SINGAPORE: Singapore sets higher benchmarks, targets the super-rich investors

Singapore’s success is frequently measured by its standing on the world stage, where it has often been able to punch above its weight. Not surprisingly, Singaporeans are obsessed with world rankings.

The city-state is consistently listed among the 10 wealthiest countries in the world. Global Finance Richest Countries in 2023 ranks Singapore as the world’s third wealthiest with a GDP per capita of US$133,895 ($181,477), after accounting for purchasing power parity (PPP), based on its report in June. Ireland is in the top spot, with Luxembourg in second place.

In yet another ranking, Singapore has overtaken Hong Kong for the second consecutive year as the world’s leading international financial centre after New York and London, based on the 32nd edition of the semi-annual Global Financial Centres Index in March, produced by the China Development Institute in Shenzhen and the London think tank Z/Yen Partners.

Loh Kia Meng, co-head of private wealth and family office practices at Dentons Rodyk, a Big Five law firm in Singapore, says: “The city-state’s business-friendly and low corporate tax (17%) environment has made it very attractive for corporates to do business here.”

Global Investor Programme

Dubbed “the Switzerland of Asia”, Singapore has established itself as a global wealth management hub. “Attracting high-calibre business owners and high-net-worth individuals has long been Singapore’s priority,” adds Loh.

That led the Singapore Economic Development Board (EDB) to roll out the Global Investor Programme (GIP) in 2004, which offers high-net-worth individuals (HNWI) three options (Option A, B and C) to apply for Singapore Permanent Resident (PR) status for themselves and their families for five years, with certain renewal conditions to be met.

The GIP has been updated periodically. The latest on March 2 has EDB raising the investment threshold for all three options and setting new conditions for PR renewal. These new requirements took effect on March 15.

Option A is designed for established and next-generation business owners as well as founders of fast-growth companies interested in expanding their existing business operations in Singapore.

Under the revised requirements for Option A, the minimum investment amount in a new business entity or existing business operation in Singapore has been raised to $10 million (from $2.5 million before).

The updated renewal conditions for Option A require the applicant to have a minimum staff headcount of 30 (from 10 before). At least half of the staff must be Singapore citizens, with at least 10 new employees.

Option B caters to applicants looking to invest rather than expand existing business operations in Singapore. Previously, the requirement was to invest $2.5 million in a GIP-select fund that invests at least 50% in Singapore-based companies.

Under the updated Option B, the investment amount in a GIP-select fund has risen tenfold to $25 million. The investment amount has to be maintained as part of the new renewal conditions.

Family office

Option C targets Family Office principals or HNWIs looking to set up their family office in Singapore and migrate to Singapore. Previously, applicants had to invest $2.5 million in a new or existing Singapore-based Single-Family Office (SFO) with Assets Under Management (AUM) of at least $200 million. A minimum of $50 million must be held in Singapore.

Under the updated Option C, the investment amount and minimum AUM of $200 million are unchanged. But applicants now have to invest at least $50 million in one of the following categories:

• Companies listed on exchanges licensed by the Monetary Authority of Singapore (MAS) or listed on the SGX mainboard or Catalist;

• Qualifying debt securities such as bonds, notes, commercial papers, and certificates of deposit that are listed on MAS’ Qualifying Debt Securities Enquiry System;

• Funds distributed by Singapore-licensed managers that are listed on MAS’s Financial Institutions Directory; and

• Private equity injection into non-listed, Singapore-based businesses.

Raising the bar for tax incentives

MAS has also raised the bar for family offices and funds to qualify for tax incentives under the Income Tax Act for Sections 13O (formerly 13R) and 13U (formerly 13X).

On April 18, 2022, MAS stipulated that funds applying for the 13O Tax Incentive Scheme had to have a minimum fund size of $10 million at the point of application, and the fund had to commit to increasing its AUM to $20 million within a two-year grace period.

On the other hand, funds applying for the 13U Scheme must have a minimum fund size of $50 million at the point of application.

However, from July 5, the revised minimum fund size for the 13O Scheme is now $20 million at the point of application and throughout the incentive period.

The minimum fund size for the 13U Scheme remains unchanged at $50 million at the point of application and throughout the incentive period.

Increasing professionalism

A new requirement for Section 13O is for the fund to be managed or advised directly by a family office in Singapore. The family office must also employ at least two investment professionals, including portfolio managers, research analysts and traders earning more than $3,500.

