The Asian city-state has been making moves to attract family offices and, with other jurisdictions going through uncertain times, Singapore is well-positioned to build its credentials in the space. This article takes a look.
Singapore has big potential as a hub for family offices. A few weeks ago, the Wealth Management Institute launched the Global-Asia Family Office Circle (“GFO Circle”), designed to support growth of this sector in Singapore. Separately, the family office for Nicky Oppenheimer and his son Jonathan, part of the diamond producer dynasty, set up an outpost in Singapore. Singaporean regulators are reported to be tweaking the Variable Capital Company (VCC) regime to attract single-family offices. (VCCs were introduced at the start of 2020.) Considering how many businesses in Southeast Asia are family-owned, the region is fertile soil for family offices.
In this article, Edmund Leow and Edward Marshall of global law firm Dentons examine Singapore’s family offices market, its prospects and challenges. (This news service’s editor was recently interviewed by Marshall, see here.)
(More details on the authors below.)
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Singapore’s family office sector has drawn considerable attention in the past few years. Prominent multinational family offices are increasingly exploring this island country as a gateway to access Asian investments, and it is rapidly evolving from a regional hub to a robust global destination. Today, Singapore is attracting more family office talent and leveraging public-private partnerships to make it a desirable family office locale.
This article looks at the key reasons behind the growth in the number of family offices calling Singapore home.
A business-friendly tax system
Over the past 20 years, tax havens have come under a lot of criticism and pressure to reform, driven initially by regulators in the US and Europe. In response, Singapore has worked hard to avoid the moniker of “tax haven” while creating a tax system that has attracted businesses to relocate to, and operate in, the country.
Singapore generally promotes substance in its tax, corporate and regulatory systems. The main reason for that is that Singapore is a major business hub. Singapore attracts businesses and investors from all over the world. When foreign entities set up shop in Singapore, government authorities encourage them to make those entities and business activities substantive.
For example, Singapore has tax incentives to attract investment, but these tax incentives require investors to hire local employees and set up factories or leverage physical office space. Moreover, because Singapore has avoided a reputation for being a tax haven, it has also been able to sign many double tax treaties (1) .
Good infrastructure and facilities
Singapore has strived to be attractive as a place for foreign investment. In fact, in the 1960s, when it first became independent, Singapore was one of the first countries to come up with a policy for attracting foreign investment. This was notable because at the time, most Asian countries were not large supporters of foreign direct investment. There were concerns that foreign investors would exploit the local economy and people.
Singapore took a different view. The government created incentives to support these direct investments with the goal of creating jobs, developing its technology sector and making the country a global business hub. This strategy has paid off. Singapore’s total exports and imports in 2020 were S$696.1 billion ($515.6 billion), and its five largest trading partners today are the US, Japan, Mainland China, Australia and Hong Kong (2) .
This attitude has also created a boon for the nation’s family office sector. As wealthy families and investors moved to Singapore, part or all of their family offices followed. Single family offices were the first to arrive, with some acting as satellites of a main office but, more and more, with investors and business owners relocating their entire family office operations there. Today, as the industry increases in sophistication and more families require additional services, the number of multi-family offices also is on the rise.
High levels of safety and strong educational
Singapore is a safe and comfortable location for families to live in. The country has very low levels of crime, making it an attractive place to live; a country where one can enjoy a large city while avoiding the high crime rate commonly associated with densely-populated metropolitan areas.
In addition, Singapore’s educational system is often lauded as one of the best in the world, and the country boasts a literacy rate of 97 per cent (3). The highly-educated workforce in the financial, accounting and legal services sectors has been a key factor for family offices that have chosen to set up shop in Singapore.
Political stability and strong rule of law
Rule of law is front and centre in Singapore. The country has a strong dedication to ensuring transparency in how its laws are applied to both investors and businesses. Knowing that decisions are made on the merits of a case instead of through Byzantine and murky pathways makes family offices and businesses feel comfortable living and working in Singapore. The level of corruption in the country is among the lowest in the world.
One of the legacies of Singapore’s 140 years as a British colony is its adoption of English common law as an underlying legal framework. This system remains in place today. Singaporeans have a high level of trust in their legal system.
Location, location, location
In addition to Singapore’s business prowess and standing, the country is a cultural hub as well, balancing Asian culture with a global and cosmopolitan feel. English is Singaporeans’ lingua franca, as well as the language of commerce and law. It is spoken regularly in business, government and within families. Many Singaporeans are effectively bilingual, the result of the country’s successful bilingual language education policy. In addition to English, Singaporeans are educated in the Chinese, Malay and the Tamil languages. This has given an advantage to Singapore in attracting investments and talent from the West as well as from the increasingly dominant Asian countries of China and India, and its friend and neighbour Indonesia.
Singapore is also a major logistics (4) and transportation hub. For families and businesses that value this flexibility and access, the country provides a gateway which is hard to beat, including for family offices seeking access to Asian markets. In fact, it is access to direct private equity investing opportunities and publicly traded markets that has driven many families to create satellite family offices in Singapore. It is reported that the number of family offices in Singapore has doubled, to around 400 at year end 2020, compared with 2019 (5). This trend is likely to continue and increase as the COVID-19 pandemic wanes, and travel restrictions are lifted.