Our guide to Performance Share Plans (PSP)

Our guide to Performance Share Plans (PSP)

Our guide to Performance Share Plans (PSP)

Performance Share Plans (PSP) serve as a strategic tool for companies aiming to align employee performance with organisational success. This comprehensive incentive program grants employees shares based on predetermined performance criteria.

Introduction of Performance Share Plan (PSP)

In this guide to Performance Share Plans, we explore the various aspects of this incentive structure. From understanding its core functionality to navigating the diverse benefits it offers, we provide insights into the establishment requirements, tax implications, and associated risks.

How Performance Share Plans Function

A Performance Share Plan (PSP) is an executive compensation strategy that aligns the interests of company leaders with overall organisational success. In a PSP, executives receive awards in the form of shares, and these awards are contingent on achieving predefined performance targets. The performance is typically measured against specific financial, operational, or strategic metrics. As executives meet or exceed these goals, they unlock shares, creating a direct link between their performance and financial rewards.

ESOP vs. shares_ how they differ

Advantages of Performance Shares

Performance Share Plans (PSPs) offer several benefits. They serve as strong incentives by directly tying executive rewards to the company’s performance, motivating executives to contribute to overall success. PSPs also encourage a focus on long-term goals, fostering sustained achievements. Moreover, they help retain talent by giving executives a stake in the company’s success, reducing turnover. These plans provide a clear and measurable way to evaluate executive performance, creating a results-driven culture. In essence, implementing PSPs strategically enhances organisational performance and strengthens the connection between executive leadership and corporate success.

Types of Performance Shares

Performance Shares come in various types, offering flexibility for companies to tailor incentive structures to their specific needs.

Here are some common types of Performance Shares:

Time-Based Performance Shares
Time-Based Performance Shares provide executives with shares based on a set schedule, not contingent on specific performance metrics. Executives receive an initial share allocation upon grant, and these shares vest gradually over a specified period, often tied to their tenure. The vesting schedule can be structured annually, quarterly, or as per another specified timeframe, encouraging executives to stay, especially in industries prioritising employee retention where measuring specific performance metrics might be challenging.
Performance-Vesting Shares
Performance-vesting shares blend time-based and performance-based vesting in equity compensation. Unlike traditional time-based vesting, where shares vest on a set schedule, these shares require executives to meet specific performance targets within a designated time period. Vesting hinges on predefined metrics like financial goals or stock price targets. Executives receive a share grant, and full vesting depends on meeting or surpassing established benchmarks. This aligns executive compensation with company performance, linking rewards to strategic achievements. Balancing long-term commitment (time-based) with contributions to the company’s success (performance-based) motivates executives to drive positive outcomes.
Relative Total Shareholder Return (TSR) Shares
Relative Total Shareholder Return (TSR) Shares tie executive rewards to the company’s stock performance compared to peers. Executives earn shares based on the total shareholder return relative to a selected group of peer companies. Calculation involves measuring the company’s stock price appreciation and dividend yield against predefined peers over a specified period. Outperformance results in a higher share allocation, while underperformance may reduce or eliminate the allocation. This aligns executive compensation with the company’s market performance, encouraging strategies that enhance shareholder value compared to industry competitors. Relative TSR Shares offer a performance-oriented incentive, fostering a competitive drive among executives for superior results in the market.
Factors to consider before implementing ESOPs

Requirement To Establish a PSP

Establishing a Performance Share Plan in Singapore involves a comprehensive approach. Firstly, in the design phase, clear objectives must be defined, aligning them with the company’s overarching goals. Additionally, specifying performance metrics that determine share or cash allocations is crucial. Legal and regulatory compliance is vital, requiring adherence to regulations set by the Accounting and Corporate Regulatory Authority (ACRA) and the Monetary Authority of Singapore (MAS).

Transparent communication with employees is essential, detailing the criteria for earning shares, the potential value of the awards, and clarity on vesting schedules and conditions. Employee eligibility is determined based on factors like job level, performance, and tenure, and the plan’s scope may include all employees or specific groups. Establishing performance metrics involves outlining key indicators relevant to the company’s objectives. Defining a vesting period with a graded approach encourages employee retention. Valuation methods for PSP awards, whether in shares or cash equivalents, need to be consistent and fair.

Efficient administration and record-keeping systems, potentially utilising specialised software are essential. Understanding tax implications for both the company and employees is important, involving consultation with tax professionals for compliance with Singapore’s tax laws. Obtaining board approval aligning with the company’s overall compensation strategy is the final step, ensuring the success of the PSP in motivating employees and aligning their interests with the company’s performance. Consulting legal, financial, and HR professionals is advisable throughout the design and implementation phases to ensure a seamless process.

Explore our comprehensive ESOP platform that simplifies the management and administration of your Performance Share Plan (PSP).

Tips for successful share scheme execution

Tax Treatment of PSP

The tax treatment of a Performance Share Plan (PSP) varies by locations and design features, with key considerations:

Taxable Event
Receipt of performance shares is often non-taxable; taxation typically occurs upon vesting when shares become transferable.
Taxation Upon Vesting
Upon vesting, ordinary income tax may apply on the shares’ fair market value, treated as compensation in taxable income.
Capital Gains Tax
Selling vested shares may incur capital gains tax, potentially more favourable than ordinary income tax rates.
Timing of Taxation
Taxation timing varies, some tax gains at vesting, others at sale.
Withholding Requirements
Taxation timing varies, some tax gains at vesting, others at sale.
Employee Deductions
Taxation timing varies, some tax gains at vesting, others at sale.
Social Security and Medicare Taxes
Taxation timing varies, some tax gains at vesting, others at sale.
International Considerations
Multinational companies face complexity due to diverse tax laws; compliance with international tax regulations is crucial.

Restriction and Risk on Performance Share

Implementing a Performance Share Plan (PSP) comes with certain restrictions and risks that require careful consideration:

Regulatory Compliance
Adhering to local and international regulatory requirements is crucial to avoid legal issues. Non-compliance may lead to penalties and reputational damage.
Shareholder Dilution
Offering performance shares may dilute existing shareholders’ ownership. Striking a balance between rewarding employees and maintaining shareholder value is essential.
Market Volatility
Fluctuations in the stock market can impact the value of performance shares. Participants may experience lower-than-expected returns if the market performs poorly.
Performance Metrics Ambiguity
Unclear or subjective performance metrics may lead to disputes. Defining precise and measurable criteria is essential to ensure fairness and transparency.
Employee Retention Challenges
While PSPs aim to retain talent, there’s a risk that employees might leave before the shares vest, resulting in unused allocations.
Communication and Understanding
Inadequate communication about the PSP details can lead to misunderstandings among employees, affecting morale and the effectiveness of the plan.
Financial Performance Dependency
PSPs tie rewards to the company’s financial performance. Poor performance may result in lower returns for participants, impacting their motivation.
Tax Implications
Tax regulations can change, affecting the tax treatment of performance shares. Staying informed about tax laws is essential to avoid unexpected financial consequences.

Frequently Asked Questions (FAQs)

Can performance shares decrease in value?

The value of performance shares can decrease. The value of performance shares is often tied to the company’s stock price or other predetermined performance metrics. If the company’s stock price declines or if the predetermined performance goals are not met, the value of the performance shares can decrease. This is a risk associated with performance-based compensation plans, as the value is contingent on the company’s overall performance.

Are there tax implications for receiving performance shares?