Under Section 13U, the fund must be managed or advised directly by a family office in Singapore, which must employ at least three investment professionals. One of the three investment professionals must be a non-family member of the beneficial owner(s), and the investment professionals must be tax residents in Singapore.

Loh says: “These updates reflect MAS’s intention to encourage family offices to hire Singaporeans to assume the role of investment professionals and to increase the professionalism of family offices in Singapore.” He expects competition for professionals in the family office space to heat up.

Targeting centimillionaires

Asia’s family offices make up 9% of the world’s total. And 59% of Asia’s family offices are located in Singapore, says the 2023 Global Family Office Compensation Benchmark Report by Agreus Group, a recruitment consultancy specialising in family offices and KPMG Private Enterprise in their joint report in June.

According to MAS, there were 1,100 SFOs in Singapore as at end of 2022, up from 672 in 2021 and about 400 in 2020. Hence, the regulations, policies and incentives need to be updated to keep pace with the growth in the family office eco-system in Singapore, says Dentons’ Loh.

“Many wealthy foreigners want to set up a family office and funds in Singapore to enjoy the tax incentives,” adds Loh. “Once you set up a fund, you can manage your wealth and investments through the fund.”

Direct real estate investment is not part of the approved investments to qualify for tax incentives. However, many family offices have funds that invest in commercial buildings, prime strata-titled office spaces or conservation shophouses as part of their long-term, wealth preservation strategy.

“By raising the investment threshold, the government is targeting millionaires worth at least $100 million to invest in Singapore,” says Loh. “We anticipate that the tycoons who want to come to Singapore and set up a family office here will also want to buy a home.”

Buying residential properties in trust

On April 27, the Singapore government doubled the additional buyer’s stamp duty (ABSD) for foreigners buying residential property to 60% (from 30% before).

“The government is encouraging people to settle in Singapore and become PRs,” says Loh. “The ABSD for PRs has remained unchanged at 5% for the first home. But the ABSD for subsequent residential properties for Singaporeans and PRs have increased substantially.”

For entities (including corporates) and trusts acquiring residential property, the ABSD was raised to 65% on April 27 from 35%. Purchasing residential property using a trust structure means paying 65% ABSD upfront, says Lee Liat Yeang, senior partner of Dentons Rodyk’s real estate practice group.

However, buying residential property using a trust structure is “for the cash-rich”, says Lee. “You have to pay in cash for the property and the ABSD upfront as you cannot get financing on the security of trust property.”

For instance, using a trust to purchase a $10 million private condo means the trustee has to pay the $10 million upfront, along with $6.5 million in ABSD, on top of the buyer’s stamp duty (BSD) of up to 6%.

ABSD refundable for trusts

However, one can apply for the full refund of this 65% ABSD when the conditions of remission are met: if the beneficiary does not own any Singapore residential property; and the beneficiary is either a Singapore citizen or a citizen of one of the five countries that have Free Trade Agreements (FTA) with Singapore, namely the US, Iceland, Liechtenstein, Norway and Switzerland, says Lee.

If the trust beneficiary is a Singapore PR, 5% ABSD must be paid. Hence, in such a case, the trustee will only receive a refund of 60% ABSD.

“For the Inland Revenue Authority of Singapore (IRAS) to approve the remission and refund the ABSD, we will have to prove to IRAS that the trust document satisfies all conditions for remission, including the requirement that the trust is irrevocable and genuinely vests in the beneficiary,” says Lee.

He recommends that the draft of the trust deed be sent to IRAS for approval. “Once the draft is approved, the client can proceed with the trust and apply for the refund,” adds Lee.

Based on his experience, the ABSD can be refunded between two to three months of its application.

Lee feels it’s a good time for foreigners who are PRs to consider purchasing a residential property in Singapore if they haven’t done so, as the ABSD is still low at 5%.

Besides PR, those serious about setting roots in Singapore could consider applying for citizenship, says Lee. Singaporeans buying their first home are exempted from paying ABSD.

For the jetsetters, an added perk of being a Singapore citizen is that the passport is now “the world’s most powerful”, according to the Henley Passport Index 2023, released on July 18. The Singapore passport allows visa-free access to 192 travel destinations out of 227 worldwide, according to Henley & Partners and based on exclusive and official data from the International Air Transport Association.