Month: November 2023

How to set up a family office in Singapore successfully

How to set up a family office in Singapore successfully

How to set up a family office in Singapore successfully

boardroomsuperadmin

The family office is an increasingly popular business entity in Singapore, providing affluent families the opportunity to formally safeguard and optimise their wealth for the benefit of future generations.

Family offices are most often used for asset management. However, they are also useful for conducting additional activities such as wealth and succession planning, lifestyle management and philanthropy.

Family offices involve various day-to-day administration tasks, usually carried out or supported by external professionals and service providers.

Single-family offices (SFO) service members of the same family, while multi-family offices (MFO) service members of different families.

This article explores the process of setting up a family office in Singapore and outlines reasons you might set up a family office, including the latest tax incentives you may be eligible for.

Why set up a family office in Singapore?

As an established financial hub, Singapore holds immense appeal for local and overseas high-net-worth (HNW) individuals looking to establish a family office. In 2021, it ranked as the second most competitive location for international wealth management globally. Furthermore, in 2022, it had the world’s third fastest-growing population of HNW individuals.

Singapore’s allure can be attributed to its:

  • open, well-regulated economy;
  • strategic and convenient geographic location – a gateway to Asia with ready access to global and regional financial markets;
  • diverse ecosystem of wealth management talent (e.g. bankers, law firms and advisors);
  • companies and service providers;
  • economic and political stability;
  • pro-business regulatory system;
  • extensive double tax treaties with more than 80 countries;
  • low corporate tax rate of 17% (and no capital gains tax);
  • abundant tax incentives and exemptions; and
  • quality medical and education systems.
Setting up family office in singapore

What are the family office tax exemptions in Singapore?

The Singapore Government is actively nurturing the growth of private banking locally due to the fast-growing pool of capital it generates, which can be utilised for urgent climate change mitigation efforts. In July 2023, it announced several enhancements to Singapore’s tax incentive schemes for SFOs.

Eligible family offices can now take advantage of these schemes and exemptions:

Global Investor Programme
This scheme grants permanent residency to individuals who possess at least 5 years of entrepreneurial, investment or management track record, and they establish a Singapore-based Single-Family Office with Assets-Under-Management (AUM) of at least SGD 200 million, where minimally SGD 50 million must be deployed in the 4 stipulated investment categories. Read more about the qualifying criteria for the Global Investor Programme.
Singapore Resident Fund Scheme
Under Section 13O of the Income Tax Act, family offices with an annual local business spending of SGD 200,000 can claim a 100% tax exemption on Singapore-based funds, provided that certain conditions are met.
Enhanced-Tier Fund Tax Exemption
Section 13U of the Income Tax Act provides a tax exemption for income and gains on certain investments for both local and offshore funds with a minimum SGD 50 million investment.
Philanthropy Tax Incentive Scheme
From 1 January 2024, eligible donors can claim a 100% tax deduction (capped at 40% of the donor’s Singapore statutory income) for overseas donations made through qualifying local intermediaries.

Each entails a set of conditions that family offices must meet to qualify.

How do I set up a family office in Singapore?

The company incorporation process for family offices in Singapore can be complex, but the outcome can provide considerable benefits for HNW families.

“First of all, you need to consider your objective for setting up this family office – whether it is for investment or philanthropy purposes,” says Kevin Cho, Director of Corporate Secretarial for BoardRoom Singapore. “You need to consider what funds will be set aside for philanthropy or charitable purposes.”

Defining the goal you want to achieve will help guide the structure and operations of your family office and indicate the legal and tax implications you will need to navigate. Potentially, you may realise that a different investment vehicle (e.g. company limited by guarantee, trust or VCC) or even a different location will be more suitable.

Next, you will need to undertake the following:

    Choose whether to establish an SFO or MFO, depending on your family’s needs
    Decide on the right legal entity (e.g. a company or trust)
    Establish a tax-efficient company structure as well as trust structure
    Identify the services you require (e.g. tax and legal services, wealth management, concierge services and charitable giving)
    Obtain the necessary licences for operation, depending on your activities
    Establish robust governance and compliance frameworks
    Draft a solid business plan
    Open accounts with reputable banks
    Organise your technology and operational infrastructure, such as internal practices, accounting software, reporting tools and cybersecurity
    Identify and hire qualified personnel or businesses to carry out your business needs (e.g. lawyers, tax advisors, investment managers and accountants)
    Draft a family charter that governs the powers and activities of the company

    Family office formation is a significant undertaking. To ensure a smooth process, it is important to partner with an experienced corporate services provider for assistance with navigating Singapore’s complex legal, tax and regulatory requirements. Working with such a partner will give you access to a team of business specialists, plus a network of trusted advisors and consultants who can guide you through the beginning stages of your family office and beyond.

    Benefits of setting up a family office

    The benefits of setting up a family office

    According to Eunice Hooi, Head of Corporate Secretarial for BoardRoom Singapore, top uses for a family office include asset protection and succession planning.

    “One possible arrangement is to put the assets under a trust structure instead of a standard company structure,” she says. “Having a trust arrangement protects the assets under law, assuming the parents are acquiring the assets for the benefit of the minor child under the trust arrangement.”