Yes, there are tax implications for receiving performance shares. The taxation of performance shares can vary based on the jurisdiction and specific tax regulations. In many cases, taxation occurs when the performance shares vest or when the recipient sells the shares. In some jurisdictions, the value of the performance shares at the time of vesting may be treated as ordinary income, subject to income tax.

Can performance share plans be customised for different employees?

PSP in Singapore can be customised for different employees. Companies often tailor PSPs to align with their organisational goals, individual roles, and employee preferences. Customisation may involve varying performance metrics, vesting periods, or the number of shares granted based on factors such as seniority, job responsibilities, or performance expectations.

Related Business Insights

Environmental, social, governance: why it’s essential for SMEs

Environmental, social, governance why it’s essential for SMEs Banner

Environmental, social, governance: why it’s essential for SMEs

Environmental, social and governance (ESG) issues are taking centre stage in Singapore’s business landscape, propelled by a global push towards climate change mitigation, with governments worldwide committing to net-zero targets. This shift has placed increased pressure on businesses to adopt responsible practices, emphasising social equity, transparency and accountability. Furthermore, evolving regulations aimed at enhancing safety and legitimacy within the business environment underscore the critical importance of ESG engagement for companies of all sizes.

It’s not just large corporations that are expected to embed ESG principles in their business operations. In Singapore, small and medium-sized enterprises contribute to 48 per cent of Singapore’s GDP and employ 71 per cent of the workforce, highlighting the role SMEs have in driving sustainable and ethical business practices that contribute positively to the overall health of the economy. As such, SME owners and business leaders are pivotal in shaping a more sustainable, equitable and responsible business future.

In this article, we explore what environmental, social and governance is and why implementing robust ESG practices and processes is not just critical but a strategic advantage for SMEs. We also uncover related opportunities for organisations and provide insights on where business owners and leaders can find the necessary support to implement these ESG practices and policies.

Understanding environmental, social and governance and its relevance to SMEs

Environmental, social and governance is a set of practices adopted by companies to guide how they should conduct business ethically and sustainably. At a broad level, ESG covers the following elements:

  • Environmental responsibility focuses on a company’s impact on nature. For example, a small enterprise could adopt energy-efficient operations, reducing both environmental impact and operational costs.
  • Social accountability measures how a company manages relationships with employees, communities and suppliers. For SMEs, this could involve creating inclusive workplace policies, engaging in community development projects or ensuring fair trade practices with suppliers.
  • Governance concerns practices around a company’s leadership, ethics and transparency. Good governance in SMEs could include developing transparent reporting systems to build stakeholder trust.

Recognising that there is no ‘one size fits all’ approach to integrating ESG practices into business strategy and operations is crucial, as implementation will vary significantly across industries. For example, professional services firms may find greater leverage and opportunities for impact within social and governance, while a consumer goods manufacturer may prioritise environmental and social aspects more heavily.

Why do ESG and sustainability matter?

ESG is a response to a range of concerns, including climate change, rising social inequality and the changing nature of economies.

Investors and stakeholders are increasingly taking ESG into account in their decision-making. Society, customers and clients also expect the companies they interact with to be environmentally and socially responsible. Companies that have robust ESG strategies to manage risks can meet these expectations and compete successfully and strongly in the market.

In Singapore, implementing robust ESG practices offers SMEs the opportunity to differentiate themselves from their competition, attracting more investment, appealing to a larger customer base and ensuring long-term success.

For SMEs eyeing European markets, showcasing solid ESG practices is vital. Europe’s strict corporate social responsibility and sustainability regulations dictate that businesses adopt and visibly demonstrate their ESG commitment.

The Singapore Stock Exchange weighs in

In compliance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the Singapore Exchange (SGX) requires all issuers, including the many SMEs listed, to incorporate climate-related reporting in their sustainability reports. This requirement means companies will have to report on their social and environmental impacts and performance.

The date from which companies have to comply with this mandatory reporting depends on the relevant industry. For example, those in financial services, energy and agriculture are required to report under the TCFD framework from the financial year 2023. Building and transport industries will be required to report from 2024.

The Singapore Stock Exchange weighs in

Challenges and opportunities of ESG adoption

There’s no doubt that ESG is a priority for growing businesses and SMEs of all sizes, but implementing new policies and procedures into business operations can also increase pressure on owners, managers and staff. For small businesses particularly, implementing sustainability practices can be expensive. Busy small business owners, absorbed in the day-to-day running of their business, may not have the time to gain the knowledge needed to implement new practices effectively and give their employees the skills they need to focus on ESG issues.

Although ESG strategies can potentially yield long-term financial benefits, the immediate challenge for many SMEs lies in maintaining profitability in the short term. Balancing ESG objectives with business growth can be daunting, especially when faced with limited access to technical know-how, which stops many SMEs from even trying.

However, integrating ESG into everyday business practices does not have to be overwhelming. Beginning with small, manageable actions can set the foundation and lead to effective long-term change.

Some examples include:

  • Adopting energy-efficient practices, starting with something as simple as switching to energy-efficient light bulbs.
  • Seeking financial support from government bodies and initiatives designed to support businesses implementing ESG practices.
  • Forming partnerships with multinational companies, other SMEs and non-profit organisations to increase ESG knowledge and understanding through collaborative forums.
  • Engaging with a service provider experienced in facilitating ESG integration, to guide and support your business along this path.

Tina Thomas, Head of Environmental, Social, and Governance (ESG) at BoardRoom Group, highlighted, “Small and medium-sized enterprises often lack the comprehensive knowledge required for initiating and executing effective ESG strategies. Additionally, they may encounter significant resource limitations. Nevertheless, this is precisely the juncture at which our expertise becomes invaluable. The ESG team at BoardRoom is adept at managing these processes efficiently and in a cost-effective manner, offering a seamless solution for businesses aiming to enhance their sustainability practices.”

The benefits of a robust ESG strategy

The benefits of a robust ESG strategy

These challenges shouldn’t stop SMEs from exploring the benefits of ESG adoption for cost savings, improved efficiency and risk reduction.

Here, we take a look at some of the benefits:

  • increased cost savings from ESG policies, such as a reduction in water and energy usage;
  • ESG risks and opportunities can be easily identified if supply chain processes are streamlined;
  • reduction in waste and the costs associated with waste management;
  • reduction in the risk of regulatory fines due to non-compliance;
  • an increase in shareholder value and attracting increased investment;
  • appealing to a broader range of potential customers;
  • an increase in employee morale, efficiency and health and safety outcomes as a result of prioritising employee wellbeing;
  • an ability to attract and retain talent and build a stronger employee brand;
  • access to new markets;
  • access to tax incentives and government grants; and
  • differentiation, which can offer many SMEs a competitive advantage.

Clients, customers, investors and regulators now expect businesses of all sizes to reduce their harmful impacts on the environment and people while increasing their resilience to the effects of climate change.

SMEs with ESG cost-saving and other strategies in place that align with their business purpose are much better placed to adapt and meet the challenges of the future while capitalising on opportunities today.

Practical steps towards ESG integration

Practical steps towards ESG integration

Integrating ESG into business practices, strategies and goals can be straightforward and varied based on the individual business. A business could initially take several broad steps; however, it’s crucial to define your company’s ESG goals from the outset clearly. This involves engaging stakeholders and establishing regular monitoring to identify areas for improvement.

Tina adds that a good way to start weaving ESG into day-to-day operations is by collecting and analysing data on the performance of the business. She says, “Step one is making sure there’s a process in place where you collect data on a regular basis, perhaps quarterly. Then, assess the data to expose trends, and set ESG KPIs against the data.”

