The MAS increased the number of SFOs that received tax breaks to 1,100 by the end of 2022

The Monetary Authority of Singapore (MAS) will publish an open consultation document before August 31st proposing measures to increase surveillance and protect against risks of money laundering in the fast-growing single family office (SFO) sector.

According to the managing Director Ravi Menon, MAS is trying to force all SFOs to inform the central bank each time they begin operations each year. They will also require an ongoing business relationship with a financial institution regulated by MAS that will conduct checks against money laundering (AML) checks.

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The need for these measures comes amid massive inflows of wealth into Singapore and the country, with Assets under Management (AUM) rising by an average of fifteen% between 2017 through 2021. The increase was due to SFOs opening their doors in Singapore. In the number of SFOs received MAS granted tax incentives increased to 1,100 at the close of 2022. This was up from 700 in 2021.

But, contrary to what many believe, Menon clarifies that the bulk of the wealth that flows into Singapore is derived from institutional investors and not family offices, or high-net worth individuals (HNWIs). Individual clients who are not retail (which comprise family offices, customers from external asset management firms, trusts for private individuals, and HNWIs — accounted for just twenty% of the growth in total assets managed by Singapore from 2017 until 2021.

SFOs who applied for and received tax incentives from MAS had a portfolio of around 90 billion dollars of assets in 2021. That’s barely 2% out of $5.4 trillion of assets that are that are managed in Singapore He adds.

While MAS is looking to improve it’s AML actions, Menon notes that family offices in Singapore are already covered by the money laundering risk. Most SFOs in Singapore are required to maintain an account with an institution in Singapore and therefore are covered by the anti-money laundering measures implemented by banks in Singapore’s city-state.

A more strategic use of capital
The large flows of wealth into Singapore are not a major influence on Singapore’s exchange rate as well as the inflation rate in the country, property prices or car prices, Menon says. While wealth is managed inside Singapore however, the vast majority of it is accumulated beyond Singapore’s shores.

“This means that the money flows are in foreign currencies and have impact upon what happens to the SGD change rate. Singapore serves as an intermediary between the flow of these funds,” the expert adds.

For private residential properties and purchases made by all foreigners comprised only a small portion of the transaction volume in the last three years averaged at around 4%. There were no transactions made from SFOs over the past three years. In the same way, Menon says SFOs and their foreign employees make up the “tiny” percentage of the car purchases in Singapore.

As time goes on, MAS will be adjusting the tax incentives available to SFOs to enable them to invest their capital in a more strategic way to benefit Singapore as well as the entire region and to boost their contribution to social and environmental causes.

The changes will be implemented in the following five areas.For one, SFOs will be urged to take part with blended financial structures for example, those that help assist in bringing the region closer towards net zero. The range of investment eligible for eligibility will be expanded in order to encompass blended finance structure as well as concessional capital (which is capital that will accept lower returns or greater risk to help spur worthwhile however less appealing green and transition-related projects) the capital invested in these structures will be recognized.

“For each cent of capital concessional, MAS will recognise it as equal to $2 of investment in order to determine whether the SFO has fulfilled its investment requirements,” says Menon.

It is expected that the MAS will also recognize the SFOs global climate-related investments and acknowledge the fact that Climate change has become a worldwide concern and is not constrained by national borders.

To further stimulate SFOs to make investments in Singapore businesses and in the Singapore equity market MAS is expanding the benefits of tax incentives to recognize any investment in companies that are not listed in Singapore operating companies, instead of only private equity investments. In addition, MAS will recognise twice the amount of money invested in Singapore-listed equity, and also eligible exchange-traded funds as well as unlisted funds that invest predominantly in Singapore-listed stocks.

In the future, at least at a minimum, one investment professional employed must be non-family members which will increase the job opportunities for professionals working in Singapore Menon says. Menon. In addition the new SFO applicants will need to fulfill the requirements for business expenses only by spending locally as opposed to previously, when it could be fulfilled through overseas expenditure. This will allow better benefits to Singapore-based firms and service suppliers.

Finally, MAS will encourage SFOs to engage in philanthropic activities within Singapore as well as overseas. Apart from recognizing contributions to local charities MAS will also launch the Philanthropy tax incentive scheme (PTIS) that will be available to families with family office.

The PTIS announcement, made within Budget 2023, will go into effect on January 1st 2024. It will permit donors who qualify from Singapore to receive a 100% tax exemption, but it is limited to 40% of the donor’s income statutory when they make overseas donations through a local intermediary that is qualified.

“We believe that the introduction of PTIS will inspire philanthropic donations to become a common professional aspect of family-owned offices here,” says Menon.