It is crucial for successful family businesses to put in place proper rules on issues such as succession so as to ensure the business and the family continues to thrive through multiple generations. The best way to do this is to set up a family office run by professionals as this provides a wholistic view of the family’s financial interests.
Singapore’s reputation for its stable government and pro-business environment makes it the ideal location to set up a family office.
Making the decision to set up a family office for your business is the first step. Once you have determined that, there are some key considerations to think about.
Here are 7 key points which families should consider when setting up a family office.
1. What are your objectives for setting up a family office?
The family office is a centralised unit which helps to coordinate the various activities of the family.
This would include a coherent investment strategy for the whole family, tax filing, accounts consolidation, portfolio risk management, governance, lending solutions and so on.
Knowing the objectives for setting up a family office helps you frame the right issues to consider when finalising the optimal structure for the Family Office.
For instance, if one of the patriarch’s key objectives is to enable his key family members to acquire a legitimate status to work and be based permanently in Singapore, he will need to appoint these family members as members of his Family Office Investment Committee.
For clients looking to move overseas, the family office would also look at immigration issues and explore possible tax residency statuses.
Another role a family office increasingly plays is to consolidate reporting obligations. With the implementation of the Common Reporting Standard (CRS), Economic Substand Code and Declaration of Beneficial Ownership, it is important for families to understand what gets disclosed and who gets disclosed.
Tax advisers whom we partner will explain to the family the different reporting requirements and tax exemption schemes to see how to best maximise the available tax benefits while not breaching any tax laws.
We can then propose the most relevant family office structure to meet the family’s needs.
Bank of Singapore works with top-notch lawyers and tax advisers to offer the best and most holistic advice to our clients.
2. What are the assets you are injecting into the family office?
There are many types of assets which you can inject into a family office.
These range from financial investments to even private or publicly-listed companies.
Assets can include real estate and the issues that often crop up in this area are whether the property is in a jurisdiction which imposes inheritance tax, transfer tax and have other holding restrictions.
Some of our clients own valuable items such as private planes, boats, rare artworks, precious stones and metals, as well as family heirloom items.
Determination of the specific assets to be injected is crucial as the respective lawyers in the locale of these assets will need to provide specific tax and legal advice to the client to evaluate the optimal mechanism to effect the asset transfer.
We will review the bankable assets and discuss the investment strategy options with the clients.
For example, we may suggest alternative structures for non-bankable assets such as a Private Trust Company for operating business.
3. What is the investment strategy and mandate for the family office?
To begin, we will need to determine the client's investment objectives and risk profile. Thereafter, we determine the amount of personal assets that will be used for investments.
Once we have these details, we will propose an investment strategy and investment products that matches the client’s risk profile and objectives.
For applications under the Monetary Authority of Singapore (MAS) and the Economic Development Board (EDB), the regulatory authorities would expect the family office to have a clear roadmap of the investment strategy and business mandate as part of its evaluation process.
4. How to apply to MAS for licensing and tax exemption?
Once the business has been incorporated as a Single Family Office, various holding companies would be incorporated under the family office structure. If the business is planning to apply for the Enhanced Tier Fund Tax Exemption Scheme (often referred to as Section 13X), there are requirements that need to be met.
For example, the office would need to hire at least three investment professionals, invest at least S$50 million into the fund entity and have local business spending of at least $200,000 a year.
The business would need to have an interview with the MAS, which we will help to coordinate and prepare the client for.
The MAS would want to see an investment strategy before granting approval for the business to qualify for Section 13X tax exemption.
The 13X exemption allows specified income derived from certain designated investments to be exempted from tax. The designated investments include a wide range of assets such as stocks, shares, securities and derivatives.
5. What are the ongoing operational requirements?
To set up the family office, the business would need to determine the family office’s premises.
Other administrative matters include opening the required bank accounts, implementing IT systems for portfolio aggregation and so on.
We would also help prepare annual tax reporting as well as other mandatory reporting such as on CRS and FATCA.
We will also assist clients to appoint external auditors to conduct annual financial audits as well as ongoing investment strategy reviews for the clients.
6. Succession planning tools to consider
To determine the succession of the family office, we would need to establish family governance guidelines and come up with a Family Constitution.
This helps to avoid family squabbles and infighting after the patriarch passes on.
We would also need to determine the succession of the family office ownership.
This can be in the form of a will, Lasting Power of attorney and private trust companies.
Many clients would want their children, when they get old enough, to be aware of the business and investments.
As such, we will conduct next generation training to help the next generation understand more about the family business and wealth management.
7. What is the family's philanthropic strategy?
In recent years, we are seeing more family offices take on a philanthropy component as well. The office can consider establishing a charitable trust that will donate to specific charities.
It is good for families to formulate its philanthropy objectives so that there is clarity on which specific areas of charity it wants to focus on.
On top of this, we can also introduce the family to a network of philanthropy partners and help to host philanthropy meetings as well.Disclaimer applicable to recommendation
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