Impact of BEPS 2.0: How risky is the road ahead for Singapore family offices?

AS A leading business hub and the gateway to Asia, Singapore is well-regarded among high-net-worth individuals (HNWIs) as an ideal base for family offices and private wealth management. More than half of the family offices in Asia today are estimated to be located in Singapore, according to KPMG and Agreus’ 2023 Global Family Office Compensation Benchmark Report. However, with the Base Erosion and Profit Shifting 2.0 (BEPS 2.0) Pillar Two rules, family offices based in Singapore that are within scope could find it challenging to cope with a 15 per cent incremental tax burden on their investments, as this will be a significant jump from the 0 per cent tax that most currently enjoy due to tax incentives. Many are also not yet equipped with the right resources or talent to cope with new reporting and compliance requirements.

However, the government has signalled its continued support in attracting quality family offices by playing an active role on international platforms on global tax, while boosting its non-tax factors. These are advantages which family offices can leverage to tide them over this period of change. Beyond BEPS 2.0, Singapore also presents new opportunities, such as new schemes to facilitate efficient wealth distribution through philanthropic giving and environmental, social and governance (ESG) investments.

Challenges for Singapore family offices

When the 15 per cent global minimum tax rate kicks in from 2025, the impact on in-scope Singapore entities of family offices will be far greater than other Singapore operating multinational enterprises (MNEs), given that most family-owned investment vehicles have been enjoying tax exemptions which accord 0 per cent tax. In comparison, Singapore operating MNEs do not generally enjoy 0 per cent tax, even if they currently benefit from some tax incentives. As Singapore has announced that it will “top up” the effective tax rate, family offices should review their holding structures and ownerships of their family assets to assess the impact, if any, of the Pillar Two rules. This is because it may potentially bring about adverse tax consequences due to the aggregation of different business or family assets, which is a common feature in family-owned or family office structures.