    The trust agreement can set the terms on when and how the child will legally own the assets – this might be when they turn 21 or get married.

    “So the family office structure allows you to plan ahead of time,” Eunice explains.

    Additional uses for a family office can include:

    • consolidated wealth management;
    • customised financial solutions and investment strategies;
    • diversification of assets and risk mitigation; and
    • the preservation of family values and legacies.

    As a centralised hub, the family office provides an efficient, streamlined solution for managing family affairs.

    What are the regulatory requirements for setting up a family office in Singapore?

    Understanding and complying with local regulatory requirements is paramount when establishing any new company in Singapore.

    If you are considering starting an SFO, it will likely be exempt from regulations and won’t need to apply for a fund management licence.

    “As SFOs only manage assets belonging to one family, SFOs in Singapore are not subject to licensing or regulation under the Securities and Futures Act (SFA),” Eunice says. “However, MFOs are. This is to safeguard the interests of the different families that are being served by the MFO.”

    Before commencing operation, MFOs need to obtain a capital market services licence from the MAS. They then need to conduct their activities in line with regulations. A skilled corporate services provider with extensive knowledge of the local rules can help ensure your company remains compliant from the start.

    While SFOs may not be subject to MAS regulation, they still need to meet certain requirements to qualify for the available tax exemptions under the Income Tax Act 1947.

    Expert guidance for your new venture

    Expert guidance for your new venture

    Establishing a family office in Singapore can be an effective way to secure your family’s financial future. At BoardRoom, our business experts work closely with you to ensure your new venture succeeds. We will guide you through every phase of the company formation process, ensuring your entity meets local standards and requirements while capturing all the benefits and opportunities Singapore offers.

    In addition to company incorporation and corporate secretarial services, we provide a full suite of complementary services to support your business throughout its lifecycle.

    “BoardRoom provides a one-stop shop for family office clients, providing a range of corporate services, such as accounting and tax advisory services,” Eunice says. “We work very closely with other stakeholders in the family office ecosystem, such as lawyers who can assist with drafting trust agreements, and licensed fund managers.”

    With over 50 years of experience servicing clients in Singapore, BoardRoom can be relied upon to consistently provide accurate solutions that minimise risk and hassle.

    Adopting a tailored approach, we help you achieve your short and long-term wealth management goals.

    “When a client comes to us with the intention to set up a family office, we start by gaining a strong understanding of their goals, needs and background as an investor,” Eunice says. “This way, we can ensure that their choice of investment location and vehicle best suits their needs.”

    For a discussion about how we can assist you with establishing a family office in Singapore, please contact us today.

    Contact BoardRoom for more information:

    Eunice

    Eunice Hooi

    Managing Director Asia, Tax

    E: [email protected]

    T: +65 6536 5355

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    Maximising performance: the potential benefits and drawbacks of employee share options plans

    Maximising performance_ the potential benefits and drawbacks of employee share options plans

    Maximising performance: the potential benefits and drawbacks of employee share options plans

    boardroomsuperadmin

    Employee share plans are becoming an increasingly popular strategic tool, with over 80% of companies in Asia using them to bolster their competitive edge in the current talent market and align their workforce with their organisational growth trajectory. Equity based remuneration such as employee share option plans (ESOPs) or employee stock option schemes (ESOSs), not only incentivise employees to work towards company’s goals but also increase staff retention rates.

    In this article, we investigate the benefits and potential drawbacks of ESOPs for companies in Singapore and provide advice for ensuring successful share scheme implementation.

    How ESOPs work

    ESOPs grant employees the option to purchase company shares at a predetermined price (also known as the exercise price), often lower than the prevailing market price. After a moratorium or ‘vesting’ period, the employee may exercise their options by buying the shares at the exercise price and become a part owner of the company. The plan rules or an internal remuneration committee generally sets the exercise price and timeframes of ESOPs.

    You may also hear ESOPs referred to as employee share option schemes or stock option plans.

    ESOP vs. shares: how they differ

    ESOPs offer employees the unique opportunity to secure a stake in their company’s future success without the immediate financial commitment required when purchasing shares in a publicly listed company. ESOPs also differ from share schemes like restricted share plans and performance share plans, which grant employee shares as part of their remuneration after a set vesting period once agreed-upon targets are met.

    ESOP vs. shares_ how they differ

    Top ESOP benefits explained

    ESOPs can influence employee attitudes and behaviours in multiple ways, providing benefits to companies and their workers.

    The main benefits of ESOPs are:

    • improved employee engagement;
    • increased innovation and productivity; and
    • reduced employee turnover.
    Employee engagement
    ESOPs can be an effective employee engagement strategy due to the sense of company ownership and an alignment of worker and employer objectives, goals and values. In a recent study of employee equity plan usage in Asia, about 60% of participating workers either agreed or strongly agreed that their personal success and their company’s success were one and the same.

