Spotlight: wealth structuring and regulation in Singapore

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Wealth structure and regulation

The main objectives of succession planning in Singapore include asset protection, seamless wealth transfer across generations, family continuity and minimization of family conflicts, and tax efficiency. The structure used for succession planning naturally depends on the purpose and circumstances of the patriarch or family.

i trust structure

A common structure in tax, wealth and estate planning in Singapore is the trust. This can be revocable or irrevocable, discretionary or fixed interest, depending on the objectives to be achieved.

Trust structures can be used to enable wealth consolidation, business continuity and even distribution of economic benefits. Continuing the family business is a priority for Asia’s wealthy, who have made their fortunes in the current generation. This trust allows you to consolidate your family business and wealth to generate income for current and future generations, leaving management to professional managers or capable members of your family.

In Singapore, trusts are an effective structure for succession planning and can overcome the application of mandatory inheritance rules that may apply to settlers. Section 90 Trustees Act 1967 (2) that if the person creating the trust or transferring the property had the capacity to create the trust or transfer the property, any rule relating to inheritance or succession shall not affect the validity of the trust or the trust. stipulates that it does not affect the transfer of property held in Under the applicable law of Singapore, the law of residence or nationality, or the appropriate law of transfer. He is also strong in challenging divorce litigation and creditor claims.

of Shafeeg bin Salim Talib v. Fatimah bte Abud bin Talib [2010] SGCA 11, Singapore Court of Appeals ruled that if the settlement of Muslim assets into a trust is completed during the life of the deceased, such assets shall be treated as trust assets and shall not be subject to the liability of the subject Muslim property and effects. I stated that I was not part of it. Islamic inheritance law. Singapore trusts therefore present a considerable advantage in planning for individuals subject to compulsory inheritance.

Trust structures can also be modular and integrated with other structures to meet family needs or tax efficiency. Trust structures are often used by the family’s own private trust companies, family offices, investment entities, or charitable organizations. This structure can also be tax efficient by taking advantage of tax incentives under Sections 13N, 13O, or 13U of the Income Tax Act of 1947 (ITA).

Trusts can provide tax transparency depending on the type of income received by the trust and the tax residence of the beneficiaries. If the trust is subject to income tax, the distributions made by the trustee are considered capital and no further Singapore income tax is levied at the hands of the beneficiaries. However, if a trust is granted tax transparency, distributions received by beneficiaries from the trust may be subject to Singapore income tax unless specifically exempted.

ii Succession Plan and Family Office

A popular location for family offices due to the city-state’s many strengths in fund administration, ease of doing business, stable political and regulatory environment, strong rule of law, and a rich pool of financial, investment and wealth management talent is rising. .

In addition, the Monetary Authority of Singapore (MAS) has adopted a ‘right touch’ structure with the family office. Family offices may generally be exempt from holding a Capital Market Services (CMS) license. Any other entity engaged in the regulated activities of fund management must otherwise apply for her CMS license with MAS.

It is no surprise that the number of family offices in Singapore has surged from 200 in 2019 to 400 in 2020.20 In the first four months of 2022, MAS has approved over 100 tax exemption applications for family office setups here.twenty one

Tax incentives for trusts and family offices

Trusts and family offices in Singapore have various income tax benefits. These include incentives under Section 13F of the ITA for foreign trusts, Section 13N of the ITA for locally managed trusts, and Sections 13O and 13U of the ITA for funds managed by family offices. Specified or related income as specified in the respective Articles earned by the Fund is exempt from tax in Singapore.

Section 13O and 13U exemptions are especially popular with family offices. Section 13O, also known as the Singapore Resident Fund Scheme, provides for the exemption of income for a Singapore incorporated and resident company arising from funds managed by a Singapore fund manager. Section 13U, also known as the Enhanced Tier Fund Tax Exemption Scheme, provides for exemption of income derived from funds managed by Singapore fund managers.

From 18 April 2022, funds with assets equivalent to S$10 million and committing to increase the size of the fund to S$20 million over two years may qualify for Section 13O tax exemption. I have.

For families with larger AUM, Section 13U provides tax exemptions on a wide range of income. This requires a minimum funding size of S$50 million at the time of application.

Families are generally allowed to invest in most private equity and bankable assets, but for both Section 13O and Section 13U, the Fund will invest at least 10% of AUM or S$10 million, whichever is lower, in local investments. should invest in Local investments include stocks listed on Singapore-licensed exchanges, eligible bonds, funds distributed by Singapore-licensed fund managers, and unlisted Singaporean companies operating in Singapore. Includes private equity investments in corporate entities.

iii Transparency and reporting

Singapore is a strong proponent of transparency and understands families’ needs for privacy. This balance is achieved by requiring the maintenance of various records and registries that are not necessarily public information. There is no registry of trusts in Singapore and no publicly accessible registry of ultimate beneficial owners of corporations.

However, all companies incorporated in Singapore, foreign companies and all limited liability partnerships (unless exempted) registered in Singapore must maintain a register of registered managers.twenty two Submit this information to the Accounting and Corporate Regulatory Authority.twenty three

Singapore supports moves towards transparency to combat money laundering, terrorist financing and tax evasion. Singapore has amended its tax laws to implement the Common Reporting Standard (CRS) and Foreign Account Tax Compliance Act (FATCA) reporting regimes. CRS is an internationally agreed standard for the automatic exchange of financial account information between jurisdictions for tax purposes, to better fight tax evasion and ensure tax compliance.

Singapore has committed to implementing the CRS and has been exchanging financial account information with partner jurisdictions since September 2018. The CRS Regulations in the Income Tax Act require and empower all reporting financial institutions (as defined in the Income Tax (International Tax Compliance Agreement)) in Singapore (with reference to Common Reporting Standard) Regulations 2016) from account holders. Necessary processes and systems should be put in place to collect such financial account information. Reporting Singapore financial institutions are required to report to the Inland Revenue Authority of Singapore (IRAS) financial account information on taxpayers of Singapore exchange partners.

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