The Monetary Authority of Singapore (MAS) announced on Wednesday (Jul 5) adjustments to its tax incentives for single family offices, such as recognising a broader range of investments in Singapore as well as overseas climate-related investments.
These changes hope to encourage single family offices to deploy capital “more purposefully to benefit Singapore and the region” and increase contributions towards environmental and social causes, said MAS chief Ravi Menon at a press conference for the central bank’s annual report.
Family offices are private organisations set up to manage the wealth of one or multiple families.
A single family office is not required to be registered or licensed by the MAS as they do not manage third-party funds. The number of such entities that were awarded tax incentives by the MAS has increased to 1,100 as of end-2022, up from 700 in 2021, said Mr Menon.
To encourage single family offices to invest further in Singapore, MAS is expanding the scope of tax incentives to recognise all investments in non-listed Singapore operating companies, including private credit.
It will recognise twice the amount invested in Singapore-listed equities, eligible exchange-traded funds and unlisted funds that invest primarily in Singapore-listed equities.
Single family offices will also be required to have at least one non-family member among the investment professionals it is hiring.
In addition, all new SFO applicants will have to meet the business spending requirement with spending solely from Singapore, unlike previously where overseas spending counted towards meeting the requirement.
The new changes will expand the pool of available jobs for professionals in Singapore, as well as channel greater benefits to Singapore-based businesses and service providers, said Mr Menon.
In tackling climate change, MAS will broaden the scope of eligible investments to cover blended finance structures and recognise climate-related investments overseas, not just those in Singapore.
“Climate change is a global problem that is not bounded by national borders,” said Mr Menon.
“As a low-lying island state, Singapore is particularly vulnerable to climate change. We should thus recognise all efforts made to address climate change issues.”
The MAS also launched the philanthropy tax incentive scheme (PTIS) to encourage single family offices to engage in philanthropic activities both locally and overseas.
The scheme, which is set to go live in January 2024, will allow qualifying donors in Singapore to claim 100 per cent tax deductions – capped at 40 per cent of the donor’s statutory income – for overseas donations made through qualifying local intermediaries.
“We hope the introduction of PTIS will encourage philanthropic giving to become a regular professional feature of family offices here,” said Mr Menon.
STRENGTHEN ANTI-MONEY LAUNDERING MEASURES
Separately, MAS will launch a public consultation paper later this month on additional measures to strengthen surveillance against money laundering risks in the single family office sector.
“Specifically, we will require all single family offices to notify MAS when they commence operations and also annually, and maintain a business relationship with an MAS-regulated financial institution that will perform anti-money laundering checks on these single family offices,” Mr Menon announced.
This is largely a “pre-emptive approach” taken by the MAS to guard against the risks associated with an increase in wealth inflows into Singapore.
Assets under management in the country have grown by an annual average of 15 per cent each year from 2017 to 2021. A broad range of investors have contributed to this growth, including global and regional institutional investors as well as individual investors, MAS said.
“We’ve not detected any particular single family office-related money laundering typology, or perceptible increase in suspicious transaction reports,” Mr Menon said in response to a question from CNA.
“It’s just an instinct of a regulator. When a lot of money flows around, the chances for illicit finance are just higher … so it’s on that basis before we get problems, we want to make sure that the sector is well-positioned to manage the risks of money laundering.”