Other key steps to consider include the following:

Adopting more environmentally friendly practices
Switching to renewable and more energy-efficient sources, reducing waste and implementing robust recycling programs. For instance, your business could replace conventional lighting with LED bulbs to reduce energy consumption.
Encouraging a culture of fairness, inclusion and diversity
Implementing diversity training and adopting equal opportunity hiring practices is a step towards creating a workplace culture that values diversity and fairness.
Innovating through technology
Being open to innovation and leveraging available technology to streamline processes, reduce waste and save costs. A simple example could be switching to cloud-based software to reduce paper usage and streamline operations.
Investing in employee development
Offering employee skills training and wellbeing programs such as mental health support services and professional development workshops.
Community engagement
Engaging with and supporting community groups and charities through staff volunteer initiatives or partnerships.
Establishing ethical policies
Creating well-defined policies and procedures such as a supplier code of conduct and data protection and privacy policies as standard.
Maintaining transparency
Keep business operations transparent. Your business could achieve this by publishing regular sustainability reports and ensuring clear communication with investors and stakeholders.
Managing ESG risks
Introducing organisational and managerial frameworks that identify and manage ESG risks, such as conducting regular environmental audits or ethical supply chain assessments.
Aligning with suppliers
Partner with suppliers who share your business’ goals and ESG values, like sourcing materials from sustainable providers.
Government support and partnerships
Take advantage of government support and incentives for sustainable practices and collaborate with skilled and knowledgeable consultants for ESG transition strategies.

Where to find support

The Government of Singapore offers a range of incentives and grants to help SMEs adopt ESG best practices. If you’re looking for ESG grants in Singapore or need guidance on where to start, here are some helpful resources:

  • Enterprise Singapore’s Enterprise Development Grant (EDG) helps SMEs develop projects to upgrade and innovate their businesses, explore opportunities for growth and expand internationally. Additionally, SMEs can engage with a Registered Management Consultant like Tina for support with integrating sustainability into their business.
  • The Enterprise Sustainability Programme (ESP) supports companies in Singapore to learn about and adopt sustainable, green practices.
  • The Productivity Solutions Grant (PSG) gives SMEs a financial boost to adopt technical solutions to improve their productivity.
  • The Energy Efficiency Fund consists of five grants to support businesses in improving energy efficiency in their industrial facilities.
Discover the opportunities of ESG today

Discover the opportunities of ESG today

There’s no doubt that environmental, social and governance (ESG) issues are becoming increasingly important for Singapore’s businesses to address. SMEs have a large role to play, and if they don’t already have ESG policies and practices in place, there is mounting pressure to do so.

Implementing ESG offers more than compliance for SMEs. It unlocks innovation, sustainability, and market leadership by fostering long-term business resilience and distinguishing your brand in today’s eco-conscious market. With Singapore’s supportive incentives and leveraging the expertise of business consultants, SMEs can seamlessly integrate ESG now more than ever before.

With a dedicated team of experienced ESG consultants in Singapore, BoardRoom can help your business maximise its positive impact and make the most of opportunities with ESG Access. BoardRoom also offers a range of other services, including company incorporation and corporate secretarial. Contact us to find out more today.

Contact BoardRoom for more information:

Tina Thomas_profile

Tina Thomas

Head of Environmental, Social and Governance

E: [email protected]

T: +65 6536 5355

Related Business Insights

Navigating the Forward Singapore Agenda: Insights into Budget 2024

Navigating the Forward Singapore Agenda Insights into Budget 2024 Banner

Navigating the Forward Singapore Agenda: Insights into Budget 2024

In our commitment to keeping you abreast of pivotal developments, we are pleased to present our commentary of Singapore’s Budget 2024, unveiled by Deputy Prime Minister and Finance Minister Lawrence Wong on 16 February 2024, themed “Building Our Shared Future Together”.

Reflecting on the fiscal year 2023, Singapore exceeded revenue expectations, primarily driven by higher Corporate Income Tax collections.

Against this positive backdrop, Budget 2024 is strategically positioned to propel the Forward Singapore agenda. Our detailed Singapore Budget 2024 Commentary delves into the key tax measures affecting both businesses and individuals.

Key tax measures for businesses

  • Singapore’s Implementation of Pillar Two of Base Erosion and Profit Shifting (BEPS) 2.0 initiative
  • Introduction of the Refundable Investment Credit (RIC) Scheme
  • Introduction of Corporate Income Tax (CIT) Rebate and CIT Rebate Cash Grant
  • Enhancement of Tax Deduction for Renovation or Refurbishment (R&R) Expenditure
  • Extension and Revision of Tax Incentive Schemes for Qualifying Funds
  • Introduction of Alternative Basis of Tax for Three Maritime Sector Incentive (MSI) Sub-schemes
  • Introduction of Additional Concessionary Tax Rate (CTR) Tiers

Key tax measures for individuals

  • Introduction of Personal Income Tax Rebate
  • Increasing Annual Income Threshold for Dependent-Related Relief
  • Impending Lapse of Course Fees Relief (CFR)
  • Removal of Tax Relief for CPF top up qualifying for Matched Retirement Saving Scheme (MRSS)

Other key tax measures

  • Introduction of Overseas Emergency Humanitarian Assistance Tax Deduction Scheme (OHAS)
  • Withdrawal of Income Tax Concession on Royalty Income

As we collectively navigate the Forward Singapore agenda, understanding these fiscal changes becomes paramount. Download our commentary now to stay informed and ahead.

Should you have any questions on how to maximise your tax position with this latest announcement, please email our tax team at [email protected].

Related Business Insights

The power of BPO in facilitating overseas business growth

The power of BPO in facilitating overseas business growth

The power of BPO in facilitating overseas business growth

Expanding a business overseas is a critical growth goal for many organisations. The appeal of new markets is enticing, but the challenges of moving into offshore territories can be overwhelming.

Understanding and complying with diverse, unfamiliar legal frameworks, tax structures and regulatory compliance standards in foreign territories is a complex process, and non-compliance can result in far-reaching consequences for any business. For owners, entrepreneurs and leaders keen to pursue overseas opportunities but needing an in-depth understanding of local issues, specialist business process outsourcing (BPO) services can be essential to safe and successful expansion.

Through a BPO partner, businesses gain insights into local compliance and strategic support in navigating the intricate process of establishing and growing your presence in new markets.

In this article, we explore what a BPO provider is, what they do for their clients, and how BPO can help clients navigate regulatory complexities when considering expansion into Asia.

What is BPO? Your key to successful international expansion

Running a business, especially one that is expanding globally, is complex and can be fraught with compliance risks. Missteps in unfamiliar areas can lead to significant consequences, demanding careful navigation, knowledge and skills. That is where business process outsourcing (BPO) comes in. BPO occurs when a business outsources critical backend functions to external entities.

However, it’s important to recognise that certain functions will come with an increased need to find a provider that specialises in regulatory compliance.

Some of these functions are:

When you engage an expert BPO service provider with specialised skills in regulatory compliance to outsource these critical functions to, your staff can concentrate on your business’s core competencies. By working with an expert provider and also being aware of how each function interplays with your company’s broader operations and expansion goals, risk can be mitigated, ensuring the integrity and continuity of your core business activities.

