Advantages of An Eco System Perspective
Global economy may be slowing down but wealth creation continues.
Knight Frank in 2019 noted that the total Ultra High Net Worth Individuals (UHNWI) population worldwide grew by 4% in 2018, down from 10% the previous year.
But despite the slower growth, Asia is seeing an increase in wealth creation: eight of the top 10 fastest growing wealth populations are forecast to be in this region over the next five years. China and Singapore are on the list.
In 2018, there were 48,245 UHNWIs in Asia worth over US$30 million individually. Of the 48,245 UHNWIs, Japan is first with about 18,535. China was second with close to 10,000 and Singapore third with 3,600 of them.
The forecast for the UHNWI population in Asia over next years is a growth of 23%, making it one of the fastest growing wealth regions.
This group of UHNWIs look to Singapore as their choice location because of Singapore's strong eco-system to support wealth planning and structuring, including family office structures. A deep pool of talent such as asset managers, private bankers and legal and finance professionals like tax advisers are readily available in Singapore.
Singapore is politically stable with well-established and transparent government policies. IMF International Monetary Fund, in its Financial Sector Assessment Programme for Singapore in July 2019, reaffirmed the country’s financial sector oversight as “among the best globally”.
Why Family Office?
One of the main reasons for the wealthy to start setting up home offices is succession planning, when vast amount of their wealth will pass on to the next generation. In Asia, it is mostly transiting from the founders to the next generation or at most, to the third. Hence proper and tax-efficient family office structures in place are paramount as the founding patriarch seeks to handover the entire businesses. Family offices will keep the family tightly knitted and ensure interests are aligned thereby preserving the family legacy and wealth.
As the younger generation take over, they may want to institutionalise the family office by hiring financial professionals with experience and expertise and to put in place disciplined investment mandates.
Another reason for family offices is comprehensive tax planning - assets span multiple jurisdictions. Singapore has signed more than 80 tax treaties with other jurisdictions, giving family offices access to benefits under these agreements.
These tax benefits include:
Possible tax exemption of specified income derived by the fund vehicles from designated investments; Withholding tax exemption on certain payments (such as interest) made to non-residents; and Goods and Services Tax (“GST”) remission – Qualifying funds are allowed to claim GST incurred on expenses at an annual fixed recovery rate, subject to conditions and certain exclusions.
Monetary Authority of Singapore (MAS) said that between 2016 and 2018, the number of family offices has quadrupled in Singapore. They comprise single family offices and satellite operations of existing family offices in the West.
The MAS is working closely with the Economic Development Board to build a strong network of family offices in Singapore to allow “family offices to provide mutual support in each other’s operations as well as to partake in co-investment opportunities”.