & Offshore Engineering, Media & Entertainment, Medical Technology, Nanotechnology, Natural Resources (e.g. metals, mining, agri-commodities), Safety & Security, Space, Shipping, Pharmaceuticals & Biotechnology, Precision Engineering, Professional Services e.g. consulting, design, Arts Businesses (visual arts business/performing arts business), Sports Businesses, Family Office & Financial Services.

 

 

Investment Options

 

Option A or B or C Option C

 

What are the investment options?

Depending on which profile criteria you fulfil, the following investment options will be available in the scheme:

  • Option A: Invest SGD2.5 million in a new business entity or in the expansion of an existing business operation.
    • Applicants who invest under this option must submit a detailed five-year business or investment plan with projected employment, expenditure and financial projections that will incur in the Option A company; and
    • You should have at least 30% shareholding in the Option A company and must be part of the management team of the company, and
    • The Option A company must be engaged in one of the of the industries in the list of Annex B industries as stipulated above.
  • Option B: Invest SGD2.5 million in a GIP fund that invests in Singapore-based companies.
    • Applicants who apply for Option B will be assessed based on their future business or investment plans in Singapore. Specific details of proposed business activities, creation of local jobs and amount of investment are among the factors considered in the assessment.
  • Option C: Invest SGD2.5 million in a new or existing Singapore-based single family office having Assets-Under-Management of at least SGD 200 million.
    • Applicants who invest under this option must submit a detailed five-year business or investment plan with projected employment, expenditure and financial projections. The functions of the single family office, your role in the office, the proposed investment sectors, types of assets and geographical focus are among the factors considered in the assessment of your business or investment plan.

Please note that for all the options, you will be required to make the investment within six months of receiving your Approval-in-Principle (“AIP”) PR status.

If you are eligible for the scheme and willing to invest, Bayfront Law LLC can provide services to assist you through the application process of the GIP Scheme and direct you on a clear path to getting your Singapore PR as quickly as possible.

If you have any questions or require any additional information, please contact Ryan Lin of Bayfront Law LLC at ryan.lin@bayfrontlaw.sg.

This alert is for general information only and is not a substitute for legal advice.