Edwin Leow and Shaun Zheng of Nexia TS Tax Services assess the new criteria for family offices introduced by the MAS in Singapore

The Monetary Authority of Singapore (MAS) recently announced new stricter criteria for family offices to receive tax incentives in Singapore. The new rules came into effect on 18 April 2022, whereby funds that are managed and/ or advised directly by a family office which is:-

1. An exempt fund management company which manages assets for or on behalf of the family(ies); and
2. Is wholly owned or controlled by members of the same family(ies),

must meet the updated conditions, applicable to Section 13O and Section 13U of the Income Tax Act of 1947, and are set out below:

	Section 13O	Section 13U
Minimum Asset Under Management (AUM)	a.      The fund has a minimum fund size of S$10m at the point of application. b.      The fund commits to increasing its AUM to S$20m within a 2-year grace period.	a. The fund has a minimum fund size of S$50m at the point of  application.
Investment Professionals (IPs)	a.      The fund is managed or advised directly throughout each basis period relating to any year of assessment by a family office in Singapore, where the family office employs at least two IPs. b.      In the event that the family office is unable to employ two IPs by the point of application, the fund will be given a one- year grace period to employ the second IP.	c.           The fund is managed or advised directly throughout each basis period relating to any year of assessment by a family office in Singapore, where the family office employs at least three IPs with at least one IP being a non-family member. d.          In the event that the family office is unable to employ one non-family member as an IP by the point of application, the fund will be given a one-year grace period to do so.
Business Spending	a. The fund will incur at least S$200,000 in total business spending in each basis period relating to any year of assessment, subject to the tiered business spending framework as set out below.	a. The fund will incur at least S$500,000 in local business spending in each basis period relating to any year of assessment, subject to the tiered business spending framework that is set out below.
Local Investment	a.      The fund managed by the family office will invest at least 10% of its AUM or S$10m, whichever is lower, in local investments at any one point in time. b.      In the event that the fund is unable to invest at least 10% of its AUM or S$10m, whichever is lower, in local investments by the point of application, the fund will be given a one-year grace period to do so.

Tiered business spending framework
	Minimum Total Business Spending	Minimum Local Business Spending
AUM Range	13O	13U
AUM below S$50m	S$200,000	S$500,000
AUM more than or equal to S$50m but less than S$100m	S$500,000
AUM more than or equal to S$100m	S$1million

Before the introduction of these new conditions, there was no requirement for a Resident Fund to have a minimum  AUM and minimum number of investment professionals. Further, there was no requirement for both the Resident Fund and Enhanced-Tier Fund to invest in local investments previously.

Although these appear to be an additional set of stringent requirements being introduced, it is not inconceivable as Singapore continues to see more family offices being set up. With the city-state now firmly rooted as the leading destination of choice for family offices, the Government can afford to further refine conditions to help meet other broader policy objectives.

For example, the measures on minimum business spend and hiring will help stimulate the local economy, create new jobs and further raise professionalism in the asset management  industry. Also, to  continue  defending its

position as the country of choice, the local investment requirement will help to further shine a light and/ or serve as indicator as to whether the family offices are committed to invest in Singapore talent and local investments, coupled with the minimum AUM requirement, which should serve as an effective filter to exclude those families who do not wish to or do not want to grow their AUM, and are using Singapore as a safe harbour for a portion of family wealth.

It is expected that family offices will soon acclimatise to these additional requirements even if there is still intense competition among regional financial centres for investor dollars. Singapore’s political stability, economic progress and first-in-class healthcare facilities and education system, among others, should continue to triumph and be at the top of mind as these HNW individuals go about planning and safeguarding their private wealth and legacy.

 

This article was first published in our newsletter, The Custodian Issue 22 on Jul, 2022. Click here to access our latest newsletter.