The Monetary Authority of Singapore (MAS) recently announced changes to the conditions for family offices to qualify for tax incentives starting 18 April 2022. These changes apply to Section 13O (formerly known as 13R) and Section 13U (formerly known as 13X) Tax Incentive Schemes (the “Updated Conditions”) under the Income Tax Act 1947 for family offices in Singapore.
A single-family office can typically be referred to as an entity that provides services or manages assets for or on behalf of one family and is wholly controlled by the members of the same family. Given the Republic’s reputation as a well-governed and well-regulated financial hub, the number of family offices here has risen to over 400 in recent years.
These changes to the tax incentive scheme are viewed as a means of raising the standards of the family office sector and its professionals. Additionally, the Singapore economy will benefit from the positive spillover effects as more funds managed by family offices put their money into local investments.
Here are the four changes that a family office needs to know about to qualify for tax incentives starting in 2022.
#1 Minimum Assets Under Management Requirement
[Changes Under Section 13O]Starting from 18 April 2022, new applications for funds that are managed and/or advised by a family office must have a minimum asset under management (AUM) of at least $10 million at the point of application. Thereafter, family offices must commit to increasing their AUM to at least $20 million within a 2-year period. Previously, there was no condition on the minimum AUM for tax incentives.
[Changes Under Section 13U]As for family offices under the S13U scheme, there is no change to the AUM requirements. They are still required to have at least $50 million in AUM at the time of application.
Read Also: 10 Tax Deductions For Self-Employed Persons That You May Be Missing Out On
#2 Requirement On Investment Professionals
[Changes Under Section 13O]As part of the new changes, a family office under the S13O scheme must now hire at least two investment professionals (IPs). The IP must be a Singapore tax resident. A one-year grace period would be given to the family office if it was unable to employ the second IP at the time of application.
Previously, there was no requirement on the number of investment professionals that a family office needed to hire. It was required for the family office fund to be managed or advised by a fund management company (FMC) in Singapore, where the FMC is licensed under the Securities and Futures Act 2001.
The IPs, which include portfolio managers, research analysts, or traders, must be paid a minimum of $3,500 per month. These professionals should have experience in the industry, and they should be substantially engaged in the qualifying activity of the fund.
[Changes Under Section 13U]The only change for a family office under the S13U scheme, is that it needs to employ at least three investment professionals (IPs) at the time of application. Of those, at least one of the IPs must be a non-family member. Similarly, a grace period of one-year is extended to the family office to hire the non-family member IP if it did not meet this criterion at the time of application.
Read Also: 5 Ways Businesses Need To Think About Hiring In 2022 (After Budget 2022 Statement)
#3 Minimum Business Spending Requirement
The third change effected by MAS on the conditions for the tax incentive is on the business spending of family office funds.
According to MAS, the expenses incurred under the business spending requirement, should relate to the operating activities (and not the financing activities) of the fund. Typical expenditures include remuneration, management fees, advisory fees, and operating costs, to name a few.
[Changes Under Section 13O]Family offices previously had to incur at least $200,000 in total business spending per year of assessment (YA). However, under the new S13O scheme, these funds will now be subjected to a tiered business spending framework per YA. Funds with an AUM of above $50 million will now face a higher minimum total business spending.
| Aum Range | Minimum Total Business Spending |
| Below $50 Million | $200,000 |
| From $50 Million to below $100 Million | $500,000 |
| $100 Million and above | $1 million |
A family office under the S13U scheme will now see an increase in the minimum local spending from at least $200,0000 to $500,000. These funds will also be subjected to a tiered business spending framework with a minimum local business spending of $1,000,000 for funds with an AUM above $100 million.
| Aum Range | Minimum Local Business Spending |
| Below $50 Million | $500,000 |
| From $50 Million to below $100 Million | $500,000 |
| $100 Million and above | $1 million |
Read Also: 7 Financial Thresholds Small Businesses Need To Know For Tax Reporting In Singapore
#4 Minimum Local Investment Requirement
Last but not least, is the new requirement for family office funds to invest a minimum sum in local investments.
Funds under both the S13O and S13U schemes must invest at least 10% of their AUM or $10 million, whichever is lower, in local investments at any one point in time. If the funds are unable to do so by the point of application, they would be given a one-year grace period to do so. But they would need to indicate the amount and type of local investment they plan to undertake.
Examples of local investments may include the following:
- equities listed on Singapore-licensed exchanges;
- qualifying debt securities;
- funds distributed by Singapore-licensed / registered fund managers; and/or
- private equity investments into non-listed Singapore-incorporated companies (eg: start-ups) with operating business(es) in Singapore.
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