There are several fundamental advantages of partnering with a compliance focused BPO provider:

Access to specialised skills and local knowledge that may not be readily available within your organisation. This expertise ensures accuracy in compliance and allows easier navigation of in-country requirements and valuable insights into local markets.
Efficiently scale operations especially when expanding internationally, by tapping into vast pools of experienced professionals through the services provided.
Gain access to advanced technologies compliant with regulations, allowing optimisation of internal processes, guaranteeing streamlined operations, while mitigating the risk of non-compliance.
Benefit from a commitment to adapt to changing regulations while maintaining stringent compliance standards, mitigating risks, and ensuring continuous agility in navigating a dynamic regulatory environment.
Your key to successful international expansion

Navigating your expansion into Asia

Asia’s robust economic growth and diverse markets make it an increasingly attractive destination for business expansion. In this rapidly growing business environment, understanding the key factors crucial for successful business expansion is pivotal for tapping into the region’s unique opportunities.

Here are four important factors to look out for in selecting your BPO provider:

The complexity of local regulations

Business owners entering new markets in Asia must understand that the regulatory landscape in the region has evolved and continues to evolve rapidly. Hugo Walkinshaw, Group Chief Executive Officer of BoardRoom, has this advice for foreign investors entering Asia. “There’s some commonality among Commonwealth countries, but you cannot assume if you have a footprint in one country, you can easily take that elsewhere. We advise businesses to be aware that Asia’s not one place.”

Just as every country has a unique culture, language, time zone and climate, so too are its regulatory framework, laws, processes and ESG standards. Therefore, it is recommended you get advice from a BPO provider who has the experience in regulatory compliance and deep relationships with the regulators in the country you are planning to enter.

Owners and business leaders who fail to consider the complex regulations are putting their personal and business reputations at risk.

Compliance focused BPO provider

Leveraging technology in an evolving regulatory landscape

Technology is changing how businesses operate, and the regulations that govern technology are also evolving rapidly. This complexity is magnified in Asia due to the diverse legal and technological landscapes across different countries.

An example is data security, which has become increasingly complex in a rapidly-digitised world where data is valuable, and automation is commonplace. Businesses have a duty of care to themselves, their staff and their customers to protect data and information systems. A service provider with sound security systems in place is an essential layer of protection to your business, ensuring compliance with local data protection laws. This is especially crucial for functions like payroll, where sensitive employee data must be handled with care and accuracy across different legal frameworks.

Partnering with a compliance-focused service provider who understands these regulations and leverages the latest technology provides assurance that compliance requirements are consistently met.

Geopolitical and economic concerns

The Y2K scare, the 1997 Asian crisis, the 2007-08 Global Financial Crisis and COVID-19 – the past two decades have been punctuated by massive economic uncertainty and geopolitical volatility. These factors make for an increasingly complex environment for businesses. However, Hugo says economic opportunities in the region are still compelling.

A corporate services provider that offers an integrated suite of services across multiple countries can leverage regional expertise and serve as a single point of contact for businesses moving into Asia. Furthermore, businesses ought to seek a seasoned provider with a appropriate market presence that is aligned with your expansion goals. These providers will have first-hand experience navigating legislative changes and are better positioned to address the needs of businesses amidst volatile geopolitical and economic uncertainty.

Ensuring the right coverage

When choosing a BPO provider, it is important to understand their size and scale. What services do they provide, and which countries do they operate in?

Businesses entering Asia will find many providers that Hugo calls “single-service, single-country local players”. But these might not offer a comprehensive enough service for your business. Choosing a provider that operates in several countries with a range of services is often a better option, allowing your business to enter whichever country you decide to expand into.

Furthermore, a service provider with regional expertise and integrated services like corporate secretarial and tax advisory can also help optimise your business’s tax payouts. This starts at the incorporation stage with the advice on the most advantageous business structure. Different business structures have varying tax implications, and a knowledgeable service provider can navigate these intricacies to ensure that your business benefits from tax efficiency while remaining compliant.

Leveraging technology in an evolving regulatory landscape

BoardRoom: your compliance focused BPO partner

Successfully establishing a business in Asia requires a deep understanding of its laws and regulatory structures. Regulatory compliance-focused BPO service providers equipped with this expertise offer invaluable guidance to help businesses navigate the complexities of regional expansion. They take on the responsibility of a range of business processes, freeing up your time and resources to grow your business.

At BoardRoom, we have the regional expertise to help your business navigate the complex regulatory landscapes and technology integration in various Asian nations.

Our multi-service offering and our years of experience managing cross-border expansion means you get integrated, efficient solutions to help your business succeed:

Contact our team for your expansion needs now!

Related Business Insights

Singapore’s variable capital company: a guide to VCC benefits and setup

Singapore’s variable capital company a guide to VCC benefits and setup

Singapore’s variable capital company: a guide to VCC benefits and setup

In the evolving landscape of Singapore’s financial sector, variable capital companies (VCCs) have emerged as a prominent and flexible solution for diverse investment needs.

Thanks to its innovative structure, the VCC has led an increase in investment flows into the city-state, and has helped to propel Singapore firmly onto the global stage as a destination of choice for fund managers and family offices. This has also led to opportunities for professionals through the creation of local jobs. In response to the high demand, the Singaporean government recently extended the Variable Capital Companies Grant Scheme to 15 January 2025.

This article provides an overview of the VCC to help you decide if it is the right investment vehicle for you. In consultation with multiple business experts, we explain what a variable capital company is and the benefits it offers. We will also explain the setup process and provide advice for giving your entity the best chance of success in the region.

The VCC structure and its unique benefits

The VCC is an innovative structure offering many benefits for investment managers in Singapore – particularly high-net-worth individuals and families.

“The introduction of the VCC Framework at the start of 2020 further strengthened Singapore’s value proposition as a leading full-service asset management hub,” explains Eunice Hooi, Head of Corporate Secretarial for BoardRoom Singapore.

Like private limited companies, VCCs are governed by a board of directors and have shareholders who own shares in the fund. They also offer limited liability for shareholders and directors, as they are considered a separate legal personality (this means that shareholders and directors are protected in cases of litigation against the company).

However, VCCs have unique benefits that may make them a preferred structure for investment managers. In contrast to other investment structures, VCCs offer:

  • operational flexibility;
  • tax efficiency, and
  • privacy.
The VCC structure and its unique benefits
Operational flexibility
VCCs offer investors and fund managers a high level of flexibility across different fund strategies, investor and asset classes.

Importantly, fund managers can use VCCs for both open- and close-ended funds. Open-ended funds allow investors to freely invest, redeem or withdraw shares without shareholder approval, empowering them to respond swiftly to market changes. “VCCs can also pay dividends out of capital, giving fund managers the flexibility to meet their dividend payment obligations,” says Zhan Aijuan, Senior Manager of Corporate Secretarial for BoardRoom Singapore.

In addition, VCCs can incorporate new funds and re-domicile existing funds to a new location.
Tax efficiency
VCCs can access a variety of beneficial tax treatments. Even VCCs with sub-funds are recognised as a single entity at tax time. Distributions from VCCs in Singapore are usually tax-exempt, and the VCC itself may qualify for tax-exemption schemes such as the Singapore Resident Fund Scheme and Enhanced-Tier Fund Scheme.

“VCCs can also enjoy the extensive tax treaty network that the Singapore government has with over 85 countries,” Eunice adds.
Privacy
While VCCs must submit financial statements to regulatory authorities, they do not need to make these documents publicly available. They can also keep their list of shareholders confidential. This means they offer extra privacy and confidentiality for shareholders.

VCCs can be set up as:

  • a standalone fund or
  • an umbrella VCC with two or more sub-funds, each holding a portfolio of separate assets and liabilities.

Josephine Toh, Associate Director of Corporate Secretarial for BoardRoom Singapore, adds that umbrella VCCs can offer valuable economies of scale.

