Singapore: A Leading Private Wealth Planning Jurisdiction

Singapore continues to attract high net worth industries to its shores. It now has 39 licensed trust companies as of 1 September 2008, as well as 67 private banks. New incentives to attract high net worth individuals continue to be introduced by the Singapore Government in a progressive manner. Some of the developments during the last year include: 

Family-owned Investment Holding Companies (FIHC)

One of the most important new incentives was announced in the Singapore Budget statement on 15 February 2008. The incentive provides for a tax exemption to be granted for qualifying FIHCs that mirrors the exemption which currently applies to resident individuals of Singapore. 

Further details were provided by the Monetary Authority of Singapore (MAS) on 23 June 2008. When the MAS released Circular FDD Cir 04/2008, it confirmed that a qualifying FIHC will be exempted from tax on specified Singapore-sourced investment income accrued or remitted on or after 1 April 2008, and foreign-sourced income received in Singapore on or after 1 April 2008. 

The main features a company must satisfy before it will be treated as an FIHC are: 

•   The company’s principal activities are that of holding, or making investments.
•   The company is administered, or its assets are administered, by an institution licensed or approved by the MAS or exempted from such licensing requirements.  All the shareholders must be individuals who are connected persons as defined under the Trust Companies Act 2005 (basically related by blood, marriage, or adoption). The shares can also be held through either a trust or company but most should be held for the benefit of individuals who are connected persons. 
•   The FIHC must be established on or before 31 March 2013. However, companies that qualify as FIHCs prior to 31 March 2013 will continue to enjoy the exemption from tax. 

The exemption in relation to Singapore-sourced income includes: dividends paid by a Singapore resident company; interest income from a debt security; amounts payable from Islamic debt securities; most annuity income; most types of income from a life insurance policy; payments received from various types of trusts; income from a structured product; and interest derived from the deposit of money with an approved bank or finance company in Singapore. In addition, any income arising from sources outside of, and received into, Singapore, are also exempt. An annual declaration must be lodged with the MAS. A taxation return must also be lodged, even though no tax is actually payable.   

Start-up Companies

Singapore companies, whether resident or non-resident, and regardless of the activities undertaken, enjoy a relatively low tax rate of 18 per cent. In addition, Singapore has a territorial system of taxation, so only Singapore-sourced income and foreign-sourced income actually remitted into Singapore is subject to tax. Furthermore, the first SG$300,000 of taxable income is partially exempt from tax. The first SG$10,000 is 75 per cent exempt and the next SG$290,000 is 50 per cent exempt from tax. This makes the effective rate of tax on SG$300,000 to be only 8.85 per cent.

To further encourage more companies in Singapore, start-up companies are given a separate exemption. It was announced as part of the 2008 Budget that all start-up companies would be given a full tax exemption on the first SG$100,000 of taxable income, plus a 50 per cent exemption on the next SG$200,000. This makes the effective rate of tax on SG$300,000 to be only six per cent. This applies to the first three years the company is incorporated.

The rules relating to the types of companies qualifying for this concession have also been relaxed with effect from the year of assessment, 2009.

These rules are: 

1. The company must be incorporated in Singapore (other than a company limited by guarantee).
2. The company is a tax resident.
3. The company’s share capital is held directly or indirectly by no more than 20 persons:

(i) all of whom are individuals; or

(ii) of which at least one is an individual shareholder holding at least 10 per cent of the total number of issued ordinary shares. 

Estate Duty

As part of the Government’s strategy to attract wealthy individuals to Singapore, it was announced in the 2008 Budget that estate duty would be abolished. No stamp duty will be imposed for deaths on or after 15 February 2008.

The above illustrates the Singapore Government’s commitment to positioning itself as the premier Asian jurisdiction for private wealth planning. It is envisaged that further incentives will be developed in the coming years.