    As share value depends on the company’s success, employees are encouraged to put in more effort to improve the company’s market performance and also make decisions that promote long-term value creation rather than short-term gains.
    Increased innovation and productivity
    When employees feel they play a fundamental role in the company’s growth and can see the tangible effects of share price rises in their share plan, they are incentivised to expand their focus beyond day-to-day responsibilities. ESOPs provide channels for them to ideate, innovate and engage in activities that drive the company forward.

    When well-managed and communicated, ESOPs also provide employees with clarity on common goals, which further aids engagement and productivity.
    Reduced employee turnover
    Research shows that the likelihood of an employee resigning decreases as the value of employee shares rises.

    “ESOP participants tend to stay in their job for longer than expected because they know they will be able to reap the rewards i.e. the number of options exercisable after the vesting period. This is even more so, when the share price increases over the years.” explains Nora Jasmine Lai, Operations Manager of Employee Plan Services for BoardRoom.

    Alongside the prospect of financial gains, the partial ownership offered by ESOPs also promotes job satisfaction and a sense of belonging.

    “When employees are rewarded through their ESOP, it strengthens their sense of recognition within the company and they are part of its growth and success,” Nora explains. “In the long run, this motivates them to grow with the company.”

    ESOP-led talent retention has a variety of benefits, including reduced recruitment and training costs, improved business continuity, knowledge retention and the progression of long-term organisational goals.

    Potential drawbacks of ESOPs

    Depending on a range of factors – such as your organisation type and performance, the quality of plan execution and market fluctuations – ESOP implementation may be challenging or even unsuitable.

    Some potential drawbacks of ESOPs include:

    Employees must pay for the shares upfront with their own money before receiving shares into their account and realising them as monetary gains. One way companies can alleviate this challenge and exhibit dedication to ESOP goals, is to partner with local banks, who may offer bridging loans to employees, contingent on the immediate repayment of the loan upon share sale.
    Employees cannot realise their gains if the share price drops below the exercise price in an economic downturn. They may leave the company before the share price improves, thus losing the opportunity to reap their rewards.
    Employees who are not Singaporean residents may be subject to withholding tax when they exercise their options and realise a gain.
    ESOP management can become increasingly complicated and time-consuming as time passes, your company grows across borders, and there are more plans to design and keep track of – each with their own vesting periods and exercise price. Compliant administration and reporting must be ensured across all relevant jurisdictions.

    Companies can ensure smooth ESOP implementation by engaging a premium ESOP services provider – ideally, one that specialises in a range of complementary corporate services such as tax. Firms that offer customisable ESOP platforms such as EmployeeServe can help to simplify and streamline your scheme management by allowing employees to view and transact on holdings in real time.

    Factors to consider before implementing ESOPs

    Factors to consider before implementing ESOPs

    If you are implementing ESOPs in your organisation for the first time, meticulous planning is essential.

    Management staff should consider the following ahead of the design phase:

    • What are your organisational needs and objectives, and how can ESOPs help you achieve them?
    • What percentage of the total number of shares will be set aside?
    • How will the vested options of departing employees be treated?
    • How will employees manage or assess their ESOPs?
    • Will you implement a digital ESOP management system? If so, is it user-friendly enough?
    • Is a share custody account required for overseas participants?

    An experienced ESOP services provider can explain how ESOPs work, answer your questions about ESOP implementation, and guide you through the design process to help tailor the plan to your specific needs.

    If you already have a share scheme in place and want to review it, the best way to do this is to partner with a leading ESOP services provider. ESOP specialists have the knowledge, skills and technological know-how to update your scheme to align with your business goals.

    Tips for successful share scheme execution

    Tips for successful share scheme execution

    According to Nora, effective ESOP implementation requires two things: a quality platform and strong communication from HR and management.

    “Often, employees don’t understand their role in a huge scheme,” she says. “There is often too much jargon and complexity tied to the scheme, which stops people from understanding the benefits they can reap.

    “But as a part owner of the company, they want to do more and understand their role in the entire cycle.”

    A purpose-built platform helps employees understand how the scheme works, especially if it is easy to use and supported by regular communication from HR and the broader company.

    “The system can release regular communications, such as newsletters, to allow employees to keep track of the goals set via the scheme,” Nora says. As a result, employees stay more focused on progressing long-term organisational goals.

    Personalised employee share options services

    When executed thoughtfully and managed effectively, employee share options can catalyse sustainable growth, benefiting both employees and the business as a whole.

    For businesses in Singapore seeking to implement or refine their share scheme, BoardRoom’s premium ESOP services offer a reliable end-to-end solution. With over 60 years of experience and a deep understanding of the local business landscape, we can assist in creating, implementing and managing ESOPs that align with your organisation’s goals and values.

    Our highly sought-after ESOP services give you access to:

    • a dedicated ESOP platform, EmployeeServe, empowering you to navigate the complexities of ESOPs with confidence so that employee satisfaction is achieved and regulatory compliance is assured;
    • in-house experts in multiple aspects of ESOPs, plus a strong network of trusted vendors, including ESOP designers and lawyers, for a seamless, comprehensive service via one point of contact; and
    • share custody accounts for overseas participants, making share trading and the realisation of cash proceeds easy.

    Contact us to learn more about our expert ESOP services today.

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