“VCCs need to appoint a variety of professionals, such as fund managers, company secretaries and auditors,” she says. “Umbrella VCCs enable investors to achieve economies of scale by splitting the cost of using the same professionals across all sub-funds.”

Further, the fund managers can claim a 30% reduction on qualifying VCC set-up costs paid to Singapore-based service providers through the Variable Capital Companies Grant Scheme.

Regulatory requirements for VCCs

Compliance requirements for VCCs encompass stringent reporting standards and governance mechanisms to promote transparency and accountability.

The Variable Capital Companies Act governing VCCs in Singapore is relatively new, and therefore will continue to develop. Fund managers must ensure their VCC complies with this legislation as it evolves.

VCCs also have obligations to the Monetary Authority of Singapore (MAS), such as the implementation of processes for anti-money laundering and countering the financing of terrorism.

Key requirements for the setting up of VCCs include:

  • at least one ordinarily resident director in Singapore;
  • one qualified MAS licensee as a fund manager (this can be the same person as the local resident director);
  • a registered office in Singapore;
  • a Singapore-based company secretary; and
  • an auditor and annual audits.

Setting up a Singapore VCC

A prominent feature of the VCC framework is the option for fund managers to either set up a new VCC or re-domicile their existing investment funds with comparable structures to Singapore. This flexibility offers a range of advantages and can significantly enhance the fund manager’s operations. Below are the steps in incorporating a new VCC or re-domiciling existing investment funds.

Incorporating a new VCC

Companies seeking to expand their presence in Singapore or tap into the benefits of the VCC structure can set up a new VCC. Here are the key steps involved:

INCORPORATING A NEW VCC

Register a name

Register a VCC name via the VCC Portal. Once approved, the VCC must be incorporated within 120 days and adhere to any potential reviews by Referral Authorities.

Determine the VCC type

Decide between establishing a non-umbrella VCC or an umbrella VCC that contains multiple sub-funds with segregated assets and liabilities.

Appoint key personnel

Appoint VCC officers, including director, company secretary, auditor and fund manager. At this point, you will also need to decide on the VCC's first financial year end (FYE) and determine the accounting period length.

Register the office address and constitution

Provide a publicly accessible registered office address for the VCC and submit a constitution detailing the VCC's governance, operations and key stakeholder rights and responsibilities.

Incorporate the new VCC

This can be done directly through the VCC Portal or via a registered filing agent or corporate service provider. The processing time can range from 14 to 60 days, depending on any additional governmental reviews.

Register any sub-funds for an umbrella VCC

Register individual sub-funds under an umbrella structure of a VCC.

Re-domiciling existing investment funds

Re-domiciling existing investment funds

For fund managers with existing overseas investment funds that align with the VCC framework’s criteria, the option to re-domicile these funds to Singapore can be an efficient and cost-effective strategy. This process involves transferring the registration and legal domicile of an existing fund to Singapore while retaining its existing structure. Here are the key requirements needed for re-domiciling existing investment funds:

Eligibility assessment: Fund managers must first determine whether their existing investment funds meet the criteria for re-domiciliation to a Singapore VCC. The existing fund should have a similar structure and characteristics to that of a VCC, making it a suitable candidate for re-domiciliation.

Approval from shareholders: In most cases, the existing fund’s shareholders must approve the re-domiciliation. This process may require a special resolution or a majority vote, per the fund’s existing legal structure.

Regulatory compliance: Fund managers should ensure that the re-domiciliation process aligns with the regulatory requirements of both the fund’s current jurisdiction and Singapore.

Transfer of assets and liabilities: As part of the re-domiciliation process, assets and liabilities of the existing fund must be appropriately transferred to the newly incorporated Singapore VCC. If applicable, this transfer process should ensure the segregation of assets and liabilities for each sub-fund.

Appointment of local service providers: Engage local service providers, including a permissible fund manager, company secretary, and auditor, to ensure compliance with the VCC Act’s requirements. The engagement of these professionals is crucial for ongoing compliance.

Re-domiciliation application: Submit the necessary documentation to the Monetary Authority of Singapore (MAS) for approval of the re-domiciliation. The application should include details of the existing fund, the proposed Singapore VCC structure, and other relevant information.

Tax implications: Consider the tax implications of re-domiciling the fund to Singapore. Collaborate with tax advisors to maximise the benefits available under Singapore’s tax incentive schemes, such as the Singapore Resident Fund Scheme or the Enhanced-Tier Fund Scheme.

A trusted partner in Singapore VCC incorporation

A trusted partner in Singapore VCC incorporation

The VCC in Singapore is transforming the investment landscape, offering flexibility, tax benefits and privacy. It attracts wealth, creates jobs and solidifies Singapore’s position as a global financial hub. Setting up a VCC in Singapore involves navigating a complex landscape of legal, financial, and regulatory requirements.

BoardRoom, as a trusted partner with more than 50 years of experience in corporate services, can guide you through each step of the process, from registering your company to corporate secretarial services and setting up an efficient tax structure. BoardRoom can also ensure your accounting and tax compliance meet local and APAC-wide standards for your VCC in Singapore.

Contact us today to discuss how we can help set up your VCC and optimise the tax incentives.

Eunice

Contact BoardRoom for more information:

Eunice Hooi

Managing Director Asia, Tax

E: [email protected]

T: +65 6536 5355

Related Business Insights

Startup companies in Singapore: where are the opportunities?

Startup companies in Singapore where are the opportunities

Startup companies in Singapore: where are the opportunities?

In an increasingly unpredictable global business landscape, Singapore stands out thanks to its economic resilience and stability. Renowned for its robust economy, Singapore has strategically cultivated a welcoming environment for startups and businesses alike, offering a unique blend of security, consistent growth and government initiatives that foster innovation.

A straightforward regulatory framework, low corporate tax rate and a strong rule of law underscore the country’s business-friendly atmosphere. For startup companies, Singapore’s appeal extends beyond its economic prowess, as it has positioned itself as a dynamic hub for new ventures ready to capitalise on opportunities and join a vibrant business community.

In this article, we delve into the landscape created for startups and new businesses, the reasons entrepreneurs should consider establishing their startups in Singapore, and the factors business owners need to consider when registering a startup in Singapore.

Why choose to establish your startup in Singapore?

The Singapore Government actively promotes a business-friendly environment through open policies and initiatives, a relatively uncomplicated regulatory framework, a resilient free market economy, low taxes and tax incentives. It also provides a range of attractive grants for startups.

The government’s strong focus on economic development has created an environment where startups in Singapore can thrive and where foreign investors are welcome. Startups and entrepreneurs will find a supportive and innovation-led business community. As a result, Singapore has built a global reputation as a top location for international expansion. Here are just a few other reasons why it is a great place to do business:

  • Singapore has a stable economy with world-class transportation, communication and technology networks and other infrastructure.
  • Thanks to its diversified economy, it offers opportunities in a range of industries.
  • Singapore is a global financial hub with a well-regulated and stable financial system.
  • The Singapore Government has implemented incentives and policies to streamline administration and create a pro-business environment.
  • Its efficient regulatory framework makes establishing a business in Singapore easy. For example, an application to incorporate a private limited company in Singapore can be approved within a day through the Accounting and Corporate Regulatory Authority (ACRA).
  • Singapore has low corporate tax rates and a transparent legal system. The tax system is straightforward to navigate, with tax incentives offered to many businesses.
  • Situated at the crossroads of major shipping routes, Singapore serves as a gateway to the Asia-Pacific region.
  • Its multicultural environment has created diverse markets for businesses to tap into.
Establish your startup in Singapore

What is the startup scene in Singapore?

