Family Office
Family offices are exclusive private wealth management advisory firms that serve ultra-high-net-worth individuals (HNWI). They offer a single total outsourced solution to managing the financial and investment side of an affluent individual or family by employing administrative and professional staff who exclusively assist the family members of that particular family office.
The two types of family offices are the Single Family Office (SFO) and Multi Family Office (MFO). Here at Xignam, we offer services for setting up Single Family Offices (SFOs). Typically, a single-family office conducts various activities to facilitate the day-to-day management of a family’s assets.
The SFO typically offers services for:
- Investment Management
- General Advisory Service (estate planning, legal service, tax service, etc.)
- Family Professional Service (Philanthropy, Family governance/constitution planning etc.)
- Admin Service (Payroll, Accounts consolidation, Concierge service etc.)
What are the important considerations in setting up a family office?
- The structure of the family office vehicle
- The utilisation of tax incentives for certain investments
- The tax exposure and implications in other relevant jurisdictions (e.g., the family’s home jurisdiction, jurisdictions where assets are located, jurisdictions where family members/trust beneficiaries are located)
- The nature of the underlying assets and investments held by each entity (e.g., whether there are any real estate, substantial listed stakes, operating businesses, etc.) and the family’s investment objective and strategy in respect of each investment
- The current residence status of the relevant family members (and any anticipated changes in their status)
- Whether any employment pass, permanent residence or citizenship status is required or desired to be obtained for any family member or employee of the family office
- The family’s governance and succession plans
- The family’s religion and whether there are any forced heirship concerns
- The family’s philanthropic philosophy and intentions
Singapore tax exemption for the family fund managed by the Family Office
As a general rule, only income sourced in or received in Singapore is subject to taxation.
Singapore resident individuals are taxed on Singapore-sourced income at progressive rates, reaching up to 24%, whereas companies face a flat tax rate of 17%.
Determining whether gains constitute income or capital involves analyzing various factors, including the frequency of similar transactions, length of the holding period, and the taxpayer’s motive.
In general, gains from the disposal of investments may be treated as Singapore-sourced income if such gains arise from trade or business activities in Singapore unless any exemption applies. The Section 13D, 13U and 13O tax incentive schemes provide a tax exemption on “specified income” (SI) derived from “designated investments” (DI) and aim to provide certainty on the tax treatment of such gains.
Section 13O: Onshore Fund Tax Incentive Scheme
This incentive is also known as the Onshore Fund Tax Incentive Scheme. It was introduced to encourage the establishing and management of onshore funds in Singapore.
Section 13O exempts the specified income (SI) derived by an “approved company” from funds managed by a Singapore-based fund manager concerning the designated investments (DI). The list of DI includes shares, stocks, debt securities, etc. Distributions by the fund derived from specified income (SI) will likewise be exempt for the fund’s investors.
Who it’s for: Funds managed by local fund managers or family offices.
Main focus: Allows tax exemption on income from qualifying investments.
Requirements: Funds need to meet certain criteria like having a minimum amount in investments (SGD 5 million), local business spending, and hiring qualified investment professionals.
Summary: If a fund is managed in Singapore and makes investments that qualify under the rules, the income from those investments can be tax-free as long as certain conditions are met.
Section 13OA: Onshore Fund Tax Incentive Scheme
Who it’s for: Funds that are set up as limited partnerships in Singapore.
Main focus: Similar to Section 13O but specific to funds structured as partnerships.
Requirements: The tax exemption applies at the partnership level, and the conditions are assessed for the entire partnership. The profits are shared among partners who benefit from the tax exemption on their share.
Summary: For funds structured as partnerships in Singapore, this section offers the same tax benefits as 13O, but the rules apply to the partnership as a whole rather than individual partners.
Section 13U: Enhanced Tier Tax Incentive Scheme
This incentive, also known as the Enhanced Tier Tax Incentive Scheme, applies to both onshore and offshore funds. It accommodates the broadest range of fund structures.
Section 13U exempts SI derived by an “approved person” from funds managed by a Singapore-based fund manager concerning DI. Distributions by the fund derived from specified income (SI) will likewise be exempt for the fund’s investors.
Who it’s for: Larger funds and single-family offices (SFOs).
Main focus: Provides tax exemption for income from qualifying investments for bigger funds with more substantial assets (minimum SGD 50 million).
Requirements: Stricter conditions compared to 13O, including having more investment professionals and higher spending requirements on local business.
Summary: This section is for bigger funds or wealthy families managing their own investments, allowing them to avoid taxes on qualifying income if they meet the higher requirements.
Section 13D: Offshore Fund Tax Incentive Scheme
Who it’s for: Funds that prefer a self-managed approach.
Main focus: Tax exemption for income from qualifying investments, with the fund itself responsible for ensuring it meets the necessary conditions.
Requirements: There are fewer oversight and reporting requirements, but the fund must self-assess its eligibility.
Summary: This section lets funds manage their own compliance, making it easier for smaller or self-run funds to get tax breaks on qualifying income.
Summary Table
The Monetary Authority of Singapore (MAS) issued updates effective mainly from January 1, 2025, for funds operating under Sections 13O, 13OA, 13U, and 13D of the Income Tax Act.
These updates primarily impact the requirements for qualifying as tax-exempt funds, affecting both Single Family Offices (SFOs) and non-SFO funds.
Changes and Comparison Table
Designated Investments
Designated Investments (DIs) under the Singapore Income Tax Act refer to specific types of investments that qualify for tax exemptions when held by an approved fund. The categories of DIs are defined to encourage certain types of economic activity and investment in Singapore. Here are some examples of DIs:
- Stocks and Shares
- Ordinary and preference shares in companies.
