Expand eligible investments as part of SFO tax framework tweak, industry observers say
Market players say that it is timely to include digital assets, precious minerals, insurance and family businesses
[SINGAPORE] Expanding the types of investments eligible for tax incentives is a key change that industry observers want to see as part of Singapore’s tweaks to its single family office (SFO) framework.
In September, the Monetary Authority of Singapore (MAS) announced plans to simplify its SFO tax incentive framework, to better suit industry needs.
This includes reducing the documentation needed for applications, easing reporting requirements and expanding the types of investments eligible for the fund tax scheme.
Currently, the investments are limited, covering listed equities and bonds, for example. But market players say that it is timely to include digital assets, precious minerals, insurance and family businesses as well.
“This is given current market needs, where family offices invest beyond traditional stocks and bonds,” said Ryan Lin, director at Bayfront Law.
“By widening the scope, it ensures Singapore remains relevant to global investment trends.”
Digital assets often come attached with money laundering concerns, despite clearer frameworks in place for regulated digital assets and tokenised securities, Lin said.
Nevertheless, it may be timely for the government to assess the feasibility of including certain categories of digital assets now, said Edmund Leow, senior partner at Denton Rodyk.
His firm has, over the years, continued to receive queries from applicants who are interested in investing in such assets, Leow said.
Meanwhile, Joanna Yap, Deloitte private family office leader for South-east Asia, noted that her clients’ family businesses predominantly sit separately from the family offices, even though they are the main generators of wealth.
“By recognising family businesses to be eligible investments and to be part of the family office structure, this will help many clients complete their succession planning journey,” she said.
High net worth individuals are increasingly using life insurance policies and annuity-type savings plans for wealth preservation and legacy transfer, said Pearlyn Chew, partner in KPMG in Singapore’s real estate and asset management, tax and family office and private clients practices.
Chew noted that this may not align perfectly with the policy intent of encouraging liquidity in investments.
But she suggested Singapore could adopt a balanced approach – the assets under management (AUM) of insurance products could be excluded from minimum AUM thresholds but still count towards other requirements, such as minimum spending, for instance.
Application process
When it comes to the application process, MAS could continue to cut the approval time, by allowing a new applicant to concurrently apply to the regulator while opening a private banking account, said Lin.
This change alone could reduce the total SFO setup timeline by almost half, he said.
Currently, the private banking account – which generally takes three to six months to open – must be in place at the time of an application to MAS, which would then take another four months.
MAS can provide an approval-in-principle contingent on the applicant opening a private banking account, which mirrors practices in other regulated environments.
With simplification, there could also be greater certainty in the application process, said Seah Ching Ling, director of tax and private client services at Drew & Napier.
Previously, under the two-step application process, the client will inject funds into the fund company after it applies for final approval.
With the current one-step application process, the fund company must be funded before submitting the tax incentive application, which increases risks and costs as potential issues may surface only after funding, she said.
There could also be better alignment between designated investments and exempt specified income, she noted.
For example, real estate investment trusts (Reits) qualify as designated investments but the distributions from Singapore-listed Reits do not qualify as specified income and are hence not tax-exempt, she said.