The government has proactively encouraged an environment of innovation and supports this in a range of ways. For example, the Economic Development Board provides resources and assistance to support overseas companies and individuals starting businesses in Singapore. The government has also invested in the Startup SG program, providing various services and grants to Singapore’s startups. Some sectors offering an array of opportunities that startups could consider include:

Technology
Substantial investment in the tech sector has created a rich ecosystem for innovation in areas such as robotics, blockchain and AI.
Supply chain management
Singapore’s logistics sector provides vital support to other industries, with a range of opportunities open to entrepreneurs in the areas of trade and ecommerce.
Healthcare
The Singapore Government has invested heavily in the healthcare sector, and healthcare tech entrepreneurs will find plenty of opportunities to improve health outcomes for people in Singapore and around the globe.
Fintech
Singapore’s fintech sector presents significant opportunities for startups, with strong venture capital support and a favourable and supportive climate for innovation and collaboration.
Tourism
Startups and entrepreneurs with innovative offerings will find the tourism sector also rich with growth opportunities.
Startup scene in Singapore

A supportive community is a hallmark of the startup scene in Singapore

Along with a variety of government-led assistance programs to support entrepreneurs and innovators, Singapore’s thriving business community has also created initiatives to foster growth. The Action Community for Entrepreneurship (ACE) helps to promote entrepreneurship, catalyse new growth opportunities, scale startups and build champion enterprises. For example, ACE’s Start-up Mentorship Program connects entrepreneurs with experienced business leaders who offer their expertise and guidance without charge.

The Singapore Women Entrepreneurs Network (SG-WEN) provides an important platform for women in business to unite, network and share experiences and insights.

The Youth Co:Lab is an example of an initiative designed for young people in business. It offers a collaborative and creative workspace for entrepreneurs to cultivate their ideas and support their business growth.

Best practices when registering your startup in Singapore

While Singapore has created a welcoming environment for new businesses, there are many compliance factors that startups and entrepreneurs must consider when incorporating a business in Singapore.

Eunice Hooi, Head of Corporate Secretarial, BoardRoom Singapore, says it is important to seek advice from an experienced, professional advisor when launching a business. “They will guide business owners through every stage of the incorporation process. They will also provide specialty advice on the different types of business structures available, and which one is best suited to the business needs. They will also take into consideration the legal and the tax implications of business ownership.”

Eunice says business owners need to consider the answers to several questions. What is the nature of your business? Are you establishing a branch i.e. an extension of your head office in another country? Or do you want to test the market by registering a representative office before you set up a permanent structure in the foreign country? A professional advisor can help you answer these questions and provide advice on the types of company structures in Singapore. They will also help you fulfil your obligations and avoid the pitfalls of inadequate planning.

Three critical aspects when establishing a business in Singapore are tax, corporate secretarial and payroll.

Tax
The type of business structure you choose will dictate how much tax you pay. Eunice explains. “A sole proprietorship and partnership are not taxable at the business level, but rather each business owner is taxed separately on his share of income at the owner’s level. An individual owner who is a sole proprietor or a partner would be taxed based on the progressive tax rates ranging from 0% to 24%, depending on the income level. On the other hand, a corporate partner of a partnership is subject to tax at corporate tax rate at 17% on its share of income from the partnership.”

A professional can help you understand the tax implications of your business and decide on a structure that takes advantage of tax incentives.
Corporate secretarial
Corporate secretarial is another consideration for entrepreneurs looking to start a business in Singapore, as corporate governance and company compliance can be complex and time-consuming. A service provider such as BoardRoom can support businesses in a range of ways, including ensuring a company complies with local Singapore requirements, ensuring accurate and timely submission of annual returns and providing expert advice on corporate governance matters.
Payroll
It’s vital that businesses meet their payroll obligations. While Singapore has streamlined and simplified payroll requirements for businesses compared to other countries, staying up to date with payroll needs can be a challenge for new and established businesses. This includes ensuring compliance with salary disbursements and mandatory contributions, maintaining salary records, providing itemised payslips and adhering to leave entitlements, meaning there is no room for error.

Singapore also has cultural nuances and sensitivities that those unfamiliar with the business landscape might find challenging. It is important to understand and respect the cultural norms of your workforce. Ken Wong, Managing Director Asia, Payroll at BoardRoom, highlights some of these nuances: “Singapore is so diverse and there are times when you actually will need to make salary payments earlier so employees can enjoy festive holidays with salaries being paid to them in advance,” says Ken. “Singapore also has a prevalent ‘bonus culture’, with employees often expecting to receive some form of bonus at the end of the year, this is often not written in an employment contract.”
A supportive community

How BoardRoom supports your startup

Singapore is a politically safe, business-friendly country. Businesses and startup companies in Singapore enjoy an array of incentives and support to help them thrive. For entrepreneurs and business owners venturing into the Singapore market, understanding and respecting the local business landscape is crucial. This includes being well-versed in areas such as tax regulations, business structures, corporate regulatory requirements and payroll compliance.

Offering a range of corporate services, BoardRoom has proven itself to be a trusted partner of established and startup businesses in Singapore. We guide your business at every step and offer a range of corporate services, including corporate secretarial, payroll, tax compliance, company incorporation, accounting and bookkeeping and ESG advisory services.

Contact us to discuss how we can help you establish your startup today.

Related Business Insights

Setting up a company in Singapore: what you need to know

Setting up a company in Singapore - what you need to know

Setting up a company in Singapore: what you need to know

In the heart of Southeast Asia’s thriving markets, Singapore’s growing economy and political stability continue to attract multinational corporations and startups. Eager to build on the country’s reputation as an economic powerhouse, the Singapore Government’s policies and regulations have created a favourable environment for businesses to thrive in.

If you are a business owner or investor considering setting up a company in Singapore, you are not alone. Every month, thousands of businesses are registered in Singapore.

In this article, we explore the various benefits of establishing a business in Singapore, the different types of business structures and important considerations when embarking on the process of company registration.

Seven benefits of setting up a company in Singapore

There are many reasons investors, entrepreneurs and company directors choose to form a company in Singapore. Here are some salient factors:

  • There is no minimum shareholder requirement.
  • There is no minimum requirement for paid-up capital when incorporating a private limited company.
  • There is no foreign exchange control.
  • Singapore is close to Asia’s thriving markets.
  • Singapore offers favourable tax incentives and low corporate tax rates.
  • Singapore’s workforce is highly educated and skilled.
  • Singapore is politically stable.
  • Singapore has a sound legal system and a mature financial infrastructure.
Benefits of setting up a company in Singapore

SEVEN BENEFITS OF SETTING UP A COMPANY IN SINGAPORE

There is no minimum shareholder requirement

Singapore maintains a relatively open investment environment and imposes no minimum shareholder requirement on businesses.

“Because there are no restrictions on foreign ownership, a foreign entity can own the Singapore subsidiary or fully own a Singaporean company, either as a corporate or individual investor,” says Eunice Hooi, Head of Corporate Secretarial, BoardRoom Singapore.

There is no minimum requirement for paid-up capital when incorporating a private limited company

Singapore has a robust free-market economy and generous investment policies. It also has no minimum requirement for paid-up capital when incorporating a private limited company (PLC). Because of this, a PLC, which is one of the most common business types in Singapore, can be incorporated with just SGD 1.

