Singapore family office growth slows amid stringent regulations and longer processing time
The wait time for establishing a single family office in Singapore and availing the tax incentives from the regulator has been extended by several months due to increased regulatory scrutiny, causing a slowdown in the pace of family office growth in Singapore.
“We hear that there is a backlog of applications waiting to be approved. Even at private banks, for accounts to be opened for single family offices, there is a doubling in the waiting time,” Benjamin Choo, founding partner at Racson Capital, the fund management arm of Singapore-based single family office Racson Group, told AsianInvestor.
As of December 31, 2023, there were around 1,400 family offices that have been awarded tax incentives, according to Deputy Prime Minister Lawrence Wong. This means a 27% YoY increase from 2022. The previous year had seen a YoY growth of 57% (from 700 in 2021 to 1,100 at the end of 2022).
“With more stringent checks in place, the process for single family office applications is inevitably taking longer,” Alice Quek, Head of Private Clients at Hawksford Asia, told AsianInvestor (pictured below). Hawksford provides corporate and fiduciary services to family offices.
“Currently, the application process takes at least 18 months, and the private bank account opening process takes around 3 to 6 months”, said Quek.
The increased scrutiny and the resulting slowdown seem to have happened after family offices were involved in the biggest money laundering case the country saw in August 2023, amounting to assets worth over SGD3 billion ($2.3 billion).
“The money laundering issues have certainly called for some pause where the regulators and service providers are ensuring that their processes and policies are robust and adequately applied,” noted Tervinder Chal, managing director, Singapore, Ogier Global.
The pandemic led to a surge in family offices, which came to represent Singapore's aspirations as an investment hub. However, the country seems to be shifting gears on the growth of this segment for now.
Single family offices can apply to MAS for tax breaks, but they also have the option to operate in Singapore without utilising these incentives.
“Tax incentive applications for family offices are usually subject to a longer processing time and require applicants to provide additional information and supporting documentation,” said Victor Sanlorien Cobo, tax lawyer at DLA Piper, a law firm based in Singapore.
“We further understand that the family office team at the MAS is facing a heavy workload,” he added.
FACTORS AT PLAY
While there is increased competition from other financial hubs, there is also an element of moderating the influx of family offices coming to Singapore. This approach aims to focus on more mature and professional family offices that could enhance the positive spillovers to the Singapore economy.
Smaller family offices also seem to be reconsidering Singapore as their preferred destination.
“Minimum fund size requirement, workforce hiring guidelines, increased business expenses, and local investment requirements are some of the heightened procedures that have rendered setting up smaller family offices less advantageous in Singapore,” said Cobo.
To be eligible for Section 13O incentives, family offices must invest a minimum of SGD20 million in funds, allocate SGD200,000 to local businesses, and employ at least two professionals. Ultra-high net-worth individuals can deposit funds in private banks in Singapore without needing to utilise the family office scheme.
“I believe that shortly we will see a consolidation of family offices, as some would realise that they are sufficiently well-serviced by their private banks or move to be managed under a multi-family office or an external asset manager as operational costs are getting higher in the country,” said Choo.
READ: Why single family offices are transitioning to multi-family models
Whilst Singapore opened up relatively early post-Covid and provided a viable option for family offices, Hong Kong and Dubai are catching up with various incentives to present themselves as an appealing alternative option.
“There have been talks of smaller family offices finding Dubai more appealing,” noted Quek.
“We have heard that clients preferring Dubai as a jurisdiction for setting up their family offices are typically from India and China,” she added.
Ogier Global has also observed a general trend of Chinese family offices in Singapore slowing down, compared to the initial rush post-Covid.
“This is likely a combination of local domestic considerations as well as the various incentives offered by Hong Kong and Dubai,” shared Chal.
Ogier
READ: Dubai emerges as the new destination for Asian family offices
“The true intention to operate as a family office as opposed to an avenue to obtain a work or residency visa is another priority area for review in Singapore,” Chal added.
LOOKING AHEAD
As the growth slows, there is again chatter of Singapore’s plans to amend tax rules for family offices and simplify the process in the coming period.
Sources told AsianInvestor that MAS as early as last week advised tax firms to adopt a new process where the current two-step submission process will be consolidated into a single step. Additionally, automated prompts and helper text will be incorporated into the application forms to reduce the time required for clarifications between tax advisors and the MAS.
Talks suggest that there have also been indications from the central bank that they are working on more measures to simplify the process for family offices.