Family Office

After Rapid Growth, Singapore's Family Office Sector Matures

Tom Burroughes Group Editor 14 February 2024

After Rapid Growth, Singapore's Family Office Sector Matures

We talk to law firm DLA Piper about the work it has been doing with ultra-HNW wealth holders about family offices, and how this sector is maturing and adapting.

Singapore is a base for hundreds of single-family offices, and these entities are important sources of market liquidity which the city-state’s authorities want to encourage.

While the Monetary Authority of Singapore and the jurisdiction’s government is taking longer to register SFOs today, mindful of the need to protect quality, family offices are now important players.

Law firms are an important constituent of the family offices chessboard, advising ultra-wealthy business owners and families about the case for creating these structures.

Singapore’s requirement that SFOs, which benefit from certain tax incentives, invest a portion of their assets into the jurisdiction also creates work for advisors and enhances the positive spillovers to the Singapore economy.

That is certainly the case for international law firm DLA Piper.

“It [the family offices sector] has grown tremendously over the past couple of years,” Barbara Voskamp, partner, and international tax lawyer, told this news service in a recent call. 

While definitions of “family office” can be fuzzy at times, there are said to be about 700 family offices in Singapore. Banks such as DBS, for example, are tapping into the space. More than 59 per cent of Asia’s family offices are based in Singapore. Growth is driven by the rising affluence of the region and Singapore’s attractions as a relatively legally and politically safe jurisdiction. (It has sought to clarify and strengthen rules for SFOs, as reported here. It has also benefited to some degree from concerns about Hong Kong’s political direction in recent years. (That said, Hong Kong is also trying to compete as a centre for family offices. Other centres, such as Dubai, are also trying to attract SFOs. 

With growth comes a need for quality control. A report in November last year (the Financial Times) said that the global queue to set up a family office in Singapore has stretched to as long as 18 months. 

“For sure this is the result of an overload of applications in the MAS processing teams but there may also be an element of moderating the influx and focus on more mature and professional family offices,” Voskamp said. 

Singapore’s rise as a family offices hub isn’t the only feature. Since 2020, the jurisdiction has also operated a variable capital company (VCC) regime to encourage wealth management business, and it is looking at an updated VCC programme to help SFOs.

VCCs were launched so that fund offerings could compete more effectively against those from jurisdictions such as such as the Cayman Islands, Hong Kong and Luxembourg. A VCC can be set up as a standalone structure, or an umbrella entity containing sub-funds. They are designed to be attractive for venture capital, private equity, private real estate investments, infrastructure, fund of funds, private credit, debt funds, and hedge funds. And, as Singapore’s financial sector knows, the alternatives space has been hot over the past decade. It remains busy even as interest rates have risen. Now, VCCs are restricted to licensed or registered fund managers, so SFOs cannot use them. That may change.

In any event, Singapore appears more focused on building “more mature and professional” family offices, Voskamp said.

“Singapore aims to be the `Switzerland’ and ‘Luxembourg’ of Asia at the same time. Family offices and the liquidity they tag along are an important factor in building the desired infrastructure and eco system," she said. A pool of talent, political and legal stability, and efficient services have combined to give the city-state an edge, Voskamp continued. 

Like all jurisdictions, Singapore is closely monitoring the global tax development and amending and adjusting its domestic laws, where seen appropriate, to make them more sustainable in future or BEPS-proof, as well aa complying with high anti-money laundering standards, she said.

Since the start of January, for the first time the jurisdiction is taxing foreign-sourced disposable gains. Known as the Section 10L rule, the change means that capital gains from the sale of foreign assets are subject to tax if they are received in Singapore and if the relevant entity does not have “economic substance” in Singapore. (This requirement for “substance” is designed to remove the use of “brass plate” businesses which are located in a jurisdiction purely for tax reasons, having no office or staff supporting the business.)

What this and other developments points to, it appears, is a further maturation of Singapore’s family offices industry. 

The busy DLA Piper team carries out work such as implementing structures for single family offices and multi-family offices, tax structuring, tax incentive applications, inbound and outbound investments tax advice, succession planning, and advice on the exemption of holding fund management licence. 

Among other trends, Voskamp said that multifamily offices managed by third-party fund managers have become more popular than single family offices which are subject to higher scrutiny.

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