- Shares listed on any exchange, including foreign stock exchanges.
- Bonds and Debt Securities
- Qualifying debt securities, such as bonds, treasury bills, and certificates of deposit.
- Loans made to any offshore companies.
- Units in Trusts
- Units in real estate investment trusts (REITs) listed on a stock exchange.
- Units in business trusts or any unit trust, provided it meets certain criteria.
- Derivatives
- Futures contracts, options, swaps, and other derivatives.
- Any derivative that is traded on a recognized market.
- Funds
- Interests in private equity funds, hedge funds, or other collective investment schemes.
- Units in non-publicly traded funds that invest primarily in Designated Investments.
- Foreign Currency
- Investments in foreign currencies and related currency contracts.
- Life Insurance Policies
- Investment-linked life insurance policies that do not provide significant protection benefits.
- Commodities
- Certain types of commodity investments, such as commodity futures traded on an exchange.
- Real Estate
- Investments in property can qualify if they are part of real estate investment trusts (REITs) listed on approved exchanges.
- Direct investments in physical properties do not typically qualify.
- Other Financial Assets
Bank deposits, structured products, and certificates linked to Designated Investments.
Limited partnerships that invest in qualifying assets, subject to conditions
Capital Deployment Requirement (CDR)
The Capital Deployment Requirement (CDR) refers to the minimum amount of capital that funds under certain tax incentive schemes (such as Sections 13O and 13U) in Singapore must invest in qualifying assets to meet the conditions for tax exemptions. It ensures that funds actively deploy capital into investments that contribute to the local or broader economy.
Key Features of the CDR:
Minimum Investment Threshold: Funds must allocate a specific minimum amount to eligible investments. The requirement can be based on a percentage of the fund’s Assets Under Management (AUM) or a fixed monetary amount.
Eligible Investments for CDR: Investments that qualify for meeting the CDR typically include:
- Listed Equities and Debt Securities: Stocks, bonds, and other debt instruments that meet qualifying criteria.
- Private Equity and Venture Capital Investments: Investments in private companies, especially startups and growth-stage businesses.
- Real Estate Investment Trusts (REITs) and Business Trusts: Listed REITs or business trusts on approved exchanges.
- Non-Listed Funds: Units in private investment funds distributed by licensed financial institutions.
- Climate-Related Investments: Investments in projects or companies related to sustainable and green finance.
- Blended Finance Structures: Investments in structures where concessional capital (with lower return expectations) is combined with commercial capital.
Multipliers for Eligible Investments
Certain categories of investments receive a multiplier effect when computing whether the CDR has been met. This means that the amount invested in some types of assets is scaled up based on the investment’s contribution to targeted economic sectors:
2x Multiplier: For deeply concessional capital in blended finance or certain climate-related investments.
1.5x Multiplier: For concessional capital or investments in selected categories like Singapore-listed equities.
Flexibility in Meeting CDR: The requirement can sometimes be fulfilled using a mix of eligible investments, allowing funds to choose which qualifying assets to invest in while ensuring compliance with tax incentive conditions.
Example:
If a fund under the 13U scheme has an AUM of SGD 150 million and a CDR of SGD 10 million, it could meet this requirement by deploying:
- SGD 3 million in deeply concessional blended finance (recognized as SGD 6 million due to the 2x multiplier).
- SGD 4 million in listed equities (recognized as SGD 4 million)
- The remaining SGD 2 million in other qualifying investments.
The CDR ensures that funds contribute to targeted sectors, such as sustainable development and local economic growth, while benefiting from tax incentives.
Summary Examples of the Changes
Investment Professionals Requirement
Before: A fund managed by a Single Family Office (SFO) could operate without needing a specific number of investment professionals.
After: For an S13U fund, at least three professionals are required, of whom at least one cannot be a family member. This ensures that fund management expertise includes external professionals. For S13O, you need 2 but both can be family members.
Local Business Spending (LBS) Requirement
Before: Before: A flat SGD 200,000 annual spending was required regardless of the fund size.
After: The requirement is tiered based on the fund’s AUM. For instance, a fund with SGD 150M in AUM would need to spend at least SGD 500,000 annually on local business expenses, such as management fees, tax advisory fees, or legal fees.
Capital Deployment Requirement (CDR)
Before: Before: Investments into local equities or bonds met the requirement, but there were fewer incentives for climate-related investments.
After: Funds receive higher recognition (up to 2x multiplier) for investing in eligible categories like climate finance, providing an incentive to allocate capital towards sustainable projects.
Frequently Asked Questions
- The fund must have a minimum fund size of S$50 million at the time of application;
- The fund must be managed or advised by the relevant family office;
- The family office must employ at least 3 residents (with at least one being a non-family member) investment professionals in Singapore who are substantively engaged in an investment management or advisory role;
- The fund must incur at least S$500,000 in business spending in Singapore; and
- Invest at least 10% of its AUM or S$10 million, whichever is lower, in local investment.
- The fund must have a minimum fund size of S$10 million at the time of application (require S$20 million within 2 years grace period);
- The family office must employ at least 2 resident investment professionals in Singapore who are substantively engaged in an investment management or advisory role; and
- The fund must incur at least S$200,000in business spending in Singapore
- Invest at least 10% of its AUM or S$10 million, whichever is lower, in local investment.
- Shareholding Structure of family office
- Photocopies of shareholders’ and directors’ identity documents/passports
- Proof of address of shareholders and directors(for bank account opening)
- Business Proposal
- Proof for source of fund
Investors Who Don’t Meet The GIP Criteria
For applicants who do not meet the GIP criteria or have been rejected, we have alternative solutions for you. Please contact us today to learn more about GIP.