SINGAPORE - Family offices here will have to meet stricter criteria - encompassing areas such as assets under management (AUM), business spending, local investments and the number of investment professionals on staff - to qualify for tax incentives.
A family office is an advisory firm set up to manage the assets of a rich family. It handles financial investments, shares, properties and other assets, as well as tax and legal affairs.
The new rules that kick in on Monday (April 18) require a fund that is managed or advised directly by a family office to have a minimum size of $10 million at the point of application. It must also be committed to increasing its AUM to $20 million within a two-year grace period under section 13O of the Income Tax Act.
Family offices under this section must also employ at least two investment professionals and will have a one-year grace period to employ the second employee.
Before this announcement, there was no minimum AUM for funds covered under this section or the minimum number of employees required.
Another section - known as 13U - more broadly covers funds managed in Singapore. These family offices must have at least three investment professionals, with at least one being a non-family member.
Both sections mandate that funds must also invest at least 10 per cent of their AUM, or $10 million, depending on which is lower, into local investments.
These include equities listed on Singapore-licensed exchanges, qualifying debt securities, funds distributed by Singapore-licensed or Singapore-registered fund managers and private equity investments into companies that are not listed but are incorporated here, such as start-ups.
The Monetary Authority of Singapore (MAS) noted: "As the family office ecosystem in Singapore grows and matures, we seek to increase (their) professionalism... and enhance the positive spillovers to the Singapore economy."
Experts said these changes are a logical step to professionalising the family office industry while ensuring that they make more investments to stimulate the local economy.
Gibson Dunn & Crutcher partner Robson Lee said: "The updated conditions will provide the requisite clarity and certainty of the tax policies and rules applicable to family offices in Singapore. This will be cardinal to the long-term growth and sustainability of family offices as a key pillar of Singapore's wealth management industry."
Maitri Asset Management chief executive Manish Tibrewal said: "Amid ongoing competition from other financial centres, it is imperative that Singapore continues to uphold best-in-class standards, to attract high-quality applicants and further cement itself as the leading destination of choice for family offices."
He added that the requirement to invest in Singapore will help the asset management sector here. "These changes represent the next logical step in Singapore's ambition to evolve into a world-class hub for family offices, while providing a significant boost to the asset management ecosystem."
Ms Faye Ong, Citi Private Bank head of family office advisory for Asia, added that the changes will improve the quality of family offices setting up here.
"Larger family office clients are generally more sophisticated; this affects the type of investments they make, and they may take more of an interest in direct deals and private equity," she noted.
"There also tends to be a greater focus on family governance, philanthropy and sustainable investing."
Ms Carrie Ng, Bank of Singapore head of family office advisory, said the requirement to hire a minimum number of investment professionals can also lead to an increased demand for local staff while ensuring they gain relevant skill sets.
Mr Anuj Kagalwala, PwC Singapore asset and wealth management tax leader, added that the changes will "stimulate the Singapore economy by creating more jobs and greater capital flows to companies listed on the Singapore Exchange and start-ups with operating businesses in Singapore".
HSBC Global Private Banking's Ng Aik-Ping, who is also head of family office advisory for the Asia-Pacific, said ultra-high-net-worth families with "genuine intentions" of setting up here as part of their long-term legacy planning will be able to fulfil the new requirements.
Mr Gary Tiernan, managing partner of Golden Equator Wealth, a Singapore-based multi-family office, said successful family offices should be of a certain size anyway and that they have to be run professionally to be effective and sustainable.
"The requirement of having a non-family investment professional helps families to introduce professionalism and objectivity in their wealth and legacy management, (while) the requirement of making local investments will also help stimulate the nation's start-ups and fund ecosystem," he added.
But the changes could also slow down the rate at which new single family office structures are set up, said KPMG in Singapore partner Stephen Banfield, who is also head of family office and private clients.
But he said they are not expected to significantly dampen Singapore's attractiveness to family offices.
"Single family offices that are well resourced and able to meet the minimum conditions will not be impacted and are expected to continue exploring Singapore as a suitable jurisdiction," he added.
He noted that high-net-worth families who want to set up here but cannot meet the new conditions are then likely to shift their focus to other solutions, such as multi-family offices and external asset managers.
High-profile family offices that have set up here include that of British billionaire James Dyson, who founded vacuum cleaning giant Dyson. He was said to have incorporated his family office here in 2019, known as Weybourne Group.
The family office of Google co-founder Sergey Brin also set up a branch here, Bloomberg reported last year. The California-based firm is called Bayshore Global Management.