There is no foreign exchange control

Generally, Singapore has no restriction on foreign exchange transactions and capital movements. “From an investment perspective, this means that it is easy to remit or repatriate capital and/or profits in and out of Singapore,” says Eunice.

Singapore is close to Asia's thriving markets

Singapore’s location is also very attractive to investors. It is in a strategic location close to the massive economies of both China and India.

With well-established infrastructure, including one of the busiest airports in the world and one of the largest ports in Asia, the country is well-placed to do business with other thriving economies.

Singapore offers favourable tax incentives and low corporate tax rates

Singapore has a range of tax incentives that are attractive to investors and boasts one of Asia’s lowest corporate tax rates of just 17%.

Singapore has also implemented the one-tier tax system, which means businesses pay corporate tax at the corporate level just once. Therefore, no additional taxes are imposed on the income, and shareholders are exempt from taxation on any dividends distributed by the company.

There is a highly skilled workforce in Singapore

Singapore boasts numerous corporate service providers, offering entrepreneurs a wide array of options when setting up a business.

The country is also home to a highly educated and literate workforce. That is reassuring for foreign investors who are setting up a company in Singapore and are looking for local talent to hire.

Singapore is politically stable

For business owners looking to establish a business in a country they have never operated in before, stability and security are paramount. Singapore is politically stable, with nations around the world recognising Singapore’s business-friendly regulations, reliable policies and high governance. This makes it an attractive and low-risk location for businesses.

Types of company registration in Singapore

There are several ways to structure a business in Singapore. These include:

  • sole proprietorships;
  • partnerships;
  • private limited companies (PLC);
  • limited liability partnerships (LLP); and
  • variable capital companies (VCC).
Sole proprietorships
This structure consists of one business owner who is personally responsible for any of the business’s debts and losses as the business owner is subject to unlimited liability.
Partnerships
Consisting of two to 20 owners, in a partnership, the owners also take on unlimited liability. They are, therefore, personally responsible for any of the business’s debts and losses.
Private limited companies (PLC)
In this structure, the business is established with its own legal identity. As it is separate from shareholders and directors, their liability is limited to the sum of what they have funded as capital.

This gives entrepreneurs peace of mind when setting up a company. It also means they can raise capital relatively easily. They can do this by increasing the number of shareholders or by issuing more shares to current shareholders.
Limited liability partnerships (LLP)
This structure is similar to that of a PLC. While a privately limited company can have one to 50 shareholders, in a limited liability partnership, there must be a minimum of partners with up to 20 partners.

In a business with this type of structure, the partners will not be held personally liable for any business debts incurred by the LLP. However, an individual partner may be held personally liable for claims from losses resulting from their own wrongful act or omission.
Variable capital companies (VCC)
A variable capital company is another type of corporate structure in Singapore. This structure allows a company to be established as a single, standalone fund for a single entity or as an umbrella fund for multiple funds.

The flexibility of this structure allows the investors to either incorporate a new VCC in Singapore or redomicile their existing offshore investment fund to Singapore as a VCC.

The structure also offers flexibility in how shares are issued and redeemed.
Choosing a company structure

How to choose a company structure

Entrepreneurs and investors are advised to have a carefully considered business plan and decide whether the business will be a short-term or long-term venture when starting a company. Those factors will affect the best kind of business structure they should set up in the establishment phase.

When it comes to ending the business, Eunice says there are several options. “It can be done through liquidation. Another way is through a simple process called striking off, when the company has a clean balance sheet. A third option would be to sell the business through an asset divestment or a share divestment.”

Kevin Cho, Director of Corporate Secretarial, BoardRoom Singapore, highlights the importance of considering the benefits specific to Singapore when choosing a business entity. “For example, Singapore offers tax benefits to startups established as private limited companies. These businesses are entitled to a new startup tax exemption for its first three consecutive tax years I.e. 75% exemption on the first SGD 100,000 of normal chargeable income* and a further 50% exemption on the next SGD 100,000 of normal chargeable income*.”

*Normal chargeable income refers to taxable income that is subject to tax at the prevailing Corporate Income Tax rate of 17%.

Steps to setting up a company in Singapore

Business owners and investors exploring business registration in Singapore should engage with a professional corporate service provider who can guide them on the processes of setting up a business. This includes making sure the company name is available and suitable for registration, deciding on the entity structure, and ensuring compliance with local and regional regulatory requirements at all times.

Once the business is formally registered with the local authority, namely the Accounting and Corporate Regulatory Authority (ACRA), it may purchase its certificate of registration and business profile which contains the necessary corporate information from ACRA. The business will also be assigned a unique entity number then.

The business also has to determine its share capital and be sure to abide by the rules governing shareholders and directors. For example, a minimum of one local resident director must be appointed. It is noteworthy that foreign individuals can serve as directors if they meet specific criteria. Additionally, the company should consider engaging a qualified company secretary.

It can also be helpful to engage a professional corporate service provider as the tax treatment of companies set up in Singapore varies and depends on the type of business being set up.

“PLCs are taxed as separate entities at the corporate tax rate of 17% on the business profits,” explains Eunice. “On the other hand, LLPs are given a tax-transparency treatment, meaning they are not taxed at the LLP level. So the owners or the partners will be taxed on their share of income from LLP based on the relevant tax rates that are applicable to corporate partner and individual partner.”

Steps to setting up a company in Singapore

The right advice for your move into Singapore

Singapore offers attractive incentives for foreign investment and is a politically stable, easily accessible and talent-rich country in which to set up business. If you’re considering a move into Singapore as a business owner, director or investor, BoardRoom can help with all aspects of the business lifecycle.

BoardRoom offers a range of services including corporate secretarial, accounting, tax, payroll and ESG advisory services.

For help establishing your business in Singapore, please contact us today.

Related Business Insights

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

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:

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.
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.
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.
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

    Related Business Insights

    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

    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.

    Related Business Insights

    Liquidation of company in Singapore: Guide to Compliance and Tax

    Liquidation of company in Singapore Guide to Compliance and Tax Banner

    Liquidation of company in Singapore: Guide to Compliance and Tax

    The cessation of a Singapore company can occur for a range of reasons, such as changes in strategic direction, lack of profitability or legal issues. Factors like your company’s state of affairs, debt level, business goals and tax status can determine the method of closure.

    Especially in the case of voluntary liquidation, having a good understanding of the tax implications of company closure can help business leaders to streamline the process, optimise the tax position of stakeholders and minimise compliance risk.

    This article sheds light on the compliance and tax issues surrounding the liquidation of a company and provides valuable insights to help you optimise the process and safeguard the interests of all stakeholders.

    What to know about closing a company in Singapore

    The two main methods of closing a company in Singapore are striking off and liquidation (also referred to as winding up):

    • Striking off – Private companies that are not actively in business and do not have any assets or liabilities may apply to the Accounting and Corporate Regulatory Authority (ACRA) to be struck off the register. Striking off is a relatively easy, fast and inexpensive process.
    • Liquidation – This formal closure process involves an appointed liquidator who takes control of the company’s assets, business operations, and financial affairs. All bank accounts and assets are under the liquidator’s custody and the liquidator has the power to sell off (realise) the company’s assets, with the net proceeds used to pay off debts and liabilities. Any surplus cash is distributed to shareholders according to their rights and interests under the company’s constitution and Companies Act 1967.

    The winding of a company may be either by Order of the Court or voluntary.

    There are two types of voluntary winding up which are:

    • a members’ voluntary winding up; or
    • a creditors’ voluntary winding up.

    A company’s solvency (its ability to pay its debts and liabilities within 12 months from winding up) will qualify for a members’ voluntary winding up.

    Winding of a company

    The process of voluntary liquidation in Singapore

    To comply with local regulations, Singapore businesses entering members’ voluntary liquidation will generally need to:

    1. Prepare a Declaration of Solvency – A majority of the directors must make a statutory Declaration of Solvency.
    2. Hold an extraordinary general meeting (EGM) – Shareholders need to pass a special resolution to wind up the company and approve a liquidator.
    3. Realise assets and distribute cash – The liquidator will take over the winding up process, using proceeds from the sale of assets to repay creditors in order of priority. Any excess money may be paid to shareholders and employees.
    4. Hold a final EGM – The EGM must be called by giving at least 30 days’ notice and the notice of EGM published in one English local newspaper and in the eGazette.
    A majority of the directors must make a statutory Declaration of Solvency.
    Hold an extraordinary general meeting (EGM)
    Shareholders need to pass a special resolution to wind up the company and approve a liquidator.
    Realise assets and distribute cash
    The liquidator will take over the winding up process, using proceeds from the sale of assets to repay creditors in order of priority. Any excess money may be paid to shareholders and employees.
    Hold a final EGM
    The EGM must be called by giving at least 30 days’ notice and the notice of EGM published in one English local newspaper and in the eGazette.

    Please refer to the infographic “The process of voluntary liquidation in Singapore“ below for more details.

    THE PROCESS OF VOLUNTARY LIQUIDATION IN SINGAPORE

    Prepare a Declaration of Solvency

    A majority of the directors must make a statutory Declaration of Solvency, which annexes a statement of the estimated assets and liabilities of the company. The declaration must also show that as at the latest practicable date, at a meeting of the directors, in their opinion, the company shall be able to pay its debts in full within 12 months from the commencement of the winding up. The declaration has to be made within 5 weeks preceding the resolution to wind up and the declaration is filed with ACRA before the notice of the meeting to pass the winding up resolution is sent out.

    Hold an extraordinary general meeting (EGM)

    Shareholders need to pass a special resolution to wind up the company and approve a liquidator. A copy of the resolution to wind up must be filed with ACRA within 7 days after it is passed and advertised in a local English newspaper within 10 days. The liquidator must, within 14 days after his appointment, file a notice of appointment with ACRA and the Official Receiver. The fact that the company is being wound up must be stated on every invoice, business letter or other correspondence of the Company. Then, directors’ powers will cease on the appointment of liquidator and the liquidator takes charge.

    Realise assets and distribute cash

    The liquidator will take over the winding up process, using proceeds from the sale of assets to repay creditors in order of priority. Any excess money may be paid to shareholders and employees.

    Hold a final EGM

    The EGM must be called by giving at least 30 days’ notice and the notice of EGM published in one English local newspaper and in the eGazette. The liquidator will present to shareholders its final account of how the liquidation was conducted and payments were made. It must also lodge the account of the liquidator’s receipts and payments, and a statement of the position in the winding up with the Official Receiver. Within 7 days after filing the account and statement with the Official Receiver, the liquidator must file the account and statement with ACRA.

    On the expiration of 3 months from lodgement of the accounts and the final return, the company is deemed dissolved. The books and documents of the company and of the liquidator shall be retained for a period of 5 years after the date of dissolution and may be destroyed at the expiration of the period.

    The tax implications of liquidation of a company

    Understanding the tax issues involved in company liquidation can help ensure a smooth winding up process that optimises financial outcomes and reduces compliance risk.

    In the case of voluntary liquidation, key tax considerations include:

    • Goods and services tax (GST) – Companies must fulfill all GST obligations, including settling any outstanding liabilities, claiming refunds, filing a final return and cancelling its GST registration.
    • Corporate income tax – Companies must ensure all outstanding tax obligations are filed up to the date of liquidation and there are no outstanding tax liabilities. Any outstanding tax matters must be settled before completion of liquidation process.
    • Tax losses and carry-forward – To utilise any unabsorbed tax losses brought forward, the company’s ultimate shareholders must remain substantially (50% or more) the same as at the relevant dates. Any remaining unabsorbed tax losses carried forward in the year of liquidation will be disregarded.

    Updated rules for financial reporting during liquidation

    Inland Revenue Authority of Singapore (IRAS) has recently updated its guidelines for financial reporting during the winding up of a company.

    The Insolvency, Restructuring and Dissolution Act 2018 requires liquidators to prepare a declaration detailing the company’s receipts and payments for a period of 12 months after the date of liquidator’s appointment, and every subsequent period of 12 months.

    With effect from 1 May 2021, liquidators can use the same 12-month period as their reporting period when preparing these declaration of receipts and payments. This means liquidators no longer need to split receipts and payments based on the calendar year when filing declaration with the IRAS, making for easier reporting.

    Common tax pitfalls during liquidation

    According to Ade Teo, Senior Manager of Regional Tax Services for BoardRoom Singapore, a common tax pitfall seen in company liquidation is inaccurate record keeping.

    “Some companies do not maintain proper records,” she says.

    “Companies without these documents may face challenges in substantiating deduction claims and revenue reporting during liquidation.”

    This is why good record-keeping is important in every phase of the business lifecycle, from company incorporation to the end.

    Companies with a history of non-compliance with tax filing obligations may face scrutiny from IRAS during liquidation. For companies that have failed to meet tax filing requirements, IRAS may issue chaser letters or impose late filing penalties.

    Taking proactive steps to settle outstanding tax obligations will help ensure a seamless liquidation process.

    Common tax pitfalls during liquidation

    How to optimise company liquidation in Singapore

    Given the complex, time-consuming nature of members’ voluntary liquidation in Singapore, engaging a qualified corporate services team to act as your liquidator can be immensely beneficial. If you are unsure how to close a company in Singapore, a reputable firm specialising in corporate secretarial and tax services can help ensure a smooth, compliant process.

    “At BoardRoom, our company secretarial and tax teams work closely together to ensure we obtain tax clearance in the shortest time frame,” says Eunice Hooi, Head of Corporate Secretarial for BoardRoom Singapore.

    The company secretary’s role in Singapore liquidation includes supporting you with the following activities:

    Navigating the entire process of liquidation
    Preparing for liquidation by ensuring your documents are in order and debts are paid
    Filing necessary returns to local authorities (e.g. ACRA, Official Receiver)
    Sending letters to directors regarding cessation of their power
    Correspondences with the statutory boards (e.g. IRAS, CPF Board) and banks on the commencement of the company’s liquidation and appointment of liquidator
    Informing stakeholders of the liquidation by placing notices in a local English newspaper and on the eGazette

    Meanwhile, tax professionals can help you navigate financial complexities and obtain any tax benefits you’re entitled to.

    “It is very important to engage a liquidator who has a wealth of knowledge and knows what steps need to be taken at what point in time,” adds Eunice, who has been appointed as liquidator to support the clients’ members voluntary liquidations.

    Having the support of a skilled, experienced corporate services team is especially important for the liquidation of a parent company, where multiple entities are involved.

    Streamline the liquidation of your company

    In the event that your business needs to close down, confidently navigating the tax issues and process of the liquidation of a company is of utmost importance.

    For more than 60 years, BoardRoom has been providing expert liquidation guidance for Asia-Pacific companies of all sizes and industries. We can advise you on the members’ voluntary winding up and help ensure a tax-efficient closure that fully complies with local regulations.

    To find out how our local business experts can assist with the liquidation of your company, please contact us.

    Related Business Insights